States should collaborate with the centre to improve ease of doing business: K.M. Birla

In the new world you are required to have skills of how to manage people better, how to attract better talent, how to provide people with attractive career paths, so that was a big area of my focus, says Kumar Mangalam Birla, chairman, Aditya Birla Group, about the industry in India about 25 years ago. Edited excerpts from an interview:

Let us go back 24-25 years ago to that Kumar Birla who had to come back from your ailing father’s bed and take up such a large position. I mean it was not ₹3 trillion, but it was ₹30,000 crore and that was a lot of money in 1995. Your colleagues, who were maybe double our age at that time or more, said you were extremely perceptive. You knew a lot, even your questions were searching, and the comments were guiding. So you were kind of prepared even at 28.

I was well qualified, I had done my Chartered Accountancy (CA). I had done my MBA. More than that I had spent a lot of time working with my father. So I do not know if what you said is true, I think they were just being generous, but it is not like I was completely a babe in the woods. I understood business. I understood the dynamics of the business. I was not exposed to all the businesses of the group at that time but I had a very good sense of what it takes to run a business, that is for sure. My father made sure I knew that, I think also in light of the fact that he was critically unwell.

What did your father teach you in terms of business principles?

Lots of stuff. I sat with him for two years and he made sure I paid attention. He would ask me questions when he thought I was dropping off. But I think in his case it was just vision. He taught me how clairvoyance, vision can shape the future, along with hard work.

Also consistency, I mean he kept at it and kept at it. He never sort of slacked off even for a day or for a month. I was supposed to go on a work trip, I remember, and I did not go. He said you did not go and I said yes, I was very tired and I remember him telling me that I have not heard of anyone who died because of being tired and I was like what do I say.

For all the professionalism until the early 1990s it was still friends and family. A large part of the Indian conglomerates had a large number of friends and family, but you nicely professionalized the entire group. How did you manage that? You would have rubbed some family members and friends the wrong way.

Just at the time that I was taking over, corporate India was going through a huge metamorphosis. Tariffs were coming down. This was after Manmohan Singh’s budget, not too long after that, not to many years after that. We were still reeling under that impact.

You had competition at your doorstep, in your backyard, and you had a whole new set of investors who had come into India, the foreign institutional investor (FIIs) and their demands from you in terms of what they would want their investments to do, the companies that they invested in was very different.

So you required a very different set of skills to succeed. The skill sets that you had required to succeed that far were not really the only skill sets you required. In our group at the time, the bulk of our people were chartered accountants as was I.

So, when you talk about professionalizing, I don’t think it was unprofessional, I think it needed contemporization more so because of this whole change happening in the outside world that coincided with my father’s passing away.

I thought that with the new world you required to have skills of how to manage people better, how to attract better talent, how to provide people with attractive career paths, so that was a big area of my focus. You also needed to know things in a more holistic perspective. It was not an era where you got a licence and put up a plant. You needed to know where to play, how to play, who are you actually catering to, who is your customer, do you want to be an all India player only or do you also want to play overseas. So there is a whole new set of strategic thinking capabilities that you require to have. All I was doing was importing some of the skill sets that we did not have from the outside.

From being a very homogenous group, almost all Marwari and I am a Marwari, to being a very heterogeneous group, we have today 35 different nationalities. The whole idea was to import talent that could bring in skills sets that we did not have so that we could succeed in the future. That was my philosophy at that point in time.

I will narrate to you what one of your seniors said. I don’t know whether I am reporting the conversation very faithfully, but what one of your people said is that Mr Birla told me that if in a family there were two sons and one of them was clever and the other was mediocre, the clever one was sent to a multinational or a foreign bank and the notso-clever one was brought into the Birla group—the reason being Birlas always take care of the family.This tendency was there and you wanted that changed, am I reporting it correctly?

Absolutely. I think that we had a womb to tomb policy, which was true for many businesses at that point in time. If you were employed then your son automatically almost got employed with the group and I thought that was very unfair. I think people needed to come and we needed people of a certain calibre. So I brought in a policy to say that just because you are a son of an employee you cannot just come in, you need to be qualified.

I had this one conversation that stayed with me, with someone who said that you have upset my future plans because I had always thought my son would be part of the Birla organisation. You have now come out with this so-called rule, which means that his future is completely uncertain now. What I told him was look you have got two sons, you want to send the one from MIT into a foreign bank and someone who is just a graduate you want to send him to work with me. Why should that be the case? Send me the son who is the MIT graduate and see what we can do with him in terms of the kind of opportunities we can give him in the way that he can bloom and grow in a very interesting sort of career. So that was the whole conversation.

We wanted people with qualifications, we wanted people with a certain background, with a certain track record as opposed to people coming in and then just staying on pretty much till they passed away.

There is this legendary letter that G.D. Birla is believed to have written to B.K. Birla when he went abroad to study. Have you heard of that letter. It was an extremely beautiful letter with a very beautiful philosophy. One, it says do not waste money on yourself and then it goes on to say that if you do not think your children will use your money well, then do charity before you give it to them. This is extremely noble. Was there a letter like that?

Yes, I think that letter has some kind of credo for the family. The fact that wealth is to be used for the good of society and for giving back as opposed to for the purpose of being lavish and spending mindlessly and that wealth would not stay very long with you if you were to do that. He also talked about personal habits and how that leads to character formation and the kind of impact that it has on you and your future generations. So, that letter I think is very profound.

My great grandfather was clearly influenced by Mahatma Gandhi. It also said that you should not spend on yourself and I feel a little guilty sometimes when I am buying something. However, I think that the ethos was that giving back to society and using wealth in a responsible way, in a way that you can empower people is what the purpose of wealth is all about.

So you do not spend much on yourself? You did not want to buy the latest Blackberry when it was famous, the latest iPhone?

I spend on whatever I want to, but I think I am a very reasonable spender. I will tell you the example of my grandfather—I have never seen him spend on himself.

When he was working, I think he had four or five suits at any point in time, four or five kurtas and dhotis and to get him to buy more was a real project that my aunt and grandmother had to embark on every time. So, one has seen that simple living and high thinking being actually lived.

How are you with your children, as a father. One of them is a pop singer and the other is a cricketer.

For us, for Neerja and me, we believed that we wanted our children to start out their career by doing things that they wanted to do. That would help them bloom as individuals and pursue their passions. Our only condition was that you have to work very hard. You have got to work very hard at what you do and try your very best to excel at it and we are really very happy because I think we see both of them do that.

My daughter is not just a pop singer. She also runs her own microfinance startup. She has also gotten into affordable housing and we keep a watch at a very broad level. They will not let you get closer than a point, but we have a very good sense of what she is doing. Her music is fairly interesting. She is doing quite well and has got a little fan following of her own.

My son plays cricket, he plays first-class cricket. He is with Rajasthan Royals but plays for Madhya Pradesh under 23. He is the captain. He has lived in Rewa, which is in Madhya Pradesh for the last three or four years. I went to Rewa for the first time last month. We have acquired a plant very close to that and when I landed there, the first 10 minutes I completely choked. I knew it is a small town, but I had no idea that it could be as small as it really is with hardly anything there. That hotel was probably a 2-star hotel and there was nothing there really and I cannot imagine a Mumbai boy staying there for three or four years just to pursue his passion for a sport like that. It was just something that I was taken back by, it choked me.

My daughter, she does very long hours, spends time on her music, enjoys it, but works very hard on the microfinance. She has built up her own team.

The point is that these children are very bright. This generation is a completely different generation from ours and I think it is important that we give them leeway as long as they are reasonable, as long as they are very clear about family values and sticking to those, as long as they are associating with the right people. In our case, we are fortunate that all of these has never been a problem with our children.

I think it is very important that they have good work ethics, something that our family has always stood for. I can see that they are following that. They are making mistakes. They are also making their own little and big victories, and I think that it is shaping them as individuals. It is important for each one of them to be a strong individual with his or her own identity. I think that is very important for Neerja and me.

You stepped into the world of business when as you said Dr Manmohan Singh almost changed the grammar of business. Tariffs, which were protecting Indian business, were brought down from 200 to 20 so competition was suddenly there. If today you want some earth shattering reforms in India, what would that be, something that changes the grammar of business?

I think that there is lot more that can be done on the ease of doing business. The government has done a lot. I think the state governments have to now follow suit and work in a collaborative way with the centre. Now with the Bharatiya Janata Party (BJP) having the kind of national mandate that it has, there cannot be a better time than now to expect that to happen. That is one thing I think that can move the needle and make a huge difference.

These last five years have been pretty difficult for Indian business. Earnings growth for say Nifty companies has been in single digits for the last five years. How do you see the next five years? Do you think we are breaking out because we have had some big changes such as the goods and services tax (GST) and the Insolvency and Bankruptcy Code (IBC)? Is the next five years looking bright or do you think the slowness will persist?

I think it has to be a sector-by-sector and company-by-company approach. You cannot generalize and say that we are breaking out or we are kind of stuck. It depends on the sector. Even within a sector you have two or three stars that all of us know about. So, I think it has to be specific to a few companies as opposed to a broad sweep.

The economy sprinted fairly hard from 2003 maybe to about 2010-2011. However, the slowness that came after the great financial crisis—it hit us a little later—that slowness has not gone away.

If you see the BJP manifesto and I completely trust it, I am sure you do too, they are talking about investing ₹100 trillion in infrastructure in the next five years. So we are growing at 6.5-7 per cent today. I think what we need to do and I am sure it is not a sort of unique perspective, but we need to build an economy that intrinsically can grow at 8-10 per cent and for that you need to build infrastructure. You have got roads, bridges— physical infrastructure.

You also have soft infrastructure such as health and education. I think infrastructure, developing infrastructure, is not just important for sustained growth, but also important from the point of view of creating jobs, of creating employment and the whole virtuous cycle that goes with that.

There is this huge nonbanking financial company (NBFC) issue, maybe not NBFC, maybe more housing finance companies. Do you see this dragging on for a while?

Any regulation today is going to separate the men from the boys and it actually depends on how fast the Reserve Bank of India (RBI) wants to come in and provide a bailout or if they want that shakeout to happen. I think that there are two or three such names quite unexpectedly and I think that whether it takes a month or three months, that process of separation will definitely happen.

Is your sense that it is better that there is a shakeout before general help is provided?

I think so. I think that whenever there is a situation like this, the faster it is resolved, the better. I think that the faster the weaker players or players who have governance issues are taken out of system, it is healthier for the industry as a whole.

Has IBC changed the way businessmen think and behave?

I am sure it will. It is just in the process. It is something introduced two years ago, but I think that the psychology of an entrepreneur in India has changed forever. No one really thought that their companies could be taken away from them two years ago and while it is a harsh decision, I think that it does good for the fitness of Indian industry.

It is also giving you a lot of opportunities to buy companies. Are you busy buying more?

We did. We bought into Jaypee. There is nothing else that interests us and we do not want to come to the National Company Law Tribunal (NCLT) because we have bought some companies from the NCLT.

Now for the rapid five. Who is your favourite business leader and I have picked five—Ratan Tata, N. Chandra, Mukesh Ambani, Gautam Adani, or Sunil Mittal.

My favourite business leader by and far is Narayana Murthy. He says that a clean conscious is the softest pillow you can sleep on and I think he has practised that through his career. So head and shoulder comes over anyone else.

Who is your favourite political administrative leader? I will not give you choices. Someone who has impressed you either as civil servant or a politician or just a national leader?

I have been very impressed by Nirmala Sitharaman. I am not saying that because she is the new finance minister. Well maybe because of that also, but I think that she is extremely focused, she knows what she wants, she knows her subject well. It is so business-like and yet she gets what she wants in such a sort of nice way. I was very happy to see her be the next finance minister. I think she has got great administrative skills which is what you were asking. So, yes, I think women power is obviously gaining steam.

You can still tell me one big thing you want from the budget?

All of us in business would want to see more investment happening. So some SOPs or incentives for investment on the ground is something that I think anyone would ask for; it’s a universal ask from this budget.

What has been the most difficult deal for you? You have bought so many companies, L&T Cement, Binani, Jaypee Cement, you have bought Novelis, Vodafone. Which is the most difficult deal?

I will not talk about it too much because I think it is not appropriate to, but one of these deals I actually struck in a parking lot in Mumbai. There was a lot of cloak-and-dagger around it, I do not know for what reason, but I was just told that if you want the deal to happen, come to this parking lot. So I landed up thinking is this for real, but strange things happen and I think it is all process and part of stories that you will remember at the end of your career.

What is a company you feel you should have bought? You told me Hindustan Zinc, but is there something else or some sector you should have entered, something you are dying to enter?

I think water is a very interesting segment. I do not know if India is ready for it. So water; both institutional and retail. Just given the fact that there is water shortage, all of us know that productivity of water, how well you use water is going to become more important. I think there is a big business model to be made there.

You have US companies who have done extremely well in the water business. I do not think it is the right time for India, it is perhaps way before its time, but it does not have to be in India. It could be in the US for all you know. I think that is a great business to get into.

Which business should you not have entered?

There was a very small business called Seawater Magnesia, which we had invested in and by the time the project came into being and started commissioning, the policy changed and it just became an unviable business.

So, for every tonne that you produced, you lost money. This was very early in time when I had just come in and so within one month of its commissioning I just had it shut down and the thought on everyone’s minds was what is he doing. That was a small investment but taught us a lot about being able to foresee change.

I think that was a great way to evade a controversial question.

Which is the business you had in mind.

I think it was telecom, I don’t think you wanted to enter it at all.

In perspective, if you were to ask me to enter it today, I obviously would not want to. At the time that we did 25 years ago it was a great business. We stayed with it for 25 years and we grew it from nothing to today being the largest player, not the most profitable, unfortunately not yet, but still the largest player and I think at that time if we were not to have invested given the kind of businesses and the kind of mandate we had, we would have lost an opportunity.

We have been in businesses that have had ups and downs and one of the strengths that we have had is to stay with businesses over the long-term. This is an extremely unusual case, I think this is straight out of Harvard Business Review, but I don’t regret getting into it when we did.