NEW YORK – India’s banks need to step away from the culture of lending loans on the basis of a ‘parivaar (family) relationship’ they have with businesses, and instead get into the mode of banks in the West, where transactional value with rigid collateral rules triumph, said Nitin Nohria, Dean, Harvard Business School, commenting on the fallout of the Punjab National Bank scam perpetrated by diamond merchants Nirav Modi and Mehul Choksi.
“India’s banks need to be cautious,” said Nohria, in comments to News India Times, when asked on his advice for Indian banks’ discretion for loans, and collateral amount, on the sidelines of the second ‘India Lecture Series’ at the Indian Consulate in New York, on February 26.
The monthly lecture series is an initiative of the Consul General of India in New York, Ambassador Sandeep Chakravorty, who had kicked off proceedings last month inviting over Dr. Arvind Panagariya, professor of economics at Columbia University, who earlier served as vice-chairman of the Indian government’s think-tank NITI Aayog.
The Punjab-born Nohria, an alum of IIT Bombay and MIT, said that the scam by Modi and Choksi has had a “chilling effect” on small and medium businesses’ demand for loans in India to further business, and will likely affect FDI too, in the short term.
The concept of a ‘parivaar relationship’ playing a huge role in the Indian corporate world was one of the four factors that Nohria had earlier talked about in his lecture, titled, ‘Doing Business in India: the Good and the Bad,’ moderated by journalist Bobby Ghosh, the former Editor-in-Chief of The Hindustan Times, who has had stints with various other groups, including Time magazine.
Nohria also cited the concepts of ‘jugaad’ – the art form of improvisation on the fly popular in India, and prevalent in several other developing countries; smart tactics to create value propositions, and business as an instrument for the good of society.
While praising all these inherent qualities in Indian business, terming it as “this is the good, the virtue,” Nohria cautioned that foreign investors also found that each of these tactics had a “bad side” to it, detrimental to doing business confidently.
“If you are a US company that wants to operate in India, your experience of jugaad is that everything is chalta hai. So people find it very difficult to operate in a system where there is no time commitment. Just in time means there is time! It’s almost like you don’t want to have processes, and only want to rely on jugaad even when that job could have been done in the normal course,” said Nohria.
“…my comments on jugaad culture should not be misunderstood as pessimism. But then, jugaad cannot take the place of established systems and processes either,” said Nohria, who didn’t hold back any punches in picking out the cons and flaws in doing business in India.
Indians have “extraordinary gifts” (at doing business), said Nohria, but there is “a dark side, and that makes doing business in India frustrating”, he added.
“In the US, the relationship between employers and employees is very transactional. In India, so many family businesses dominate the Indian landscape that the employer- employee relationship becomes one of familiarity. They (employer) begin to think of the business itself as their parivaar,” he said.
“The quality of top 7-8 people (in a corporate business) in India is the same as in the US,” said Nohria. “If you go two levels down, the quality drop-off is precipitous,” he surmised.
Nohria blamed the deep-embedded culture in India of procrastinating work till the “last minute” and lamented that workers put in work only when given orders by their supervisors.
“(It’s) very difficult to operate in an environment without time commitment,” he said, of the delaying and procrastination.
On the concept that Indian businesses tend to see themselves as being ‘good’ for society, Nohria opined: “For many Indian business owners…these are people whose mission for the company is more than just to create shareholder value. American leaders are preoccupied with creating shareholder value. In India, the firm is seen by most people as an instrument for society.”
Nohria also touched upon subjects like bilateral trade with the US in an interactive exchange with the select audience at the evening meet at the Consulate, which he advocates for India, as he feels that soft trade would give its IT industry some amount of protection, and the need to reform quality education in India, by winnowing teachers who are not productive or up to the mark, and the need for worker training.
“Indian IT companies did well because of extraordinary training programs,” he said. “Infosys and Wipro have extraordinary training programs which then puts backward pressure for the supply chain to deliver the goods that are pegged to some benchmark at the very least. If you have nothing that is process oriented, then what do you train people to do?”
Institutional investors at the meet perked up when Nohria gave his bets for some companies who would flourish in India.
According to Nohria, the company that would create an enormous amount of wealth is Paytm.
“If there’s a company that has the opportunity to be the next Infosys and the next TCS, Paytm has the ability to be that. Look at China, people have begun to use all forms of electronic cash payment,” he said.
Nohria also placed his bet on Jio, Inmobi and Ola, and said they are among India’s most “exciting” companies today.
(This post was updated on March 2, 2018, correcting the name of Ambassador Sandeep Chakravorty)