"Days of linear headcount growth in IT Services are behind us" Ravi Venkatesan, Founder, GAME

India’s manufacturing sector has been struggling for a while now. The government introduced Make in India to revive the sector. Despite incentives and easing of labour laws, India has still not been able to get as many global manufacturing companies as it would have liked, to set up shop here. 

While global companies understand that there's great opportunity over time in India, it is still difficult for them to start operations, compared to China, for instance, Ravi Venkatesan, chairman of the Global Energy Alliance for People and Planet (GEAPP) and founder of the Global Alliance for Mass Entrepreneurship (GAME), told The Core.

“For instance, the hardest thing is all this policy instability. You talk about incentives. They're here today. We are not sure they're there next year. There was this instability around laptops. Can you import laptops or is that going to be taken away? They've changed the quality standards for toys and furniture. If you're a global company, you never know when something is going to change that makes your investment worthless,” Venkatesan said.

Venkatesan, who has previously worked at Microsoft India, Bank of Baroda, and Cummins, talked about India's how recent developments in the policy space relating to e-commerce made business difficult for global players like Walmart and Amazon. 

“India is terrifyingly difficult. And I think what you need to do if you're going to recruit these firms is not make these general schemes, but sit down with Hitachi (say) in this case and say, what's it going to take to get you to invest out here and make sure you deliver those things and provide some credible assurances and a lot of hand holding, and it's like sales. It's like selling anything,” he said. 

For The Core Report: Weekend Edition, Venkatesan spoke to financial journalist Govindraj Ethiraj on how getting four or five big companies to manufacture in India would create a ripple effect which would eventually help revive manufacturing.

Here are edited excerpts from the interview

Let me ask you, as someone who spent time on the shop floor and also runs a large IT product company, not just a services company, where do you think we are today in this journey? 

Things are changing briskly. And, I think IT services is going through a big transformation, but some of it is just temporary, a slowdown in demand, but I think that will correct itself over time. Some of it is driven a lot by automation. We're seeing AI (artificial intelligence) in particular making significant inroads in many organisations, and right now it's driving up productivity. So you don't need to hire as many developers as you did. I wouldn't say that there's a crisis or anything of that sort. 

 But generally speaking, I think it's quite reasonable to say that the sector will not be hiring quite as many people as it has done traditionally. I think those days of what is called linear growth, where the headcount increases with revenues in exact proportion, is probably largely behind us. And so we need to find new sources of growth. And what better than manufacturing? 

 India's performance in manufacturing has been underwhelming to say the least. But with all this geo-political rearrangement, many firms looking at a China plus one strategy, our own desire for us to reduce imports and do more in India, I think there's a giant opportunity in front of us in manufacturing growth, but that's not going to be easy. And perhaps that's what we should explore in this conversation.

Let me pick an illustration which goes back to your past. Cummins used to make generators, diesel generators, gensets and so on. Now, could we be, let's say, competitive in an area like that today? And if so, then could that be a starting point to really understand where we can be competitive in manufacturing or what kinds of manufacturing? 

No, it's very ironic. Back in 2003, exactly 20 years ago, just before I left Cummins, we could actually land a 2,000 horsepower engine in China with a cost advantage relative to our Chinese sister plant, the Cummins-China plant, making the same engine. That's how competitive we were. Since then, of course, Cummins is exporting gobs of engines, generator sets, components to all over the world, and it's not a unique story.

If you see in cars, whether it's Hyundai or Suzuki, they're all exporting a substantial chunk of their production. If you see JCB, a company whose board I was on till 2020, nearly 40% of everything they make is exported, and again, to the most advanced markets, not just to developing countries. We did a report back in the day with McKinsey and we looked at high-skilled manufacturing. These are all high-skilled manufacturing. I wouldn't say high-tech, but they require significant levels of skill. India was very competitive then. I think there probably has been some erosion of competitiveness, but I still think we're very much in the game when it comes to high skill. 

 Then when it comes to low-skill stuff, I think we're in woeful shape, whether it's textiles, toys, shoes, those kinds of labour-intensive things, which, frankly, is what we need much more of, because the big challenge, which we haven't yet got into. The crisis of unemployment in our country. And so we need lots of these kinds of labour-intensive, relatively low-skilled industries which are able to soak up people and keep aspirations reasonably in line. 

 But, I think we've got a lot going for us, still go with it. I am a big believer now. There's certainly lots we can do to become more competitive. But are we in the game on high-skilled, high-tech stuff? Absolutely.

So what's changed? I mean, why have we seen this relative erosion and competitiveness in the last decade or so?

I don't know, I'm just speculating here. But what happened with China's entry into WTO (World Trade Organization) is it was like a giant vacuum cleaner being turned on over there and it sucked up a lot of manufacturing (not just) from all over the world, from Europe, from the United States, but also from India. I remember in the days when I was in manufacturing, the kinds of things we'd make, and it just became much more lucrative, much more profitable to import these from China. 

 And there's a lot of friction to making things in India, from labour laws to corruption to infrastructure issues. And so people began to say, look, why mess with all this when it's just cheaper to import? And so I think a lot of that has happened.

Then there's been benign neglect, I think because it was booming and then other services began booming. There's been a benign neglect of manufacturing. Nobody, particularly states, have not systematically focused on attracting manufacturing, reducing friction, improving competitiveness, etc, but all these are fixable. Where there's a will, there's a way. 

That's the demand side. Let's talk about now on the supply side, engineers, skilled people who could be, let's say, going into that workforce both… in two ways. I think, of course, I'm not saying that entrepreneurs are born the moment they go out of college. They could be too. But on both sides, whether it's entrepreneurship or skilled people who feed this potential or hopeful manufacturing demand, how do you see that playing out as we are today? And what do we need to do to perhaps re-align people and their thinking and perhaps their ambitions?

Look, there's one thing I've learned over the years. Wherever there's opportunity, people will come and they will learn the skills necessary to cash in on that opportunity and advance. Why did we have this enormous success in IT (information technology)? Because you had extraordinarily successful firms 20-25 years ago, particularly after Y2K. And so they created lots of jobs. Many of those jobs were quite lucrative. And so you began to see youngsters begin to learn programming. Every parent wanted their kid to learn something about software development and get a job in Infosys. I would say what is needed is to get the demand side going first. Supply tends to take care of itself when there's demand, and that was our experience at Microsoft as well. 

We used to run these giant partnerships with the likes of Aptech and IIT, so that millions, it actually wasn't even in lakhs or anything, it was really literally millions of engineers would learn C++, Dot Net, all those kinds of things. I'm not worried about the supply side. We have an overabundance of people. We have an overabundance of engineers. Not all of them are directly employable. But what did the Indian IT industry show? You can actually do a massive amount of internal skilling, training, and make them ready and fit for purpose within six months. 

 I think the main challenge here is to get the manufacturing happening in the country. The supply of talent will follow. To me, (that) is the really interesting thing. At India's scale, how do you get manufacturing going? And I use this metaphor of locomotives, to which you can attach lots of little wagons. See, if I were the chief minister of a state or head of government or whatever, the single most important thing I'd get the whole government to do is make a list of companies I want here and give targets and go get those companies here. If you get Cummins setting up out here, that investment, their supply chain, etc, is going to come with them. That's going to create the ecosystem, that'll create the jobs. It's very, very hard to start from little isolated companies, manufacturing companies. Everything in manufacturing is a supply chain. And if it's a chain, then you need the locomotive that pulls the whole chain along. I would pick sector by sector, who are the top two companies? How do we get them here and then do whatever it takes to get them to set up shop? 

 About five years ago, I met one of the five vice mayors of Chongqing, China. It was a closed-door session, and he gave a talk. He said, look, my job as a mayor is very different from what you think. I don't run the city. My number one KPI (key performance indicator) is to attract companies to set up business here in Chongqing. He says my day begins at 6:00 am And it goes on till 11:00 pm. I have two breakfasts. Often I'll have three dinners because I go meet Company A, Company B, Company C, and I understand what it's going to take. And my job is to deliver whatever it takes to get them to make a favourable decision. I think if you are able to do that, then everything can follow, and this is the window of opportunity to do that. 

For instance, right now I'm on the board of Hitachi in Japan, and we're all looking keenly at India. If you're able to get…. get a Hitachi train and locomotive plant set up here. Man, you're done. The whole chain is going to come with you, the whole ecosystem is going to come with you, and then you can worry about where the skills are going to come from. Does that make sense?

It does. But I think the problem perhaps is the gap between the need and what is available. Let's say we're seeing interest in iPhone manufacture. Foxconn, for various reasons, including geopolitical, is moving a lot of manufacturing into India. The second is that the government itself is offering a huge amount of incentives for semiconductor manufacture. And yet the biggest and the best are not yet coming here, despite India saying that we're going to give you 50% of the total cost of production, the total capital investment. It's not an easy pull (because) there's still China. How do you navigate this? You used Hitachi as a good example. Because if you had said Hitachi compressors, then maybe it was an easier ask, in a manner of speaking. But you're saying Hitachi trains or locomotives, which is a much tougher one. 

I do think it is very challenging to persuade a global company to set up a significant shop out here. You didn't reference my first book, which I wrote a decade ago. It was called Conquering the Chaos and was aimed exactly at global companies and their CEOs, around why is India important and what does it take? My friend, Dr Ashok Ganguly, who used to run Unilever… ICI before that, then Unilever. But he used a beautiful phrase, which I quote in the book. He said India is a country of mouthwatering opportunities and eye-watering challenges. 

 The global companies do get that things are changing in India and there's great opportunity over time, but it is still formidably difficult. And they know that. For instance, the hardest thing is all this policy instability. You talk about incentives. Yeah, they're here today. We are not sure they're there next year. There was this instability around laptops. Can you import laptops or is that going to be taken away? They've changed the quality standards for toys and furniture. If you're a global company, you never know when something is going to change that makes your investment worthless. 

Look at e-commerce policy and look at the wars of Walmart and Amazon. India is terrifyingly difficult. And I think what you need to do if you're going to recruit these firms is not make these general schemes, but sit down with Hitachi in this case and say, what's it going to take to get you to invest out here and make sure you deliver those things and provide some credible assurances and a lot of hand holding, and it's like sales. It's like selling anything. You have to give targets like the vice-mayor of Chongqing and do what it takes to attract them. And then it'll slowly come. And these things are like flywheels. You get the first four or five big companies going, they say positive things. There'll be a stampede after that. I think this is all just the first four or five years where you land a few big giants and things will happen.

In your own sense, when you see, I mean, obviously there is manufacturing investment coming in Foxconn, even if its iPhones is in that direction, even if it's partly manufactured.

I know we should celebrate a lot of these wins because each win is important, but it's a trickle. It's an absolute trickle compared to the flood that's going to Vietnam, for instance, or even Thailand. And it's only when Vietnam is saturated that they're going to probably take us seriously. I don't think we should so easily satisfy ourselves that we've got one Foxconn, one Micron assembly test facility. Yeah, good... I would aim much higher. 

 And also one of the interesting data points is to look at net flows. You look at how many new companies came in and set up shop and you look at how many exited India. I've got the data and it says they're about equal. One enters, one leaves on average. We still have a lot of work to do.

Why is that happening? For example, let's say a General Motors or a Ford leaves, but that's because maybe there's a global restructuring happening. Are you talking about that kind of example or others?

Yeah, those kinds of examples, but they're less celebrated names, smaller companies, which are quietly leaving. Nobody notices. But if you actually look at the numbers, which my friend Ajay Nanavati shared with you, there may be six coming, five leaving. Net incremental is one. And why are they leaving? Because they don't see a path to being really successful here. It's as simple as that. 

I'm going to come back to entrepreneurship at the moment and how that could be a potential solution for all of this. The other aspect is geopolitics. We are also at an interesting point. Mexico now is exporting more than China to the United States. And all of this is happening because, in 2016, America started raising tariffs, making China a clear enemy of sorts, at least when it comes to importing. And plus, there are many other shifts that are happening and will happen. So in this world, how do we become more attractive and for what?

First of all, by just virtue of all these big realignments, we are attractive. Now all we have to do is stop repelling those who want to come here. I really use these words very carefully. We should stop repelling companies. And repelling is... the usual frictions of establishing a firm land acquisition. 

But the worst killer is the instability of policies. The tax terrorism that prime minister candidate Narendra Modi back in 2014 talked about, I understand, is a little bit better, but it's far from where it needs to be. We just need to systematically reduce all these frictions. I think most of them are actually at the level of the state compared to the centre. I think the states can do a lot more to attract investment. 

I'm just going to Tamil Nadu in January to give a talk at their big investor meet. If we do that, I think people are going to come here in large numbers. But China is still ferociously competitive. So no matter what the realignment, it is still an extraordinarily competitive place to manufacture things because of the ecosystem. They have a phenomenal ecosystem for everything, and they are incredibly fast. You take a prototype by tonight, or you take a design by tonight, you'll have a prototype. In India, you are nowhere close to that level of capability and supply base and supply ecosystem capability. That takes time to build. It'll take 5-10 years, but it'll come. Look, the important thing to realise is you have to be intensely focused, intensely focused. And if you do that and land some of these big fish in the first three, four years, it just becomes self-sustaining.

Talking about the issue of talent, look, I don't worry about talent. That's actually the least of my worries because we have very large numbers, okay. And sure, a lot of it won't be usable, but if there's one thing we learned from the IT experience is go hire for attitude and go fix the skills. Now, if you're saying, oh, I want ready-made talent, I'm just going to go to the market, then you're going to be in a difficult situation. But if you're willing to go to colleges, hire people who are hungry, willing to learn, I think it's very fixable. And that's both shop floor workers as well as knowledge workers. But you have to do what Infosys did 25 years ago.

The examples that we've touched upon so far may have to do with large enterprises, foreign direct investment, bringing in capital, technology, and also setting up large, let's say, on-ground plants or factories here. That's one kind which is important. Let's maybe go into the world that you are in, which is to work with entrepreneurs in a more ground-up way. How does that fit into what we are talking about right now?

You need to do both things. What we've just talked about is what I call exogenous interventions. Getting these locomotives that can pull lots of small businesses as part of the supply chain, lots of jobs, etc. That's one critical thing. But the other thing we need to do is spur endogenous entrepreneurship leading to job creation. And that's what I do through my organisation called GAME (Global Energy Alliance of People and Planet). Can you replicate Bangalore in every district? And this is actually Chandra (Natarajan Chandrasekaran) of Tata's phrase. He says I was trying to explain what we do in GAME…and he says: oh, I get it. You're trying to replicate Bangalore in every district of the country, 750-800 districts. And that's exactly right.

What is it that's special about Bangalore or Mumbai or Gurgaon? They have an ecosystem where the conditions are generally favourable for people to start things. And what makes it favourable is number one: successes. Nothing inspires more entrepreneurs than a really successful one. So if you think Bangalore, 1.0, it was people like Narayana Murthy and Nandan (Nilekani) and Azim (Premji), then you had 2.0 with the Flipkart boys, the Sachin (Bansal), Binny (Bansal) etc. Then you have 3.0 with people like Nitin Kamath. But it is the success of these people, the extraordinary success of local people, that inspires more and more people to get going on entrepreneurship. What we have to do is, in every district, look at some successes and showcase them and inspire others. 

The second thing you've got to do is figure out in this district, what is their competitive advantage? What could they be doing? And pick two or three sectors, if you will, and it could be around food processing, it could be around light manufacturing, whatever it is, and try and accelerate many more small businesses. And we've got a way to do this, which we call growth rate. That's the second piece. 

Third thing is, you work with the district administration, to say in these sectors, how do we reduce the frictions, create more tailwinds and reduce the headwinds? Then we run the largest entrepreneurship programme in the world. We are now in ten states. This morning, 4 million kids across India woke up and their first compulsory subject at 09.00 am was entrepreneurship. You get them all thinking about entrepreneurship as a viable career choice. You get them hooked on it, you get them a taste of it. It's not just learning it in a class. They actually have to launch businesses during the summer holidays. You get them hooked on it. And so that also creates a pipeline of opportunity. By all these interventions in one place, you hope to get something self-sustaining, a chain reaction happening. 

We've just launched in Maharashtra in six districts, including Thane, Aurangabad, Jalna, whatever. Interesting proof of concept. Now, after five years, whether we know how to systematically intervene in a small town and get this whole entrepreneurship thing going, if we can do that, I think we have something quite extraordinary that can happen.

What are the kind of ventures that have, let's say, risen up at least to be noticed by you or you found interesting in the context that we've been talking about so far?

Well, if you think about India, two thirds are still living on or just adjacent to farms. The biggest opportunity has to do with agriculture, the way we grow food, the way we process food. Agro-based industries are a mega opportunity. And that's one category. 

What we're finding is very interesting. We work with a partner called SELCO (founded Solar Electric Light Company), which is out of Bangalore. And they have developed 100 (lanterns. solar lanterns)

They started out with lanterns, but now they've developed 175 different businesses which run on distributed solar. For instance, a roti-making machine, a milking machine, and a chiller, milk chiller. Or different types of grain and oil, seed grinding machines. What we are doing now with them is go to a town, run a mela,demo all these. Not all 175, but let's say 25 different types of businesses with these and mobilise people to come forward and say, look, I want to start this business. And if they come forward, you give them training, you give them a loan, you show them how to market it. This is amazing. This is like franchising in a different way. Can you franchise 175 different business models?

Here's the interesting thing. Two-thirds of the entrepreneurs are women. Right now, in our Maharashtra Entrepreneurship Mission, which I talked about six districts, we've got a target of 500 new entrepreneurs around these business models. Light manufacturing has a lot of potential in many places. For instance, Ludhiana or a Kolapur or Coimbatore area, which have a tradition of manufacturing. I think by just raising that ambition of what they can do, there's enormous, enormous headroom. 

Look, every place has its opportunity. We haven't even begun to look at craft manufacturing. So there's a lot out there.

Most of what you're dealing with, at least in the context of GAME, is physical products.

Almost all of it. Some are services business, but I would say a vast amount of it is physical products of some sort. 

Aspirationally, the people you meet in this context want to grow like that, or do they want to become, start a fintech company, for example?

Look, Fintech and all is maybe in 7-10 cities, but in much of India, people are just lost. They're just lost. They don't know what to do. Their biggest ambition is probably by and large a government job. But there are no government jobs. Or for every one job, there's one lakh applicants, and they're clueless about what to do. 

And there's a lot of despair coming in. If you come in there and you demonstrate the opportunities, you don't talk about it. You expose them to these different types of businesses they can do. They self-select. Somebody is interested in this, somebody is interested. And some are still interested in just staying at home and getting a handout. But I do not think that is the majority. Our work is still early, but I would say by and large, there's a lot of interest in going down these pathways, but on their own, they are not able to think of it. You have to be able to demo it.

You've brought in the problem of jobs in what you've said. And we've also touched upon the fact that the private sector itself currently does not have too much capacity, particularly as skill levels increase. And the nature of jobs also changes. I mean, the nature of manufacturing and production and services changes. In a very broad sense, what do you feel are some of the solutions to the problem that we face as India at scale?

Look, first of all, you've got to realise what we are up against. Our demographics say that we need to be creating somewhere between 12-18 million jobs a year, net jobs, not gross jobs, because the net also means productivity drives some job losses. And we haven't been close to anywhere close to that forever. 

The second thing that's happening is automation of different sorts, whether it's AI, robotics, machinery. And so generally, we are on the cusp of a very, very steep productivity curve, which means you need fewer people. And we haven't even begun to think about the impact of AI.  And, you know, Rishi Sunak just hosted a bunch of AI gurus somewhere in England, and Elon Musk was there, and Sam Altman, all these guys were there. Elon particularly said: in another decade or so, we don't need people to work. If they want to work, that's fine, but we don't need them to work. Wow. But the reason why people work is not primarily money. You can think about some sort of universal basic income, like your (Mahatma Gandhi National Rural Employment Guarantee Act). You can think about a universal basic income scheme for even everybody. 

But that's not the primary reason why we go to work. We do it because work gives us so much more than an income. It gives us meaning, purpose, community, opportunities to learn, and accomplish. For mental well being, you need to do things. What does this mean? That's why I think one of the biggest pathways is for people to become self employed, or better yet, start a business that employs a few people and so forth. 

The other thing that's happening, which I write in my second book, What the heck do I do with my life?, is there is no longer any such thing as a stable job. Because even in a good company like Microsoft or Google, you can have a layoff. You can get reorganised, you could get a new manager who doesn't like you. Whatever it is, there are too many variables. In the recent interview with Bloomberg, I said, look, the riskiest thing is not entrepreneurship. The riskiest thing is having a job. The faster you get on with learning to become independent, self employed, as you and I have, or better yet, starting a small business that grows over time to a medium business, the better off we'll be. 

And if we can get many more, hundreds of thousands, and then millions going down this path, I think it all adds up. It adds up. 

Obviously, the recommendations for the government would be very different. But here I'm talking more as, what does it mean for individuals?

Do you feel that? You did say that supply orients itself to demand. And if demand shifts, then all these young engineers who come out of colleges or humanities graduates will adjust. Are you confident in that? Do you feel this generation has what it takes? And this is a question that every generation, one must ask.

Yeah, we begin to show our age if we start doubting the new generations. Look, every generation has different attitudes towards life, work, etc. You can see those differences. But at the end of the day, look, you're not solving for 1.4 billion people. You're either solving for your enterprise or you're solving for yourself. Even at the scale of a Microsoft or whatever, can you find so many thousand willing people every year? Yeah, you may have to cast a wider net to find the thousand that you want. You may have to do way more filtering, and you may have to do way more remedial learning. But India has an infinite supply of talent. And so the most important thing that I've learned over the years is hire for talent and train for the skills. Don't hire skills. That's a completely wrong strategy. 

Ravi, are you working on any new book or a sequel to the earlier one?

Actually, I'm thinking about it now. One of my friends, a very interesting guy from my classmate at Harvard Business School, Jonathan West. At this age, he just finished his PhD in ancient Greek literature. He learned classical Greek and went back to read Plato, Aristotle, etc, the original, and he just got his PhD. I said, Jonathan, why don't we write a book about what these ancient Greek philosophers might advise if they were here today, in these current times? How do you stay sane in a world where the planet is collapsing, all these kinds of wars and divisions and what not? And he said, great idea. And we were beginning to think about that, and then he died. Suddenly, I just lost him. 

But the idea still remains, which is, how do you stay sane in a world that is as dystopian as ours is, and we've seen nothing yet, it's going to get wildly more dystopian in every part of the world. What do we do? What do we as individuals and communities? That's the kind of book I'm thinking is actually relevant. I don't have answers. I have questions.