Is India a Bubble Waiting to Pop?

The most important thing that India needs to do is maintain fiscal discipline.
  • Transcript


Question: What will be necessary for India to sustain the current rate of growth? 

Azim Premji: I think the most important thing is we have to maintain fiscal discipline. Whether it be in our fiscal deficit, whether it be in terms of focusing, in terms of development, in areas which can generate scarce resources and therefore back inflation rates, and in terms of integrity in our leadership. 

Question: Is there any truth to the concept that India is a bubble? 

Azim Premji: Oh, that’s completely irrelevant, frankly. I wouldn’t even think of it. It’s a mature democracy of 1.11 billion people. We’ve had a tradition of successful democracy since '46, '47. We are probably one of the only democratic governments in the world which for more than 10 years has successfully led and managed coalition governments, alliance governments. Britain is facing it now and they’re panicked. Whereas we have done it successfully for 10 years; three governments, and done it... and the job has gotten done. The job of nation building, the job of nation leadership in a difficult, complex coalition has worked. What more maturity can you expect from a democracy? 

Question: As India becomes richer and salaries rise, will outsourcing still make financial sense for Western countries? 

Azim Premji: It will make sense because the companies are going up the value chain. And as the international companies are trying to learn our business model, we are learning their business model probably faster than they are learning our business model. So cost arbitrage will always be there because the cost arbitrage is not determined by two million engineers in the country who are working on a job, or three million engineers in a country who are working on a job. The cost arbitrage is determined by the standard of living of four billion people, which is still much, much lower than the rest of the developed world; much, much lower. And when the developed world escalates even at 3% on salary levels a year, they escalate on a base of 100, where even if you escalate at 7% a year on a salary level, or 10% a year on a salary level, we escalate not on a base of 100, but we escalate on a base of somewhere between 10 and 20. You just run mathematics and you will find that even at high inflation rates, the gap continues to be there, if not increased.

Recorded on May 7, 2010
Interviewed by Victoria Brown