New Delhi: Venture capitalist K. Ram Sriram is a founding board member of Google Inc. and one of the first investors in the company that is now the world’s top search-engine firm. Sriram, currently in India to oversee investments made by his Sherpalo Ventures, spoke in an interview on the state of the US economy and outlook for the technology sector. Edited excerpts:
Optimistic view: K. Ram Sriram. Abhijit Bhatlekar / Mint
How are you looking at things at this point, given what we have seen globally as well as in India? How confident are you about the green-shoots theory?
I think the world has gone through a major change and the US has been through a lot of convulsions during this period since the great depression. I think the worst is behind us at least from the point of view of what we see in the US. The recovery appears to be very shallow at this time, which means it will be a long and prolonged, slow recovery. The stimulus programme of $700 billion (around Rs34.16 trillion) is being spent over six quarters. So $700 billion on a $14 trillion economy is about 5% of new money (that is being) pumped in.
That’s good news, that’s helping. But I think in terms of actual recovery, the second derivative is turning positive, which means the decline of US GDP (gross domestic product) is moderating quite a bit. It was negative 6.5% in Q1 (first quarter) of 2009, negative little over 3% in the quarter that just ended in June. The expectations in the next quarters is that we will have a small positive gain exiting Q4 (fourth quarter of) calendar 2009. The expectation for 2010 and 2011 is roughly 2% GDP growth.
Which side of the camp are you in—one that expects another stimulus package or the one that says enough for now?
I think the stimulus is helping, but the lagging indicators such as unemployment will continue to rise. I am in the camp of not having a second stimulus to see how this works, at least through the end of this year and early next year. If we head back into negative and feeble growth, then I think we should consider a second stimulus. At this point, the Fed funds rate is at 25 basis points and there is solvency, but no liquidity in the economy. That’s what the stimulus is helping with and hopefully that should begin to show results over the next two quarters. (One basis point is one-hundredth of a percentage point.)
How optimistic are you about a turnaround as far as the technology sector is concerned?
Well, thankfully, technology was not hit as hard. It is all relative of course. It was hit hard in terms of IT (information technology) spending but it has held up reasonably well. And in the recovery, I think technology will again lead the way in some sense—not as the only sector leading the way, there are others, but because it is the productivity gains that technology offers, which do not come from any other sectors as easily and as quickly given an investment by any company in a new technology into their business.