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The Rediff Business Interview/ Percy Barnevik

'The lesson of the South East Asian crisis is that India must reform faster'

Percy Barnevik is one of the most admired and respected corporate chieftains in the world today. Considered to be the main architect in transforming ABB into a global powerhouse, he is today chairman of Investor AB, a holding company of the Wallenberg family. Investor AB holds controlling stake in global giants such as Ericsson, Saab, Electrolux, Astra and ABB. Barnevik was in New Delhi this week to attend the India Economic Summit organised by the World Economic Forum and the Confederation of Indian Industry. Mahesh Nair spoke to him.

Almost a year ago when you had come to India you had a meeting with the then prime minister Inder Kumar Gujral. You had suggested that for economic reforms to make a difference to the common people's lives government should stop spending money on itself and instead spend it on social infrastructure. This time around you have met Prime Minister Atal Bihari Vajpayee. Is anybody listening to Percy Barnevik?

I can only offer advice based on my experience when asked to. It is not for me to follow up on who is following my advice or not. But yes, I have had a good meeting with the prime minister.

I still believe that if all these reforms have to click, that is win popular support, then people must see that it is benefiting them.

Which is why I say instead of putting good money in public sector units, in trying to run sectors like electricty, ports, etc, and losing most of it, put the same amount of money in primary education, literacy or healthcare.

Let private industry make steel, bicycles or electricity. They will run it better than the government. Let the government concentrate on social infrastructure. It will improve the quality of life of everybody.

Some people say it is economic reforms that is the bane of problems in India. They claim it is causing high inflation, increasing the cost of living, and even ushering a recession in industry.

I do not agree. When you introduce reforms there is bound to be some pain, like in a operation. But specifically I think the problem has been one of implementation. India does not need more or new laws. It needs plain implementation.

As for recession in the industry, it is a worldwide phenomenon -- but even here if you are managing your industry well, making it more globally competitive, focussing it on its core competence, you will not have any recession.

There are some others who claim that going slow on reforms is what has rescued India from crashing like the South East Asian countries.

Not true. You see these South East Asian countries were growing this fast (gestures high with his hand) at 10 to 12 per cent. But India is growing only this fast (gestures lower), at 5 to 6 per cent.

After the crash, countries like Thailand and South Korea are already climbing back to 7 to 8 per cent growth.

But you are still here ( gestures low). In fact the lesson of the South East Asian crisis is that you must reform faster, make your own economy and the companies become globally competitive.

Look at China, how it is moving ahead. India's average import tariffs are at 30 per cent now. China is already down to 10 to 15 per cent. So how can you sit back and indulge in self-congratulation?

But Indian companies fear that lowering tariffs will hurt them more. They also fear dumping.

You see, unlike China you have a very good entrepreneurial English-speaking class that can build up its base. I know some people, especially those who have enjoyed government favours earlier, are complaining about dumping and lower prices as competition comes to India.

It was the same even in Brazil and Mexico when their borders opened and domestic industry was hit. But I have seen world-class quality and productivity in foreign-owned factories and laboratories in Bangalore, Pune, Nashik and Baroda. Slow-moving companies like BHEL have lifted their performance dramatically when exposed to real competition. So Indian companies can compete even if tariffs are lowered.

Amongst the worst hit in India are traditional family-owned business houses. Do you think they should do what the Wallenbergs have done with you -- get professionals who will ensure high returns on their investment?

It is inevitable. Worldwide owners are withdrawing from management and becoming investors. In India also I think the trend has started on. Like R Gopalakrishnan who was a topshot professional with Levers and has now been hired by Ratan Tata. But more importantly, India's traditional companies must realise that to become globally competitive they must focus on their core competency, and not do this, that and everything.

Businessmen claim it makes more sense to be diversified in India to cash in on the booming domestic market, like Hyundai, Daewoo, and Samsung, the South Korean Chaebols.

But these South Korean companies have bench-marked themselves as world class. Only GE of the US is an exception. The trend globally is to focus on one or two areas. You should become number one or two in your field worldwide. Otherwise there is no future. You will be destroyed by competition. Look at ABB, Intel, Microsoft, General Motors.

These days there is also a mergers and acquisitions wave that is sweeping through the world. Will Indian companies be under threat too?

It is bound to happen. And I think it will be good for everybody. As I mentioned, you will soon see companies trying to be competitive, to become number one or two.

Let me give you an example of the steel industry. In Germany there were ten steel manufacturers. Now there are three. In Sweden from three there may be only one. You will see something like this happening in India too in most of the sectors.

Finally, if there is one tip that you would like to give to India's economic planners what will it be?

Like I said, it is time now for implementation. It is also time for decentralisation. For instance, I would like India's states to decide on how they want to go about improving their infrastructure. The states must benchmark against each other and compete, like the cities of Bangalore and Hyderabad.

That will be healthy for India. Also when promoting India abroad it would be an advantage if they can focus one specific region and their particular competitiveness. For example, the USA projects North and South Carolina, Germany the Ruhr area, China has promoted Shanghai. It is easier to project Andhra Pradesh or Gujarat than the whole of India.

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