James Wolfensohn, the former president of the World Bank, is no stranger to India. Beginning with his first trip in 1959, Wolfensohn has made several trips to India, including many as the head of the Bank. After retiring from the Bank, he has become an entrepreneur. Originally of Australian origin, and now an American citizen, Wolfensohn is a cricket buff and is following the ongoing World Cup. In the country for the first time in his new avatar, he spoke to Mint.Edited excerpts:
What brings you to India this time?
I have been coming here since 1959. This time though it is a new reincarnation (having set up Wolfensohn & Company, LLC, a private investment firm and an advisor to corporations and governments), since leaving the World Bank. I am establishing an investment banking group with my children and some of their friends. We are also setting up an investment vehicle to invest in the more important developing countries.
Among those, the most important is India. So, I have come over to meet a number of people in Mumbai and Delhi to tell them I am reincarnated and that we are ready to make some investments here. We have had the opportunity of taking a modest stake (through WCP Mauritius Holding, a Mauritius-based company promoted by Wolfensohn & Company, LLC) in Fabindia.
What drove you to make thisinvestment?
First of all, I think the founder and the management of Fabindia are wonderful people. That is the first element you look at in anything you do. Secondly, the philosophy of Fabindia is something I believe in very much.
There are all kinds of purposes for investing in developing countries; it is of course to make economically viable investments. If you can do it within the context of social responsibility, then I think it is not just because of high-minded motive, which I think is worth doing for itself, but I also believe that it is a secure way to invest in the long term. This is because you are investing in activities, which then have broad support. What attracted me immediately to Fabindia is essentially that philosophy, which is to sponsor manufacturing and distribution in a parallel way in the important markets, growing on the socially importantmanufacturing.
From my point of view, it is what I was trying to do for 10 years at the World Bank. Now, I have an opportunity to do it in the private sector.
You mentioned that one of the guiding principles was social responsibility. So, is this going to be the norm for all your investments in India?
I think you have to have two things in investments in developing countries.
Firstly, you need a viable investment. To invest in a socially bankrupt situation is not smart—it is neither socially responsible nor is it viable. Secondly, what is important is to look at those opportunities that can build on economic potential. The insight that I got at the Bank was that the two are compatible. By doing good in developing markets you secure the long-term survival of your activities, but you also appeal to those segments of the market that are likelyto grow.
And so, it is not a dream like thing put to me by my children. It happens to be good business. If you can do that and have a sense of social responsibility at the same time, then that is the area that I would like to participate in.
I would not have participated in Fabindia because they are engaged in social responsibility. But, if you combine that with a concept of retailing, which is both attractive and viable, and you have a social responsibility, particularly in the market that Fabindia is operating. It seems to me that this is the prototype that you need to invest in developing countries.
Are there more such investments on the anvil?
There will be. My private sector incarnation is eight months old. But, in the last 12 years, working 10 years at the World Bank and then doing work in the Middle East (West Asia), it became very clear to me that the issues we are facing globally is one of development. In the next 45 years, you get another three billion people on the planet.
So, you are moving from a roughly six billion world to a nine billion world. And if you look at that and think that three billion of the current global population live under $2 (Rs84) per day, you will only have stability if you can broaden the base. So this is not the musing of a mad philosopher with social activist tendencies, though in some ways I do have them. This is a pragmatic way of looking at a world that I would like to have my kids a chance to live in.
And that will be a peaceful world if you can broaden the base of ownership and opportunity. In the world that we are going to inherit, you will see a greater share going to developing countries. The first fact is that today the G7 does not include India and China. By 2040, China will be the same size as the United States. The G7 will be joined by Brazil, China, India and Russia—the top 20 will have 14 developing countries. A bunch of the current OECD countries will not be in this list. And that is the reality.
How big is India in your privateequity portfolio?
We are just starting. We are looking to raise somewhere between $500 million and $1 billion and will open an office here. Assuming that people trust us with their money, then we will have at least a quarter of this investment, maybe more, in India.
And the reason is that you have the conditions now for growth, for private enterprise investing. If it is possible to get in under the guard of your major conglomerates or work with them in ways which we can add value, then that is a more attractive investment opportunity than anywhere in the world, including China. The opportunity to invest in China is more limited when compared to India, which has the advantage of language, 8% growth and stability ingovernment.
The ideology you are propagating is that there is nothing wrong in looking at making profits when you invest in the socially responsible projects. In India too, there is a school of thought that say the microfinance initiatives should adopt a strategy where it pays for itself as opposed to depending on grants. What are your thoughts?
If you look at Grameen Bank (Bangladesh’s Nobel Peace Prize-winning microfinance institution), then they too are looking at it as a business venture. This is not wide-eyed idealism. The fact is that in microcredit or dealing with poor people, my experience has been that people in poverty need an opportunity. The fact that you get 99% repayments in microcredit is not because you have policemen at the door, but it is that people given an opportunity, by and large, want to do everything in their power to pay you back to build to the next level.
My own opinion is that if you can go into tough areas, ones that would be regarded as dangerous, you could turn an adversarial situation into a positive situation.
Your company also offers advisory services to corporations and governments. Have you offered such services in the Indian context?
We are eight months old. I have had some wonderful people join me; we are building this business. I have handed over to my children and their friends the selection process for business. What we have done is to build part of our business as advisory business—I would not like to speak about our clients. But I am the chairman of the international board of Citibank, which is public, and hence I am active in a sense with Citigroup. We have a couple of other clients as well. What this does is to give us an adequate financial base to have offices in Singapore, Washington, London, Moscow and New York. My guess is that come five years from now, we will decide where we can be established. And for sure, in three months we will have an office in India. And that office will be responsive to the opportunities here. Part of it, I hope, will be investment, while another part will be advisory. And it is hazardous to say that it will be a success. But given the growth of India, it will surprise me that if we can’t add something.
How would you compare the India you knew as the World Bank president and the one you are now getting acquainted to as anentrepreneur?
Look, when you are in the World Bank there are two levels at which you operate on. There are several hundred million people who are living under $1 a day. It is one of the immediate focus areas ofthe Bank.
Unfortunately, this is not coming down as quickly as one would have liked to. India has had to, after the British left, rebuild its human capacities to take the country forward. Then you reached the level of 3-4% growth and now you have 8% growth.
What has emerged since then is that a group of entrepreneurs, highly centralized, have been able to take advantage of that situation. So what I see happening in this country, with $30 billion (being realized) in export of advisory services in high tech (alone), is that the opportunities remain massive.
What I am now finding also, (is that) there are many middle-level entrepreneurs coming through. And if you get out of Mumbai and Delhi, there are people you have never heard of who are property developers, retailers and so on. You have such a huge population because of which the opportunities for new regional activity are tremendous.
And I don’t think it will happen overnight. You will have to improve infrastructure. The comparison for me is what I first saw here 50 years ago and then during my period at the Bank and what will happen in the next 50 years—it should see India (rise to) number three, four or five in absolute terms and not in adjusted dollar terms (purchasing power parity) in gross domestic product. You are not going to hold back growth from this country. So, I see India as a fascinating democracy, which is also an important prospect.
How do you assess the current phase of growth, which is unprecedented, in the context of a sound development strategy, especially since there has been considerable debate within India about this growth not being inclusive innature?
I am not a member of your government. My impression is that one of the preoccupations of your leaders is that stability will come with inclusiveness. That was certainly the position that was taken during my period at the World Bank. But now you have $200 billion reserves, 8% growth and you have to say that there is now an opportunity for an inclusive growth.
The entire debate on corruption at the Bank was initiated during your tenure. How do you see the battle on corruption, and, secondly, your thoughts on whatever is going on right now (the controversy surrounding the current president Paul Wolfowitz)?
To be honest with you, I don’t know what is going on with the Bank right now. Since, I left the Bank, I have been back thrice; twice was to talk and not to listen. So, honestly I cannot say anything. I also believe that once you leave a place then you should move on. So, I am not a good source on the Bank.
When I first mentioned the word corruption at the Bank, I was taken aside by the then general counsel and told not to mention the c-word. When I asked him what was the c-word, he said it was corruption. Then, I said, why should I not mention it, and actually devoted my first speech to it. And it is not that anybody did not know about it, it was just that official institutions did not talk about it. It was likeopening thefloodgates.
Almost every government started talking about it and the next annual meeting every (finance) minister talked about it. You are not going to fix it overnight. Again, when you talk about stability, you cannot have a few people making all the money and have it last. They can prolong their stay by police or military action. In the end, as it happened in Indonesia, you get thrown out. So, it is not a genius insight. It is human nature.
All I can say is that the corruption issue is still important and I think I am very glad that more and more people are talking about it.
Finally, presume you will be rooting for your country of origin, Australia (at the cricket World Cup)?
That is very simple to answer. Notwithstanding the fact that I spend so much time in the United States, Zubin Mehta, who is another complete cricket nut, keeps me informed on what is happening in cricket. I am happy to tell you that I have won a lot of money from Zubin in recent years (when Australian cricket has almost completely dominated world cricket, particularly in its games with India