India Transformed

by Rakesh Mohan

  In the pre-reforms era, the country’s economic strategy had focused on a large public sector for which the planners reserved the commanding heights of the economy—the critical sectors related to infrastructure, energy and transport. The private sector was only allowed to function in a highly regulated space. Import substitution was the core thrust of policy. During the period, even as the Asian Tigers were roaring, the Indian economy lumbered along at a sluggish 3.3 per cent a year.5

  From a closed economy in the 1980s with limited access to international markets, India slowly but surely walked the path to becoming an economic superpower. Successive governments brought in structural reforms aimed at removing impediments to growth and fostering India’s global position.

  Today, India accounts for 3 per cent of the global gross domestic product (GDP, 1.7 times its share in 1980),6 2 per cent of global trade in 2016 (3.4 times of that in 1980)7 and has 18 per cent of the world’s working-age population.8 It is the fastest-growing major economy in the world with a growth rate of over 7 per cent, a thriving private sector and a supportive business environment. The private sector has not just laid the foundations of manufacturing and indigenous production in the country but has also become the driver of India’s infrastructure, employment and productivity growth.

  Access to newer markets, along with enhanced competition in these markets, implied that to survive and thrive in the new environment, companies needed to invest and innovate continuously on a large scale. This enhanced fixed capital formation in a capital-deficient country. As companies started investing in technology and acquiring market share, investment as percentage of the GDP climbed to nearly 30 per cent in the 2000s from about 20 per cent in the 1990s.9

  Today, Reliance is India’s largest exporter, contributing nearly 8 per cent of the country’s total exports. These changes owe everything to deregulation, which was critical in unleashing the country’s latent potential and enhancing prospects of growth.

  Reforms Powered Reliance’s Growth into a Global-scale Conglomerate

  This twenty-five-year period also saw Reliance Industries Limited emerge as a world-class and world-scale Indian business enterprise. Reliance ambitiously seized the opportunities created by the post-1991 reforms, expanding the competencies of our group. This happened because we realized the strong synergies between wealth generation for the nation and value creation for the company. In this, our motto, ‘Growth is Life’, captured the aspirations of both India and Reliance in a journey every stage of which was guided by Dhirubhai’s core conviction—‘What is good for India is good for Reliance’.

  We believe that it is India’s destiny to become a global economic superpower in the twenty-first century and regain its erstwhile glory and that Reliance must contribute to this transformation by becoming one of the world’s largest private-sector companies.

  Post-reforms, Reliance became one of the leaders in the private corporate investment cycle, envisioning and creating the world’s largest greenfield refinery. Our integrated complex at Jamnagar was conceived to house the country’s biggest refinery with a capacity of 27 million tonnes per annum (MTPA), along with a petrochemicals complex, a power plant, a desalination plant and a dedicated port—commissioned together with a total investment of Rs 25,000 crore in the ’90s.

  Dhirubhai conceptualized Jamnagar at a time when it was inconceivable for anyone in India to even dream of creating a business that could by its scale eclipse the big global players. No one in the private sector dared to have ambitions of making a one-time investment of Rs 25,000 crore. In creating this refinery we saw a whole new world of global market opportunity opening up before us. The ensuing years have seen the capacity of the Jamnagar refinery more than double to 66 MTPA. By making Jamnagar the world’s biggest and most complex refinery, Reliance, in effect, proved the immense possibilities latent in India.

  Without doubt, it was the liberalization of the Indian economy that enabled Reliance to mobilize the capital, labor and other resources from India as well as from across the world. Without liberalization, none of this would have been possible.

  In 1992, Reliance raised $150 million by venturing into the overseas capital markets with the first-ever international global depository receipt (GDR) offering by an Indian company. In 1993, the company pioneered the first-ever euro convertible bond issue by an Indian entity for a value of $140 million. A sum of Rs 2172 crore was raised from the domestic capital market for setting up the refinery at Jamnagar. In the following year, Reliance came up with the single-largest GDR issue aggregating $300 million. By 1995, Reliance was the first private sector Indian company to be rated by international credit rating agencies. It also became the first private sector company from India to raise $300 million in the international debt market in two landmark transactions. The year 1997 saw yet another first as Reliance became the first Asian company to issue fifty- and 100-year bonds in the US debt market, raising more than $600 million. These resources were used to expand the capacity at the Hazira petrochemicals complex. Following our lead and thanks to capital and financial-market reforms, it became progressively easier for similar Indian businesses to tap new sources of funding for greenfield projects as well as for expansion plans.

  The Jamnagar refinery required huge human-resource mobilization. Of all the people working on site, 10 per cent were expatriates from across the world. Half of all our workers were young, under thirty-five years of age. Reliance provided for the training and skilling of 3,20,000 people in carpentry, welding, electrical and instrumentation. Jamnagar, to my mind, became the first large-scale organized skill-development initiative of India. Once the refinery work was over, many would successfully migrate to the Middle East with their fully developed skills and become foreign exchange earners for India.

  Induction of the world’s leading oil and gas technologies was just one aspect of the design and planning for the complex. The parallel IT sector boom in India also played a crucial part in developing the Jamnagar refinery. Increasing globalization enabled us to establish several fully networked design and engineering hubs across London, Chicago, Houston, Mumbai, Delhi and Jamnagar. Connected via satellite, this IT infrastructure became a hub of perpetual activity. It provided round-the-clock voice, data and video connectivity to our engineers worldwide. It became the backbone connecting our design cell of 500 engineers worldwide for continuous, 24x7 residual engineering and field-construction support.

  Early on in its journey, Reliance recognized the importance of backward and forward integration of the value-creation chain and implemented it in the country. By the early 1980s, Reliance had executed its first mega manufacturing project at Patalganga, near Mumbai, in a record time of eighteen months. The purpose being the production of polyester filament yarn and polyester staple fibre—both raw material for the textile industry—that were being imported in the country until now.

  With Patalganga we began a journey that has remained to this day about investing in India and investing in businesses of the future. In the last five years alone, we have invested nearly Rs 2,50,000 crore in digital, petroleum refining and marketing, petrochemicals, retail and media businesses. Each of these projects stands as testimony to the company’s legendary project execution capabilities. Of this, we are investing over Rs 1,10,000 crore in our petrochemicals and refining businesses. We have invested more during the last five years than we did in the first thirty-five years of the company, making the current investment cycle the biggest in our history. The Rs 1,12,995-crore capex during FY 2015–16 is the highest by any Indian corporation in a single year.10 It is also about 0.8 per cent of India’s GDP and 2.5 per cent of the total investment. Our investments are spread across all our businesses and aim to create sustained and significant value not only for our stakeholders but also for the country at large. Ranked 215 in the Fortune 500 global list, Reliance, as the largest private-sector corporation in India, has now set its sights on growing even faster and stronger.

  The Growth Trajectory
of India and Prospects for Businesses of the Future

  The trajectory of an economy as it develops has so far consisted of its transformation from being an agrarian economy through an industrialization-led manufacturing cycle to a services-led economy. Typically, this cycle has moved workers from low-productivity activities such as agriculture to high-productivity sectors like manufacturing and services by increasing specialization and economies of scale. We have seen this cycle repeat itself in nation after nation through the last century. The growth of Japan, Taiwan and finally China at the end of the millennium has followed the same trajectory.

  However, India has stepped forward as the first outlier along this well-known path of economic transformation. The first decade of the 21st century saw the Indian economy leapfrog from agriculture to services. Even as the share of manufacturing stagnated at 18–20 per cent of the GDP, the services field, led by a vibrant IT sector, saw the rapid expansion of communication, banking and business services.11

  Reforms led by deregulation, the liberalization of FDI and divestment of government-owned enterprises, particularly in telecommunications, have aided to the rapid growth of the services sector in India. India’s favourable demographic—a working-age population, which rose from 58 per cent in 1990 to over 65 per cent in 2015—has provided a large pool of talented young engineers and English-speaking graduates who have formed the bedrock of the IT revolution.12 In a networked world, the wage–cost advantage provided by this vast human resource has seen services exports grow by as much as 15 per cent per annum in the 1990s, from just 9 per cent through the 1980s.13

  Over the last three decades, these advantages have continued to play a role in expanding economic growth. We have seen India move from the G77 cluster of developing countries in 1991 to the G20. In purchasing-power parity terms, India is now the third-largest economy after China and the United States. This economic growth has come with increased employment and higher productivity. It has provided sustained sources of livelihood which, by boosting purchasing power and consumption, have catalysed a virtuous cycle of growth. Following the global economic crisis of 2008, even as the developed economies saw either de-growth or stagnation followed by tepid growth, with even the Chinese economy showing signs of weariness, India has continued to grow at a steady 7 per cent per annum against the five-year global average of 3.4 per cent per annum.14

  Since the 1991 reforms, private consumption has grown at around 6 per cent annually—far higher than the under 4 per cent rate of the preceding twenty years. The percentage of population living in poverty has halved from 45 per cent in 1993–94 to 22 per cent in 2011–12. Household consumption expenditure as a percentage of GDP now stands at 58 per cent, which, already higher than the average 54 per cent characteristic of low- and middle-income countries, is closer to that seen in the member countries of the Organization for Economic Cooperation and Development (OECD)—61 per cent.15

  India’s burgeoning middle class is recognized globally as an emerging and expanding market. Robust economic growth and rising household incomes are expected to increase consumer spending to $3.6 trillion by 2020, expanding India’s share of global consumption to 5.8 per cent by 2020.16

  As incomes increase, the composition of spending alters considerably, with discretionary expenditure on items such as electronics and personal care growing rapidly. Seeing the signs, many companies, including ours, have invested in the retail space. Foreign companies await the relaxation of FDI norms in multi-brand retail. E-commerce is rapidly making its presence felt as Internet penetration grows.

  For decades, the neighbourhood kirana store—family-run stores selling essentials—typified India’s retail sector. In the 1980s, some retail stores set up by manufacturers began to make their appearance in the metros. The 1990s then saw the arrival of multi-brand retailers followed by supermarkets and hypermarkets.

  India’s retail industry, currently valued at $600 billion, is expected to nearly double to $1 trillion by 2020. Organized retail covers only 7.5 per cent and is expected to grow at 20 per cent annually to reach 10 per cent by 2018.17 The goods and services tax, once implemented, will simplify the supply chain and bring down the costs and unify India into a single and seamless market.

  The rise in India’s prosperity, the proverbial growth of the Indian middle class and the aspiration of its youth for the best of products and services anywhere in the world are surely transforming the Indian consumer sector. Reliance Retail is responding to this change by building a global-scale, next-generation business technologically supported end-to-end by a robust supply chain. Quick to adapt to Indian conditions, the company is using technology to share the benefits of its procurement and supply infrastructure with hundreds of thousands of small and medium businesses. In the process, it is also generating substantial direct and indirect employment opportunities.

  The process began in 2006 with the aim to create stakeholders among farmers, small shopkeepers and consumers by generating a virtuous cycle of prosperity through win-win partnerships. Reliance Retail is already India’s largest retailer, having over 13 million square feet of retail space across 500 cities, catering to the needs of 3.5 million customers every week and generating over Rs 20,000 crore in revenue. This exemplifies an annual growth of over 30 per cent in revenues for the last five years. Challenged by the growth of e-tailing, Reliance Retail has quickly moved to bridge the gap between retail and e-tail. It has forayed into e-commerce with Ajio and Reliance Fresh Direct, creating an omni-channel experience for the consumer.

  Jio Mission: Global Digital Leadership and Empowerment of Aspirational India

  Reliance could not have embarked upon this transformative journey but for the continuous broadening and deepening of economic reforms in India. Liberalization and globalization enabled us to adopt a growth trajectory that integrated both organic and disruptive growth opportunities. A growth and development story at the very heart of which lay Dhirubhai’s vision of the mutualism between India and Reliance.

  Today, as the economic landscape increasingly veers towards the digital, the same mutualism holds true. The transformation of a country is by no means limited to just the economic sphere. Sustainable development encapsulates the notion of a multifaceted growth incorporating progress in human development. And as the global community adopts the Sustainable Development Goals (SDGs), if there is one modern disruptive development that has the power to transform lives and livelihoods in this country, it is the country’s digital leadership.

  In the explosive growth of mobile telephony in the country, we have already seen the fruits of reform transform the lives of the common man and woman. Owning a mobile phone was a luxury in the 1990s that only the rich could afford. India has already seen a radical transformation of its telecom space over the last two decades. When the telecom revolution began, Reliance was at the forefront. Our digital initiative too was thus envisioned by Dhirubhai, whose goal was ‘to put the power of information and communications in the hands of common people at an affordable cost’. We entered the telecom space with the world’s lowest entry cost and the world’s lowest usage charges for any telecommunications service, once again demonstrating that when we align with India and its people, it makes good social, economic and business sense. Our highly competitive tariffs and innovative plans enabled a significant reduction in overall telecom service charges, ushering in a telecom revolution in the country. The process of reforms first turned an aspiration into a necessity and then this necessity into a reality by placing the ubiquitous handheld device in the palms of literally every Indian. Today, India, after China, has the largest number of mobile phone subscribers—over 1 billion connections for a population of over 1.2 billion.18

  Meanwhile, technology continues with its onward march. Now the world is at the beginning of a digital revolution. Everything that can go digital is going digital—at an exponential rate, faster than anyone can imagine. By 2012–13, India had already witnessed a significant increase in Internet use, add
ing 100 million Internet subscribers between December 2013 and March 2016. Strong government focus on digitally transforming the nation with its Digital India campaign coupled with increasing consumer awareness and demand, and combined with declining data tariffs are now all set to steer the country towards a digital revolution. As of March 2016, the total number of Internet subscribers stand at 343 million, with the majority using wireless Internet (322 million). And data usage per subscriber (GSM+CDMA) has almost tripled from 59.6 MB to 147 MB during the same period.

  However, despite the progress, India still ranks 156th in the world for mobile broadband Internet access, out of 195 countries, in 2016.19 It lags behind other developing economy peers in terms of Internet access. In spite of the sharp increase in Internet penetration in the last couple of years to 26 per cent in 2015, India is behind peers such as Brazil at 59 per cent and China at 50 per cent. Bridging this infrastructure gap is now going to be the key to make India leapfrog into the next big economic cycle of the future.

  The Indian government today has a vision for rapidly expanding the digital infrastructure to bring India on a par with the most digitally advanced nations of the world. This thrust is absolutely essential to make the country relevant and competitive in this new era of technological innovation, as also for raising productivity for greater economic growth and human development. The prerequisite for this is a countrywide digital infrastructure followed by ease of access to it for the last person in India’s villages. If this is not done, an ever-yawning digital divide will only widen the socio-economic divide between the digital have and have-nots. Digital India today is about using digital technologies to bridge the socio-economic divide by exponentially expanding the opportunities available to transform lives down to the last mile.