C.K. Prahalad: Bullish about India's reform experiments	Rajat Gupta: All for tearing down barriers

One is a world-renowned management thinker, and the other is the chief of the world's best-known strategy firm. And together, they've been the biggest bulls on a stock called India, finding opportunities where others only see problems.

While C. K. Prahalad, 61, the Harvey C. Fruehauf Professor of business administration at the University of Michigan, has been championing the need for tapping the bottom of the consumer pyramid, McKinsey & Co.'s Managing Director Rajat Gupta, 54, has been making a case for focussing on the positives and just doing it. Recently in India, Prahalad and Gupta spoke separately to BT on their agendas for India. Excerpts:

What do you think India got right in the last 10 years?

Gupta: I think that in many many areas the government has deregulated and got out of the way. Software is one great example. They should do more of it. Fundamentally, it has put in place a good education system, but it has to be scaled up a lot. Somebody was saying today why five IITs, why not 50? The education system is good. Very good. But it really needs to be scaled up.

Prahalad: What we have been able to get right is allow for a few experiments so that the success of the experiments gives us the conviction that the direction is right. Take, for example, the telecom experiment. There's lots of doubts about whether you can deregulate a core sector like telecom. And telecom for a long time has been extremely regulated. But if you look at what the impact of the market forces has been, we have three things going for us. We have the most advanced technology deployed in India.

Number Two, we are connecting not just the urban rich population but we are going to go rural. We are leapfrogging technology and getting costs down. Thirdly, we'll have the lowest cost telecom rates anywhere in the world. By doing the right things, you can tremendously increase the pace of adoption of new technology. We can leapfrog and we can lead.

And what are the things we haven't got right in the last 10 years?

Gupta: I do think that there is too much of a bureaucratic, rule-based environment rather than a market-based environment in this country. There is too much of government role in certain areas whereas the government should actually be concentrating on areas like infrastructure development and social health.

Prahalad: Our problem is not resources. We need a shared aspiration. We are smart enough to figure out how to do it. But if you don't want it bad enough, it won't happen. Then we have all kinds of reasons why it can't happen. Aspirational target is not a budget.

What are the sectors you are bullish on?

"India has the engineering talent and the labour force to succeed in manufacturing. The barriers are all self-imposed"

Prahalad: I'm bullish on India. Telecom is fine, software is fine, pharmaceuticals is fine. We have said all this and everybody knows that. We have never even asked the question, why not food processing? Why can't food processing be as exciting? It can be if we allow the same underlying structure of freedom to experiment, and a lack of restrictions so that people create new products. For example, what did we learn from Jet Airways? I can tell you, I travel around the world. I would rate Jet Airways as good as any airline. So we have tremendous early successes. To me that means you can go from Jet Airways to Infosys to Ranbaxy.

Gupta: I think for knowledge-based industries, this is a great place. The BPO revolution is just starting and we are at the early stages of the trend that will continue for 10-15 years. There I think India has a great chance to get into high value added services, not just the call centres. We just have to build up the infrastructure and the education system to do that. I'm very heartened by the number of R&D labs. I'm very bullish on that. I think that biotechnology, healthcare and pharmaceuticals are areas where our knowledge is very very effective. Again it's at its infancy and you can see the basic building blocks being put in place. My hope is what we are talking about today. I don't think all of that is sufficient to do what we need. They are very specialised areas and can contribute a lot but not in the scale that we need. Broad manufacturing, food-processing and agriculture are the areas that will ultimately take us to the 10 per cent growth zone.

Everybody is busy writing off manufacturing in India. Do you think India still has a chance?

Gupta: I do think India has what it takes in manufacturing. It has the engineering manpower, it has the labour force. Most of the barriers are self imposed. It has nothing to do with the underlying resources.

Prahalad: I'll give you examples. Look at Sundaram Fasteners, Sundaram Clayton is not only a Deming award winner but also the winner of the Japan Quality Medal. I look at it and say, in the entire automotive industry, the two-wheeler industry that is, there are three companies that have world scale. If you look at auto ancillaries, we are world class. Kalyani exports forges all around the world. In other words there are so many pieces of excellence. The burden of proof on which you cannot do well, is on you. Because I can show you in every sector there is an island of excellence. The question is how to you take that island of excellence and enlarge its scope.

So what's the challenge here?

Prahalad: The real challenge for us is to say how do we take an experiment like telecom and how do you leverage it in a broad sense. The second interesting thing for me is how do you take an experiment like custom software and see the success that is achieved by young people with very small organisations. You always talk about Infosys, Wipro, Satyam, Cognizant and TCS. They are very important role models, but the industry is extremely fragmented and small. That is what creates vibrant quality. So what we have really found is that India can invent a new form of multinational. I call them micro-multinationals.

You can have a 30 people organisation in software. From day one I produce world-class quality. From day-one I do 90 per cent of the selling outside. From day one I have young people, who have never travelled anywhere, suddenly becoming expatriates. Suddenly I have all the problems of a global management-forex, travel, intercultural competence building, human resources, visas and the whole lot. We do that routinely. In other words we might have fundamentally invented a new form of multinationality and globality.

Is it possible for an economy to become a superpower without actually growing its domestic market?

Gupta: That's what I said (earlier in a speech). All this software and BPO are export oriented. So we need to focus on services and manufacturing for the domestic market. You can't have a buoyant healthy nation without a healthy set of people. So areas like healthcare need a lot of attention.

"If you can be successful at the bottom of the pyramid in India, and hone your skills, you can succeed anywhere"

Prahalad: The point I want to make is this: exploit the domestic market to understand how to be innovative, how to use new technology, how to get very low cost. Without that you cannot survive here. So if you can do it for the poor, you can make money with the rich. But if you do it for the rich, you can't make money with the poor. That is simple. So I'm very clear in my head. If you can succeed in the bottom of the pyramid here and you hone your skills, you can be successful everywhere.

Do you think it makes sense, or is it even feasible in the first place, for the government to create policies (such as no-hassle excise computation or customs clearance) for a "Winners Inc."?

Gupta: I'm not in favour of artificially creating scale and creating national champions by fiat. But if they emerge as a result of competition and are able to be globally competitive, that's great. And in a free market, winners will emerge. New entrepreneurs will develop and if the market is attractive, there will be competition as an essential ingredient to creating competitive practices and world-class companies.

Prahalad: Why do you need the government for that. I think over a period of time it will happen. When you increase the overall trade to 25 times of what it is today, there is no bureaucracy in the world that can play inspector. They just have to accept what people are saying. Also people will not have time to cheat because they are making good money anyway. In other words, we are suffering from a zero-sum game orientation and a scarcity model of economic development. We have to break both.