uh very very excited um to learn about India um and I think um you know we've got no uh you know very much looking forward to the to the insights um the rise of a new Indian Elite so without further Ado please the floor is yours thank you thank you very much thanks yes for thank you to Asia Society for hosting us this is a divinely beautiful venue now I have to say that the only thing common between Mumbai and Tokyo at this time of the year is the rain right so we also have our rainy season uh if we were able to see this much green in Mumbai You' have to be a multi-millionaire because property prices in Mumbai I think now arrival uh Tokyo so so to sit next to almost feels like a zen garden and be addressing you over breakfast is a is a privilege um my name is Sor mukarji uh I run a company called marceles investment managers and our job in the next 25 minutes uh Leo has given us the time keeping deadlines in the next 25 minutes is to give you a our synopsis of What's Happen in in the world's uh fifth largest economy and the world's fourth largest stock market now right um I'll give a quick introduction to my colleagues here my colleague promode guby he's a fellow founder of marceles and aint is our man in America uh we also SEC regulated uh I think one of the Divine pleasures of working in stock markets you get regulated by Regulators all across the world and they inflict the same pain on you in different ways and it sort of makes you makes you stronger and fitter uh we manage about a billion dollars uh both domestic IC money and European and American institutional money uh it's an employee owned firm there's 24 of us who've been doing this now for 6 years right now before I talk about India and how we invest in India let me talk about Japan and how Japan has invested in India in the last decade or so Japan has invested $25 billion in India right there are hundreds of Investments let me talk about the two most prominent Japanese investments in India right uh in the largest car company in India the car company which has 45% market share is owned by Suzuki this company went public 20 years ago Suzuki's listed entity in India went public 20 years ago since then the share price has compounded at 23% so that means it's up I think 70x in 20 years believe it or not this company sells 45% of India's cars that's 2.5 million cars a year the entire world comes to India to sell cars every car maker of note operates in India right the Europeans are there the Americans are there now the Chinese are there the Koreans are there but Suzuki has 45% share 2 and a half million cars a year this company's profits in the last decade are 1.1 trillion yen market cap in India is 8 trillion yen right 23% compounded returns over 20 years so 70x um and and and you got leadership in the car market that's the largest Japanese investment in in India 8 trillion yen company the second largest Japanese investment in India is Honda the two wheer leader Honda sells 5 million two- wheelers in India every year Honda's numbers are even more astonishing uh till 17 years ago Honda had a JV with an Indian partner then they went on their own 17 years ago in the last 17 years Honda's profits are up 140x in India that's 30 I think 37% 36% compounded um number three is Sony Sony also sells in excess of a billion yen of billion uh Yen of uh uh uh uh material in India music systems in India each year right now the point I'm making is this is not the exception the exception in India is companies that make weaker Returns the norm in India has become that well-run companies whether they be invested in by Japanese or Indians well-run companies are making large amounts of money the result of that is this chart right as we try to understand the Indian Elite I think it's worth understanding the stock market over the last 10 and 20 years we've largely given America a very good run for its money in terms of dollar returns in terms of dollar returns over 20 years India is the best performing Market in the world uh 13.1% America is 10 and over the last decade India has won uh uh sorry America has won over the last decade uh Taiwan primarily tsmc I think Taiwan is number two and India is number three interestingly Japan is I think number four in the last decade right the fact that over 10 20 and 30 years uh the two free market democracies in the world the two largest free market democracies in the world have excelled in driving double digigit returns I think are linked what free market economies have is contestability of power right this is an important thing living in India we can see political power is contested for very actively and economic power the sort of economic power Japanese companies have have been has been contested for but this contestability of power is now creating a a new Elite in our country right so if I let me uh get into that okay before we get into that once again another demonstration of how much money is in India has made so for decade ago say 2012 you had invested $110,000 in India and suppose you also done the same in China your money would have doubled in India in dollar terms in China you still be broadly at $10,000 not only that if decade ago you invested in Emerging Markets $10,000 in Emerging Markets you'd still be where we were a decade ago Emerging Markets over 10 years have broadly given zero returns India has doubled more than doubled investors money right now given that given that we are the 140th poorest country in the world right we the world's fifth largest economy India is the world's fifth largest economy but on per capita income we're the 140th poorest nation in the world why is India able to make such large sums of money whether it be for Suzuki for Honda or for the Indian stock market right I'll start with the simplest level of the answer and then we'll drill deeper if you look at the uh table on the bottom left right what we have done for you is looked across the emerging world in the table on the bottom left we've looked across the emerging world and said over the last 20 years how many companies has each large em how many companies is each large em produced companies which have compounded revenues at 10% perom with a return on Equity of 10% for 10 years 10% Revenue growth 10% return on Equity over 10 years India has 162 such companies China has 126 such companies right remember the Chinese economy if is four times larger than the Indian economy and yet India has more consistent Compounders than China no other Emerging Market is remotely in the same ballpark but the most stunning aspect of India's success is the chart on the right hand side if you were to take the 126 Chinese consistent Compounders remember this is the crem delaem of China the crem Dela crem of China over 20 years is compounded at 10% in dollar terms the corresponding metric for India is 26% right these companies are the engine of modern Indian success Suzuki in that list of 162 Honda is in that list of 162 right and what we'll now get into is more EXC exciting development I'll skip the elections for later on if if somebody's INRI let's focus on this aspect right till till about a decade ago we had roughly 600 companies which were of the ilk of a Suzuki or a Honda the more the most exciting development of the last decade has been a rise of a broader sede around 6,000 companies right last decade we've used government the Indian government's tax data but the government of India's tax data is showing the black line is roughly 177% of India's companies 177% of the companies in the entire country are growing profits at 15 16% per anom on a decadal basis and in fact the last 5year number notice how the black line slopes steeply slopes upwards in the last 3 years over the last 3 four years uh profit compounding for the for the top 6,000 companies in India has now gone to 24 25% so there was a time when a Suzuki or a Honda was exceptional and we have only had till a decade ago we only had around 500 600 such fast growing companies now we have 6,000 such companies which over the last 10 years have grown profits at 15 16% over the last 3 4 years have grown profits at 25% right now why is this happening why is this happening sorry once again I'll show you the same same thing again uh if you take Indian corporate tax data the fastest growing desile if you take Indian corporate tax data and you stack up the country in desiles the fastest growing companies in India no longer are the top desile companies it's the second desile right we call it the Challenger class and if you want to sort of put this in a management consultancy type 2x2 matrix it's no longer the large companies the rulers as we call them it's no longer large 800 companies who are growing the fastest the rulers still dominate profits 60% of India's profits belong to the rulers but it's the challenges the around 5,000 also Challengers uh around one one and a half% of India's companies the challenges now account for 25% of the profits the challenges are growing significantly faster than the larger companies right so the if the first uh 20 30 years of Indian capitalism was about incredibly well-run Japanese companies doing well the last decade is about these smaller Indian companies coming through with rapid growth right now what's helping them right what's helping them let's move into uh some discuss some of the drivers uh I'll do a quick summary and then we'll elaborate upon these drivers in a little bit more detail in the next 10 minutes right we have managed to get three things three things right in the last decade or so the first is digital infrastructure 55% of Indian GDP 55% of national income is now mobile Commerce phone to phone payments we use something called UPI unified payment interface so yesper visited Mumbai and yesper wanted to have a cup of coffee in the local coffee shop he wouldn't be expected to pay in cash nobody pays cash anymore for coffee neither would he be expected to produce Visa or Mastercard even that is Visa or Mastercard are also pass he'd be expected to just hold his phone up on the QR code and the coffee shop will suck cash out of his phone the phone will be linked to yesper bank account in Japan even foreigners can do this now if you visit India your Japanese bank account will get mapped onto your phone in India and when you have coffee or you take a taxi right you just have to hold your phone up to the QR code and cash gets sucked out of your phone zero transaction costs and from a small business perspective working capital Cycles working capital Cycles crunch dramatically right so so this has been our this has been a spine of our progress now not only is the coffee shop getting paid costlessly right he's not using Visa or Mastercard neither is he using cash not only is the small business getting paid costlessly the bank system can track every cup of coffee that that coffee vendor sells or track every uh fruit or vegetable that the green grosser sells and as a result credit worthiness of that small coffee shop a credit worthiness of the green grosser transforms so the second thing that's happened in the last 3 four years is small lending lending is growing at 35% because lenders Banks and non-bank lenders are doing what we call Cash Flow financing they're seeing the cash flows of the coffee shop they're seeing that the coffee shop is selling cups of coffee to yesper to sorup and they're saying this business generates a high velocity of Revenue a high velocity of profits let's do cash flow financing right so for small businesses cost of working capital has dropped from 20% to 10% in the last four years which is one of the reasons the Challenger class is coming through the third layer of what we manage to get right is uh uh uh mobile mobile data we have the world's lowest mobile data costs mobile data in India costs 150th of what it does in America we use more mobile data than the whole of North America put together we use more mobile data than the entirety of the European Union put together right and that again is proving to be a bon for small businesses so if you look at our business we are in that Challenger class Challenger companies profits tend to be between 5 and $50 million right marcelus is a challeng company most of our business in India comes via VIA video calls clients watch the zoom call or they watch YouTube videos then they contact our team via email and the entire client sign up is done bya mobile mobile data right most people in India now uh uh watch nobody watches physical TV anymore most people watch most of their TV programs on mobile uh uh uh uh the entire country's uh tax system is on mobile data the fact that mobile Commerce both in terms of payment and in terms of get uh doing marketing online has become Costless has been a massive Boon for smaller businesses right so those are the background forces there's one other force factor that I didn't couldn't capture graphically in 2017 we changed the tax system in India we're a federal structure much like America till 2017 each of our states had a separate tax structure in 2017 we scrapped that and moved to a unified national tax system so it GES gave small businesses a national canvas on which to operate a$3 and half trillion dollar National canvas rather than state level state level tiny economies right so you transform your digital infrastructure you transform your tax system lending to smaller businesses takes off and small Challenger franchises roughly 5,000 six of 6,000 of them start coming through it's a private Equity investors dream come through right now let's turn this into the theme of today right the new Elite Who are the Elite right so there are five five constituencies we're going to discuss we call it Wesco the first is women right against all OD a decade ago if You' asked me that Indian women will make this sort of economic progress I wouldn't have believed you the data is coming through thick and fast Indian women Indian women's economic fortunes have been transformed in the last decade right we'll discuss uh in a in a minute how much money Indian women are making secondly a new class of educated people no longer Elite Education no longer Oxbridge Style British or American Education no longer even Indian Elite Education just local graduates from ordinary colleges this is the new Indian Elite they running the Challenger franchises right thirdly South India right South India is the world's fastest growing region by a country mile Highly Educated good Law and Order uh uh developed infrastructure and South India is is basically the economic engine of India I dare say soon it'll be the economic engine for much of Asia right uh we cannot thank the Chinese enough uh what's happened in China is a boon for us uh we're getting business hand over fist because of the developments between China and and America we'll discuss that and finally uh we've always been good at it Outsourcing what we are seeing in the last decade is outsourcing of everything to India accounts payroll sales marketing HR everything is going to India we have we have 1,600 of these Global capability centers there is one opening every day right one opening every day every day a western company is Shifting the core of its business to either Bangalore or Mumbai or to second tier third tier cities and it's no longer it it's the entirety of the white colar Western ecosystem going to India because there simply the skill sets are no longer available at the in the west right so I'll develop these things a little bit more let me start with women by the way these books are are written by my friends they are very good books so you can buy them on Amazon the books you have left on the table for you guys are books written by us so the books written by US expand on these themes uh but these are in a way we you know we we have seen further than other men in India because we stood on the shoulders of giants the Giants whose shoulders we stood on WE referenced their books here right so decade ago my friend wrote this book about the rise of Indian women and he wrote this book because uh 10 years ago was the first time when there were more girls in Primary School than boys so 10 years ago was the first time when there were more girls in Primary School than boys today at every level of the education system in India primary school middle school high school University there are more girls than boys more women than men and the Pass rates for women are far higher than the Pass rates for for men right so this is hard data from the government of India the second bit of data that we have is from the Central Bank what we have from the central bank this is the chart is that an urban and metropolitan areas basically big cities for the first time in Indian history in urban and metropolitan areas women's bank accounts have more money than men bank accounts male bank accounts the chart we couldn't pay for lack of spaces women also have more bank accounts than men so women have more accounts than men and they have more money in those accounts than men right so these are two solid bits of data women are better educated and they have more money the missing piece is the job market data and the B that we have suggest that women are getting the best jobs and why are women getting the best jobs not just in white colar but even in factories entire factories in India now are driven by women right 100% wom run factories are increasingly coming through in our big manufacturing hubs uh one of the reasons I think this is happening is 65% of Indian GDP is services financial services media Hospitality um last we knew muscle plays no role right Brawn plays no role in service and hence if you're better educated and those are usually women they're getting the best jobs and services around 20% of our GDP is manufacturing but much of our manufacturing is light industrial manufacturing for example Pharmaceuticals for example my uh iPhone Made in India right this sort of job again muscle plays no role so the entire 90% of the iPhone staff in India 90% of the outsourced contractors staff for apple is women right so the shape the shape of the Indian economy has very little heavy industrial component and that's lending itself we think very nicely towards towards female employment right and and we can see this another way to see this is companies that focus on selling to women their sales are roaring right the simplest one is Nestle Nestle sells infant formula milk in India $25 billion worth of it it's it's one of the rare fmcg companies where volume growth is 10% 10% volume growth unfailingly every year right and similarly you know there's apperal company called Westside uh Westside sells um um west side has a JV with Zara but west side also has a affordable clothing line called zudio zudio opens 120,000 ft² store every day zudio opens one store 120,000 ft store every day they open 200 stores a year they've done so for the last couple of years and I think they can get to 2,500 stores in the next few years sales per square feet sales per sales per store rise at around 20% each year right the customers of zud are primarily women customers of West Side are primarily women right so so if women are doing well naturally companies that cater to women to Indian women are are absolutely thriving right um now let's go to the next theme right the new Elite a big part of this is education till about a de I migrated to India I migrated to India in 2008 I grew up in the UK I migrated to India in 2008 the India I migrated to was very much about um which university did you go to did you go to Oxbridge if not that did you go to Yale uh I went to LSC that was all right I just got got by right and if you didn't go abroad did you go to the iits and the I IMS it was really important 15 years ago it was really important to have Elite Education right and if you looked at the composition of of Indian boardrooms right so if you take India's top 50 listed companies and he looked at where the board directors came from till a decade ago the board directors were Elite educated IIT IIM IV League Oxbridge right if you take the latest data the latest data on Indian boardroom composition for the first time in Indian history if you see that final bar the F 23 bar for the first time in Indian history the majority of board directors in India are not Elite educated they are regular local graduates from local universities right and I think this is a big change right if you guys are interested this is an outstanding book it was written in 2008 this is actually one of the books this is one of the books which prompted me to migrate to India India's new capitalist and uh this gentleman Harish damodaran preempted this he wrote he wrote about this in 2008 he said that the established Elite will be overthrown because the scale of opportunities are so big that a few Elite and universities won't be able to feed an economy growing at 7 8% a year right and the result of that is let's take let me focus on India's largest bank HDFC Bank was created in 1995 was created in 1995 today it is twice the size of City Group it's twice the size of City Group it's compounded shareholders shareholders wealth over 29 years at 35% it's $150 billion market cap not a single board director has Elite Education they all went to a very famous university it's called the University of Mumbai right till 5 years ago nobody would have made too much of it but increasingly we are seeing this is this is becoming a hallm mark Venture capitalists in India my friends who are VCS now specifically look for people without Elite Education because their point is someone who's Elite educated has a mindset which focuses on on uh on success within uh structured framework whereas to succeed in India you need to have a a mindset which thrives in taking on open-ended challenges right very different mindset you know what Lang whether I speak the queen's English or not no longer matters in India which club I drink gin and tonic at also no longer matters do I understand technology can I manage Multicultural teams of people am I an entrepreneur those have become critical qualifications to make it to the new Indian Elite right now let's go to South India um so so by South India we mean Peninsular India as you know we are the world's largest peninsula Peninsular India basically Maharashtra Karnataka Tamil Nadu Andra Telangana Kerala Peninsular India has quarter of the country's population half the GDP and 60% of the growth quarter of the population half the GDP and 60% of the country's growth Peninsular India is growing at 8 to 9% perom this is the world's fastest growing region right this this is where Bangalore is this is where Chennai is this is where Hyderabad these these cities are grow these cities are doubling every 6 years or so right now why why Peninsular India is pulling away from the rest of India is a deep question I I won't be able to give you definitive answer even if you give me an audience it's a very tough question to answer why is the south of India pulling away so rapidly from the north but the Practical implication is we as investors have to over index the South right we have to over index the South because we have to look for companies who are setting up factories and building up customer bases so if you look at the company on the top Asian paints this company has 50% of our paint Market this company has compounded 24,000 X in the last 40 years 10x in 10 years 100x in 20 years 1,000x in 30 years and 24,000 X in 40 years this company sells paint through 15,000 shops the majority of the shops are in Southern India and they're expanding rapidly over there it's a politically touchy subject so nobody wants to come on you know broadcast media and say that they're over indexing the South and therefore we as investors do have have to do a bit of work to figure out which companies are over indexed in South India right so if you get a chance visit visit Southern India you'll see basically both the future of India and I suspect the future of of Asia as well right incredible progress in a in a tight part of the country right then we come to China the China plus one opportunity this is actually closely linked to the pr previous topic the sise of South India uh I'm not going to get into the details of what's happening between China and America I think many people in this room understand the subject better than I do right let me quickly focus on the opportunities it is creating there are broadly three areas where it's creating opportunities the the obvious one is is phones right um Apple makes $200 billion of iPhones till three years ago India used to make $2 billion of iPhones today India makes $22 billion of iPhones if Apple moves even a quarter of their production to India India will make $50 billion of iPhones right as soon as you start making phones even if you only make 30% of the phone assume that the chip will still come from Taiwan the digital display will come from somewhere else so this this is an Indian iPhone so this metal casing is Made in India right this metal casing is called metal injection molding you basically take steel powder and you mold it to the shape of the iPhone right so this is done by a company outside Bangalore called indom MIM Indo metal injection molding right now this technology is hard and as as Indo Indo I think will go public in the next couple of years as Indo becomes a larger and larger supplier to to to Apple in India as Apple's own production in India grows as the deemphasize China I think firms like indom MIM will be able to do way more things with what is very special technology already they've got contracts to basically Supply the same technology metal injection molding for rifles in America right so the rise of the iPhone ecosystem and I think Apple said two days ago they're also going to make iPads in India the rise of this whole supply chain going into phones and pads will have other spin-off benefits uh I'm assuming a 50 to 100 billion opportunity the second opportunity is is active pharmaceutical ingredients China makes 80% of the world's active pharmaceutical ingredients India makes only 10% right the remaining 10% is spread across the world uh for obvious reasons American Pharma companies are being told by the US regulator to reduce their dependence on China right the natural place they are coming to is India and we have invested in that whole supply chain D lab D lab is the largest manufacturer of naproxin in the world 80% of the painkillers in the world four out of five painkillers you would have had in your life the API comes from de's lab half the cough syrup in the world the API comes from D lab um half the sattin in the world blood thinners the API comes from De lab it's largest in India fifth largest in the world woi woi is the second largest in the world woi is a Chinese company it's been in the news for some uh uh unusual reasons over the last few months and I reckon a lot of that business will come to India now this is an opportunity and a challenge China makes hundred billion of API roughly roughly even if we take 10% of API share from China our API industry will double in the next 3 years that poses huge environment Al challenges it poses challenges in terms of land capital I don't have an easy answer about can we uh deal with the environmental uh fallout of making chemicals at that scale right but the opportunity is clear uh the companies are lining up so for example if you want to make apis you need intermediates intermediates as the raw material going into API we invested in that and if you want to make all of these chemicals you need ceramic glass reactors basically your coffee cup but from the ceiling to the floor and that's the container in which ceramic reactors are made this Indian company makes 55% of the world GMM foder makes 55% of the world ceramic glass reactors um and we've invested in that as well several years ago um as you can make out from the name this is an Indian company which went to Germany and bought the world leader right so colossal opportunity the third area is medical devices it's a $400 billion Global industry 200 billion is made in in China India makes 2 billion medical devices India just makes 2 billion China makes 200 billion right ECGs x-ray machines catheters canulas and so on again I think straightforward opportunity the West will want to the West will want to reduce its dependence in China for critical medical equipment one of the obvious places to come to will be India so if you just focus on three Industries just three Industries alone that's a $300 billion opportunity for India bulk of this is coming to Peninsular India right you need technology for this you need good manufacturing facilities you need Law and Order you need infrastructure structure Peninsular India is providing that and lastly the the global capability Center boom right I have to confess even this even we who live in India have been taken uh taken by by surprise by this right so we'd all read World is Flat by Tom fredman he published this 20 years ago and Tom fredman foresaw the rise of Indian IT services right credit to the man he foresaw the rise of IT services what's happened is because of the skill shortages in Europe and America after covid because of the scale shortages there's been a mad rush by European and American companies to basically move all white color jobs to India right so if you think about yourself think about yourself say you're a airline say you're Virgin Atlantic or British Airways do you really want to have accounts payroll HR sales Marketing in you know a small town in England say Swindon and will that be a comparative advantage for you to have your you know accounts and payroll and your HR and your sales Marketing in a small town in England and struggle for talent because everybody Who's Got Talent in the UK or America will either want to work on Wall Street or the city of London or in Silicon Valley right so you're struggling for talent or would you would you want to stand up you're a CEO of a western Airline you'd rather stand up until the stock market I've turned fixed costs into variable costs and I've outsourced it to India to TCS or I've set up my own facility in a second tier IND Indian town where u talent is available infrastructure is cheap airline connectivity is good mobile data is available and so on so that's what's happening uh uh we had so many names to cram in that I'm sorry the logos are a little small but it's a veritable uh rush to get into India to set up these Global capability centers 1 1600 are already in place as I said one is opening every day and they're no longer opening just in Mumbai and and Bangalore and Delhi they're going to second tier third tier cities because the infra the the traffic issues and the cost of living issues are are better there uh We've set up uh our Airline traffic in India has gone up 5x in the last decade I think the last 10 years promote we've built how many airports we've built 250 airports in the last last decade and I think on that subject if you if if not for anything else visit India to see what modern airports are like your airports are all right better than Americas but your airports are not cutting edge if you want to see Cutting Edge airports visit India and you'll see you don't have to stand in cues you don't have to put out you know pieces of paper you just show your face camera camera camera and you get on the plane in 10 minutes right and this is true for even airports in small town India there is no human interaction involved it's all automated so that's the rise of Modern India just to give you let's finish off on this opportunity the services economies the services economy the service component of the of the western economy so Japan included West plus Japan the service sector GDP is $15 trillion service sector GDP in the western world is $15 trillion assume only 10% of that gets outsourced to India that's $1.5 trillion India's current it and Outsourcing industry is $300 billion I reckon this goes 5x in the next decade and again the challenge will not be uh business coming into India the challenge will be Talent land and and the the sheer pressure on on Metropolitan Metropolitan infrastructure so that's the rise of Modern India thank you very much Jasper thank you very much Asia Society for giving us this opportunity thank you wow fantastic I I feel almost like I'm I'm inside you know one of the sort of Star Trek you know when they visit a different planet um you know there's obviously a lot of excitement a lot of things now um you know for 30 seconds what can go wrong what worries you I mean there's obviously you know you mentioned a little bit some of the pressure points you know on the environment on infrastructure but what worries you um about potential bottlenecks and structural impediments so I think there are two interrelated issues which are pretty tricky which are going to be big challenging for us one is uh we are a high-tech country but because we are a high-tech country we are automating um very early in our Economic Development process right we the 140th poorest country in the world and yet as I mentioned you visit our airports they're incredibly high-tech right so so we need to create jobs for people but because technology is so cheap and we have so many clever people deploying technology our banking system Our IT services industry our hospitality industry is automating using AI factories are getting robotized and um and I worry about that I worry about the fact that because technology is so easily available we're basically moving uh getting rid of people and automating very early in our development so for example the Indian IT services industry is the world's largest right but it shed it shed 100,000 people in the last 12 months right because the IT services companies are saying we'll shift to Ai and make more money right we'll do the same amount of work but with fewer people so this is a challenge and then the broader issue right our Workforce is 500 million people mhm at the moment we only have have 200 million and if you are very sort of charitable and say you're in you're you know you're in a position of power you'll say 300 million jobs we have somewhere between 200 to 300 million people primarily in Northern and Eastern IND India young people with uh no jobs no skills now the current solution so political fudge is to give these people dos right so you give them uh food subsidies you give them a National Employment guarantee you give them subsidized health insurance and and because the country is growing at 8% and tax collections growing at 14% roughly $80 billion Bill the country has a $80 billion Bill to look after these these uh uh unemployed people um so financially it's doable but there is a human cost and as the rest of the country gets richer and on social media the youngsters can see unemployed youngsters can see how the rest of the country is pulling away I worry about social problems so so it's a L tisue one is uh lack of Skilling and the other is the rise of lowcost automation um and you know people like us who uh who live there we're sort of urging the government to use AI use robotization to create jobs rather than to get rid of jobs but I think it's a it's a very tough policy issue which is yet to be resolved if I was you know if I was kind to India I would say I don't think any country has resolved it this whole uh mechanization and automation of jobs but no other country has 200 300 million people yeah waiting to be employed this this is the core of our challenge I mean it's interesting if you just cursy sort of look at economic history actually India follows a development model that we've never seen before um normally you go from agriculture from The primary sector to manufacturing and then you go from manufacturing to the service sector and India skipped that bit right I mean there is really you know no manufacturing business in fact that's at the microeconomic level as you know very well your balance of payments um you know know is constantly in deficit or in threat of being in deficit right because so much of the what is called white goods and brown Goods right A lot of it actually has to be imported you know um let me um sort of you know sort of skip a little bit into you know so then why is there no large scale manufacturing right if you ask the people I'd love to ask you you know why is that the case the answer I get is uh because the infrastructure doesn't work because physical supply of various components what Japanese have mastered the just in time inventory system in India basically is impossible because for all intents and purposes neither the roads nor the ports work yeah so again if it's worth stepping back we are the only country on the history of this planet the only country to become a democracy way before we became Rich so at Independence we were a universal adult suffrage right 1947 we were born a democratic Country Now what that does and and there are broadly three reasons to why we struggle to compete is our minimum wages are pretty high for a low-income country we're the 140th poorest nation in the world but our minimum wages are 3x that of Bangladesh right so most of the shirts we wear in India the shirts we wear in India made in Bangladesh because the labor there is onethird the cost and operates in conditions which in India will not be acceptable because in India worker rights are far better developed because it's a universal adult uh Universal adult suffrage franchise right so the first issue is your worker rights are high so your minimum wages are high second because uh uh uh uh to build uh rapid infrastructure development you need to go over farmlands right we are one of the most fertile countries in the world and the farmers are saying why should I give up my Farmland unless the government gives me a massive handout that getting Farmland has historically been tough that being said in the last 10 years we've doubled the highway Network in the last 20 years we have tripled the highway network but compared to say a China it's hard to go and when forget Farmland even in cities it's hard to slam a Metro through the city because people will say you dare destroy our house we'll vote against you right so being a democracy at a low-income stage no other countries had to deal with it so second is infrastructure buildout has been tough and third is um historically um cost of capital has been high so even today anme in India I told you 10% is the cost of working Capital Finance for an working Capital Finance I think China is 20 3% right so yes China's wages are high but say Vietnam's wages are lower than India I don't know land prices in Vietnam but I suspect land prices in Vietnam will be cheaper and I suspect the cost of working capital will be lower in Vietnam and hence anything which employ which is labor intensive uh or Capital intensive manufacturing we can't compete neither labor intensive nor Capital intensive our sweet spot is manufacturing like Pharmaceuticals which is basically intellectual property slammed into a tablet it Services obviously is brains so anything which requires brains we can cut it right but that's good for the elite but what do you do for for workers who are you know school school graduates are not even that basically workers who have basic level of rudimentary skills how do you employ them without mass manufacturing but how do you get Mass manufacturing if your cost of working capital is 2X 3x that of uh of Vietnam uh and your land costs are higher than Vietnam and your labor costs are higher so the government's launched something which is Works uh for mobile phones it's called production linked incentive so Apple for instance gets a PL so I think it's 2% of the value of the phones that they make apple gets a subsidy of 2% of the value of the phones that lowers the cost gap between India and Vietnam um so it's worked for them in phones it's the production linked inside actually have been very successful in Mobile phones it's not yet been successful in things like shoes uh clothes but that's something that're trying to crack my suggestion to them would be uh to our government and we've written about it is lower the corporate tax rate from 25% to 20% America is 15 I think China is 20 uh if you lower the corporate tracks rate from 25 to 20 I think we'll be able to close some of the the cost gap between us and South southeast Asia um it's not relevant in things like Global capability centers because we're in a class of one there there's no other country which produces 10 million graduates a year India produces 10 million graduates a year no other country can match us but for employing large numbers in factories there's a lot of work to be done does India do sort of you know China's uh rise a lot of focus on sort of special economic zones and you know as a result of that preferential tax rate does India operate like that or is it really pinpoint so uh we did a version of special economic zones for IT services those were spectacularly successful in fact they were so successful that we no longer need the special economic zones for IT services we've we've done special economic zones for manufacturing but they've not been as successful so giving tax exemption has not been as successful so this latest strategy is the production linked incentive which has worked really really well in Mobile phones and I think the our next union budget is on 23rd July I suspect we will get a expansion of the production linked incentives where if you make $100 worth of stuff you get a $2 $2 payment from the government to basically Bridge the the fact that our Factor costs are are very high for what still a very poor country right it's very interesting with rise of global capability centers there I don't think that there is a Japanese company in there uh I think I thought I saw Rakuten in there Rakuten is um politely what mufg okay well okay okay no so so I live in a subb of Mumbai so nira's GCC is uh 100 m from my house and and we actually very uh we benefited from hiring from niras GCC they're very good people who work there and our head of it came from nira's Global capability center right so so this so this aspect I think will be in a class of our own if you ask me in GCC in making knowledge intensive manufactured products like like ronics and like Pharmaceuticals we'll pull away right but can we make U fans and jackets and uh sports shoes I think and I think I think you guys know the answer uh we'll have to come back a couple of years hence if you're going to prove you wrong on that so far it's been tough for us to make those basic things that's sort of propelled China and Vietnam's rice or even Bangladesh is Right Bangladesh exports more textiles than India MH right it's a country 130th our size and they export more textiles than India because their minimum labor minimum wages are onethird that of of India's I'd like to open it up for the for the floor Johnny historically India has uh better and more friendly relations with Russia than with China and uh now Modi is playing again the Russian card and do you see this having any significance or is token diplomacy yeah so look I mean I'm I'm not an expert in geopolitics but what I can what I see from a distance and and we manage money for part of the uh we manage the pension money for part of the Armed Forces uh whatever little they tell us is this is what we make of it um India given China's aggression India has sought to build its military capability so for example we need way more fighter jets than we currently have I would say we're probably 200 300 fighter jets short of what we we currently have um and India's consistent request to America has been give us you know F f35s give us uh good fighter jets and America has refused now to give credit to Russia they have given us whatever they have um the migs and whatever they' have they've been willing to supply us the Weaponry that we need you might say even we might say that the Russian Weaponry is not cutting edge but it's better than what the West has been willing to give us from what I understand the current sort of standoff is as follows with America America is saying if you want our Cutting Edge Weaponry then sign a NATO type pact with us sign a NATO type PCT with us um uh for reasons I understand and I'm sure you might you'll understand as well India is unwilling to sign a NATO style pact with America so that's where the kind of situation stands Russia has been India's main arms supplier um they've also given us cheap crude as you as I'm sure You' read in the last couple of years uh the cheap crude is useful but what's even more useful is the Weaponry uh because we need that Weaponry to deal with uh China's both China's mass of weaponry and also the fact that Chinese military is very sophisticated Weaponry um America's Hard balling us perhaps that's the way they should be playing this but uh our response is well if you don't want to give it give it to us we'll take it from the Russians uh two questions first why is cost of Capital High in India you talked about the efficiency of the financial system and huge growth of banks what what's going on there the second thing is sort of a broader question U my contacts with India start like 50 years ago and it was a class Society very much now you have a new class yeah of people emerging can the new class make a better environment for class relationships in India or is it going to be a continuation of of the Class cast conflict that you seemor so so the cast equations the old cast driven hierarchy I wouldn't say it's been entirely overthrown but it has been challenge so for example if you look at the educational data uh as I said women are doing better than men but what's fascinating is within women uh women from less privileged casts are absolutely blasting through the room right education attainment women from less privileged castes is going through the roof similarly in wage data in wage data that we have access to uh in the blue color wage in the blue colar job market there is no cast driven wage differential left right in in the blue colar job market people are getting paid regardless of cost in the white color job market there are still there are there is still a cost issue um but a growing number of entrepreneurs are from the less privileged cost much like America did with affirmative action half our University seats half the jobs in government offices and a significant slug of seats in Parliament are reserved for Less privileged costs I'm not an expert on whether that's delivered all the results it should have but the data I can see on education and on and on wages suggests that there's been significant progress in that now you're right in saying that that this this potentially triggers a change in cast relations so this is how I've seen it a big part of what we are seeing at the moment if you leave the economics aside a big part of the social churn we are seeing right this kind of desire to reclaim some ancient glory of the past I think is driven by challenges to the established order women are challenging the established order um uh uh less privileged casts are challenging the established order right this is many dimensions to it so for example less privileged casts couldn't grow mustaches till when when the cast system was in full cry now they they're growing mustaches they're wearing clothes like the more privileged casts they're coming to weddings and horses which is a symbol of prestige so the the challenge to the established order is coming thick and fast and I think some of the conservatism that we are seeing uh I think is a reaction to the established order getting challenged by uh by sections of society who were forly suppressed right uh it makes for a very um uh uh interesting country to live in but as you are I think alluding to from outside doesn't look very pretty as someone who's living there I kind of I I I can't tell you how much I'm enjoying this I saw the old India and I would much rather pre prefer this where people are pushing upwards and saying I really don't care that you upper cast and you went to Elite Education I think I'm better than you I'm going to push you aside and I'm going to claim my place in the world um so yes so so so we seeing by the way on this if you guys want to read more about this I think by far the best book written on India is a book called India a million mutinies Now by Nobel laurate vs Sall right he wrote that book in 89 I read it when I was in high school and if you read that book it feels he wrote it yesterday morning India a million mutinies now he captured this 40 years ago that this country nobody's going to sit back nobody in there sitting back and saying I now accept my place in the world this is where God ask me to sit everybody is saying I'm going to push upwards and I don't care who you are if you block my way I'm going to push you aside and therefore you're getting a conservative blowback you're getting a conservative blowback to that um on your cost of capital at a superficial level let me just give you the superficial answer uh uh total government debt to GDP is 80% right the the existing mass of government debt to GDP is 80% uh the budget deficit Center plus States added up is I think 12 133% of GDP so basically the government is is the government borrows and drags up the 10-year bond deal the 10-e bond deal is 7% and in a way that sets the floor on the cost of capital now if we did a China and we jammed the capital account if we jammed the capital account we could then say tell the local banking system give working capital 3% but we haven't done that we have Capital account convertibility by keeping Capital account convertibility with a high government borrowing means that our banking system charges a 3% plus the 10-e Bond deal 10% for working capital now should India Jam Capital account convertibility I hope they I hope India doesn't do that right so so that's the so we are a free market democracy the free market part also poses a constraint because money is coming across and going out through uh through going in and out we have to give a spread over the 10-year bond deal to the banking system otherwise money will leave the country you could push back and say well why isn't supply of savings higher in The Last 5 Years it's stepped up in the Last 5 Years domestic savings to the tune of $150 billion is coming into the system every year this is the highest we've ever seen uh people are saving less through physical gold and real estate more through financial but we've got a long way to go I reckon India's physical savings are around $9 trillion household balance sheet 9 trillion is physical and only 1 trillion is financial right so India's household balance sheet is around 10 trillion 90% is physical 10% is Financial as we toggle from physical to financial I think we'll be able to get the supply up and that thereby push down the the 10-year bond deal and thus the cost of working capital but that's going to be a a gradual process on on that while we're so technical on finance of the Capital Market of of the equity Market ownership how much is uh Global how much is domestic yeah so so um the the owners of companies own 55% of the stock markets so if I'm the founder the founders own 55% of the stock market domestic financial institutions owner the 15% so that's uh we up to 70 uh and uh domestic investors own around 10% that's 80 foreign investors own around 20% right okay and so the owner class effectively is stuck right that's not free float no so they are grad interesting that you mention it they are gradually selling down so so if you look at the US the elite is leaving so the elite is encashing the elite is partly encashing because the the children of the elite sure are saying uh life in London is very good and you know isn't Dubai a lovely place right so it's very interesting the children of the elite are getting the mom and dad to fog the shares because if they want to compete in India they're competing with people who are 10 notches less privileged who are just brutally hungry they'll put in 80 hour weeks right and you know if you've gone to IV league and you know you come back and you have ideas about work life balance and all that it's not going to work out for you in India and you can do as much work like that sorry there's just you inheritance tax and gift taxes uh so so far uh we haven't got it uh I hope the government doesn't impose it we were hearing about Japan's inheritance tax um uh we don't have inheritance tax so far touchwood yeah on that just for 30 seconds for your own education the reason Japan has the inheritance tax is because of the Americans okay uh we had eight families controlling 80% of the japanes economy the zbots of families and the Americans democratized that they designed a tax system that ensured that that would never happen again as a result of that know you know all family wealth is wiped out over gener that's a novel way to democratize wealth that's a novel way to democratize it I hadn't thought of that yeah remember Japan was there um you know Japan was the richest country in the world in the 1920s amazing um please excellent uh statistics to show a very complex economy in transition rapid transition so um opposite to your path I immigrated from India to the states uh former Wall Street but I left Wall Street and I'm an entrepreneur now fantastic um I would like your your view from as an investor investing actively in India about the what we call the two indias the India and the Barat um while a lot of the statistics apply to the middle class and up the 350 million OD people there's also 1.1 billion people that goes to a theme about the less privileged but very hungry growing fast but without access to uh Finance without access to basic Banking and without access to even affordable um Services I'm actually building a a venture that targets those that that 1.1 billion people primarily the increase in cash circulation there despite all the statistics about digitization in India right AG with so what is your view in terms of how you look at the two indas what are your investment thesis around the 1.1 billion people yeah so look uh uh let me start with the the financial inclusion piece right um I think if there's one aspect of that 1.1 billion um um which has which has made the greatest amount of progress that would be the ability of uh UPI mapped onto bank accounts um to get to to bring the former financially excluded people into the system right and just for quick background uh this is the broad sequence of events is like this in 2010 the infosis CEO stepped down and he joined the government and he created UPI or Adar so Adar or uh Adar is basically all Indians have a card like this we have a unique ID so 1.5 billion of these IDs exist right this ID in 20 this was created in 2010 in 2014 and 15 once Modi came to par he he got us to map these IDs onto the bank accounts and in 2014 and 15 around 400 million bank accounts were opened for those who didn't have it thus by the end of 2015 uh everybody had a bank account and they had a they had this ID mapped onto the bank account that was a bit controversial because um you know because people said I don't want my bank account to be mapped onto my ID and you needed a supreme court judgment to get on with it then in 2016 uh conglomerate called Reliance launched Broadband basically free Broadband effectively our Broadband is free and that's when the gentleman who create Adar nand nikan this enosis CEO he once again came up with the idea of unified payment interface so he said if you have a bank account and you have a unique ID then he said why not now get this whole thing onto the mobile phone so think of a triangle unique ID bank account and mobile phone right and in India for all of us all of us have that triangle that's why when we go and pay for coffee I buy the coffee and I just hold up my phone and the the coffee shop sucks the cash out of my phone effectively out of my bank accounts you you got rid of your whole credit card the the use case for the credit card thus thus mes away so so so this piece just to go back to the question this piece is used by the government to pay subsidies so before this subsidies to the poor would be sent to the bank account now imagine you are in the middle of nowhere and the bank is 10 km away You're a low-income wage laborer in a field you have to take a day off from work to go 10 km to a bank to withdraw the subsidy and come back 10 km and typically the bank the bank uh the bank clerk would know that you're a low worker and he would extort he would extort from you part of the subsidy by putting the subsidy straight into the mobile phone that whole uh uh uh Nexus that whole uh uh rent seeking the whole rent seeking around Poor People's subsidies has been got rid of right so we pay roughly $80 billion to the poor imagine in the old system even if I doubt even even if half of it was reaching the poor now the entire amount reaches the poor in the in the sense it's in their phone and they can then use their phone to pay the the GU the the the grocery store in the village through the phone right so the whole need to visit a branch goes away the banking system is not getting dis intimidated the banking system is still in use just the physical need to visit a branch reduces so that just to come back this is the main area where we've been able to pull the poor into the Ambit one of the reasons I think uh the Prime Minister Modi did really well in the 2014 and 2014 and 19 elections is he understood this better than anybody else very early now the challenge is that as we as we as we were discussing jobs for this constituency jobs for this constituency is few and far between so they have broadband and they can watch free movies all day they can watch sports all day um they can do everything but get a job right and I think that's where that's where um I think a new generation of disruptive business models will come up so for example if you see Zoho so Zoho is a Indian software company our HR management software is Zoho we use Salesforce for CRM but if we wanted we could use Zoho CRM as well uh they also have account accounting and payroll software this software company is based in The Villages of South India this is not in Bangalore the software companies call centers many of their staffs live in The Villages of South India and these sorts of business models where you go to The Villages you you tap educated people but who don't have ready access to urban employment opportunities I think those those those uh jobs will come up the other opportunity going back to your point on cash is it's very interesting this cash as a percentage of GDP India and America lead the world right now America You could argue that those dollars are being probably used by you know mafosi in various parts of the world America is printing those dollars but there sort of the currency of choice for the criminal underworld across the world uh even Japan has high cach to GDP I don't quite know why I don't have a ready explanation but coming back to India cash to GDP is High um uh um it's around around 16% of GDP is Cash um so that's around $500 billion assume a velocity of two so that means that $500 billion of cash is financing a billion dollars of GDP right now the banks in India fascinatingly the banks in India have very high loan growth and they are gasping for deposits the banks want more cash right uh even though financialization is happening it's not happening quick enough for the banks to get deposits so I think there's a ready business opportunity for someone who says I will take cash from the local T stall and get it to the bank four times a day right that's exactly okay so so then you're onto a winner I think uh because because that piece right uh uh the velocity at which cash moves into the banking system I think can be stepped up and the banks will pay very good money for that because they they will use that to drive loan growth with the rise in cashless payments uh and Reliance on overall information it uh what have you seen uh with regards to cyber security um especially for small and medium Enterprises is that a concern and um just can you talk about your impressions about that yeah so promote I think you're probably better place than me to explain uh the the the the the security aspect of the uh UPI and the jandar I think you should just get a mic and explain uh have we had can we get a mic over here please ma'am uh so so as far as I know I just introduce promod promode is is a founder of marcelis um as far as I know we haven't had massive security breaches it's obviously something all of us have nightmares about if this whole ecosystem of unique ID bank accounts and mobile phone if if it were to crack we have nightmares about it but prom why haven't we had any breaches any idea we have we have had a breach so uh sort of talked about these new airports having these facial recognition things uh it's a scheme called diatra um so all of our I mean if you want a seamless entry into the airport you can register yourself upload your boarding pass and and and the system recognizes your faces and you get that entri that was outsourced to a private company and about 6 months ago got to know that that database had been breached so but the government was very very quick to react to that they literally uh change the contract overnight um they force people or they ask people to sort of delete the app and and and upload a new app so we are prone given the uh extent of data that's prevailing in our lives uh this was bound to happen but the the the the comforting feature was the uh quickness with which uh which the government reacted to it uh there could be other risks there uh I don't think we can uh but the government is aware of that um and as long as we have somebody who is alive and awake to these threats hopefully uh the risk mitigation measures will be in place as well that's the good part we have we employ the largest base of Technology workers in the country right so it is it is the Global Hub of uh it so to that extent the supply side was in place to be able to seek an alternative vendor overnight so you know this is ubiquitous in our lives for example when we file taxes there's no paper anymore you just you go in online you Fally return the return is online the payment of taxes is online um and and again you know when we visit when we visit the Western World the amount of paper uh the just the the the turnaround times and I suppose that that happens to every country that West was built on technology of say 30 years ago India has got built in the technology of the last 10 years whoever develops after us will be even better than us but this aspect that that as you become more technologically oriented you become more vulnerable it's a good question uh so far we're all right but uh but you know you just have this feeling of walking on eggshell eggshells uh with each passing year well it's it's good to know that here in Japan uh we have now abolished the floppy disc and but the uh read about that to file for your for your seamless entry into Hana I still recommend the facts um thank you so much um we've unfortunately run out of time