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Business News/ Politics / Policy/  KM Birla does a U-turn on India as Narendra Modi boosts economy
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KM Birla does a U-turn on India as Narendra Modi boosts economy

Birla said that the renewed focus on India means the country will be the first his group will consider for investments

Kumar Mangalam Birla said he preferred Brazil and Indonesia because frequent policy changes at home were scuttling investment plans. Photo: MintPremium
Kumar Mangalam Birla said he preferred Brazil and Indonesia because frequent policy changes at home were scuttling investment plans. Photo: Mint

Mumbai: Less than two years after calling India a risky place for investment, billionaire Kumar Mangalam Birla has changed his mind. The reason: Prime Minister Narendra Modi.

“There’s a new sense of excitement," Birla, 47, who heads India’s $40 billion Aditya Birla Group named after his father, said in an interview in Mumbai. “From not being there on our list of potential countries to invest in, to coming right back up on top again—that is a big deal."

Birla, who runs companies from the world’s largest rolled aluminium maker to India’s biggest cement producer, in a March 2013 interview to Bloomberg TV India said he preferred Brazil and Indonesia because frequent policy changes at home were scuttling investment plans. Modi, who swept to power in May, is seeking to rekindle growth by easing restrictions and rebuilding infrastructure for his ‘Make in India’ drive.

The new government under Modi has pledged to press ahead with amending land, labour and foreign investment law to make it easier for companies to do business after taking steps last month to curb fuel subsidies.

The renewed focus on India means the country will be the first the group will consider for investments, Birla said in his fifth-floor Mumbai office. India accounts for about 50% of his group’s revenue and the share is likely to increase if he spends more on his businesses that include retail, telecommunications and mining.

Back in focus

“I see India’s share staying at least 50% and maybe going up a little bit because the investments we have made in India are far more bulky," said Birla, who is India’s seventh-richest person with a net worth of $7.1 billion, according to the Bloomberg Billionaires Index. “India, very rightfully, has come back into focus."

The $1.9 trillion economy, may expand 6.3% in the year through March, the International Monetary Fund (IMF) says, rebounding from last year’s 4.7%, which was near the slowest in a decade.

By 2016, a growth rate of 7.2% will surpass China’s 7.1%, according to Rajeev Malik, a Singapore-based senior economist at CLSA Asia-Pacific Markets.

The Birla group operates in 36 countries including the US, Brazil, South Korea and China. It is currently working on finishing projects in India that include two aluminium smelters of 360,000 metric tons each, captive power plants and expanding cement capacity.

US plans

After its biggest ever acquisition in 2007 when it bought Atlanta-based aluminium sheet maker Novelis Inc. for an enterprise value of $5.8 billion, the group is keen on expanding in the US, he said in the 10 November interview.

“The US has worked well for us," Birla said, referring to businesses that produce lightweight metal sheets for vehicles and beverage cans. “In the US, unlike what has happened in the past in India, politics and economics are completely divorced. That’s what we in India should aspire for and that’s what this new government will look to do."

Red tape could still derail Modi’s ‘Make in India’ plans to make the country a global manufacturing hub. Delays in permits are forcing Tata Steel Ltd, the nation’s number one maker of the alloy and state-owned Steel Authority of India Ltd to close some of their top mines.

Falling short

“The wider perception is that the new government is much more reform-minded and business-minded," said Shilan Shah, an economist at London-based Capital Economics Ltd. “Although some progress will be made, they may fall slightly short of expectations," because Modi’s ruling party doesn’t yet control the upper house of parliament, he said.

India’s Supreme Court in September cancelled more than 200 coal mine permits tainted by graft allegations, risking at least $47 billion of investments in power plants and smelters. Reclaiming lost blocks in new bidding may increase production costs, Birla said.

The group will consider new investments in manufacturing in the US as cheaper energy and ease of doing business there makes it an attractive manufacturing destination, Birla said, adding there are no concrete plans yet.

In the 2013 interview to Bloomberg TV India, he had said the Group was considering buying a fertilizer plant in the US to benefit from falling energy prices.

Missing target

Policy flip-flops during the previous administration drove Vodafone Group Plc to a long-drawn litigation over tax claims, while land disputes and delays have stalled a $12 billion steel mill planned by South Korea’s Posco almost a decade ago.

India slipped three levels in the 2013 World Economic Forum’s Global Competitiveness Index from a year earlier to 59, ranked behind Costa Rica and Kazakhstan. Brazil stood at 48, while Indonesia was 50.

A global slowdown coupled with delays in starting new projects and loss of coal mining blocks in India would mean that his group will miss its target of raising revenue by 63% to $65 billion by March 2016, said Birla. He forecasts the target would be achieved after “a few years," without elaborating.

“I don’t see us getting close to that target," said Birla. “We made large investments in India. A lot of the revenue that would flow through from those have been delayed because of project approvals, land acquisitions, clearances, all of those things. That’s the real impact that all of these bottlenecks have on a company and corporations."

Hindu teachings

The group may look to buy some assets being sold by Holcim Ltd and Lafarge SA after their merger, while also being open to acquiring factories abroad, he said. He is also looking at either purchasing an e-retailer or building one from scratch, he said.

The group is also interested in international coal assets, said Birla. It had made offers for Australian coal producers New Hope Corp., Aquila Resources Ltd’s Washpool coking coal mine in 2011, people familiar with the matter have previously said.

“We had looked at deals then and we are constantly looking at deals in specific sectors, but nothing materialized because we didn’t think there was anything that met our requirements in terms of size," said Birla.

Birla said he gains “broader perspective" from his Hindu spiritual guru with whom he has weekly sittings and discusses the Bhagavad Gita, a Hindu scripture. “It has helped me become more detached at work."

Calling a succession plan a “misallocation of time," he said he would be glad to have his daughter, Ananyashree Birla, in the family business.

The 20-year-old Birla scion, eldest of his three children, set up Svatantra Microfin Pvt. last year that lends tiny sums to the poor in Maharashtra for setting up small businesses.

“I don’t know though what her plans are," he said. “It is a new generation. It is a new time. I’ll be very happy if she comes to work with me but I am not setting my expectation on that." Bloomberg

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Published: 12 Nov 2014, 10:01 AM IST
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