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'We Will See Many Startups Failing Quickly'

Sunil Kant Munjal, Chairman of Hero Corporate Service, spoke to Himani Chandna of BW Businessworld on issues such as Infosys’ pay hike controversy, demonetisation and job market

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A business promoter, an institution builder, a social entrepreneur and an angel investor, Sunil Kant Munjal is the Chairman of Hero Corporate Service. Sunil is the youngest son of Brijmohan Lall Munjal.

Sunil Munjal’s family has promoted the Hero Group, India’s premier automotive manufacturing group that has evolved from being the world’s largest bicycle-maker to being the largest two-wheeler maker.

Munjal directly manages the interests of the Hero Enterprise in insurance distribution, auto components, real estate, knowledge services and e-commerce. He has incubated several businesses across domains, and has recently invested in a host of start-ups in promising and high-growth areas. In conversation with BW Businessworld's Himani Chandna, Munjal spoke on issues such as Infosys’ pay hike row, demonetisation and job market. Edited excerpts.

Do you think the hefty pay hikes to top executives of the company are justifiable? The recent example is the Infosys compensation row between company’s co-founder N R Narayana Murthy and Chief Executive Officer Vishal Sikka which has raised questions over the company’s corporate governance.
In any organisation, salary hikes are a function of financial performance. No company in the world can sustain itself for long if salaries and profitability are out of sync. Managements-- supported by remuneration committees of boards-- design salary packages of top executives based on current performance, expected future performance, quality of leadership, and the quantum of risk involved.

In most cases, the decisions are well assessed and transparent. Occasionally, when external events impact growth and profitability of a company—questions are raised about the credibility of top leadership, and the packages that they carry home. So long as the right processes are used by the remuneration committee to design salaries of top executives, and as long as they reflect ground realities, it should not be seen as a problem.

The concern of skill gap is hovering across sectors. What is the overall scenario including the skill supply in auto sector?

Fast changing technologies and shorter product life cycles means that auto industry workers have to undergo constant skilling and upskilling. A large chunk of the skilling challenge lies at the vendor’s end - this is because for every job that is created at the original equipment manufacturer—eight more are added at the vendor’s.

The reality is that many vendors are not located in metros but in tier 2 and tier 3 cities which have a limited catchment area for relevant technical skills.

An entire ecosystem is required for scaling up training initiatives and aligning suppliers to industry and global standards. And this takes time.

India urgently needs an institutional mechanism designed to enforce on-the-job training, in direct partnership with benefitting industries. For example, the apprentice system, which is prevalent in Germany could be selectively used and supported across all the auto hubs of the country.

We have taken baby strides in this area—but need to grow up quickly.

Do you see India meeting the target of 50 million jobs by 2020?
Creating 50 million jobs by 2020 will certainly be a challenge, given recent trends such as automation, artificial intelligence, and protectionism in developed countries. It will become more and more difficult to “ship out’’ manufacturing and IT jobs to low cost destinations in emerging markets such as India.

Job market is not encouraging enough. How to keep ourselves hopeful?
India’s quest to become a developed country in the next decade will throw up huge job opportunities across sectors, including labour intensive ones like low cost housing, healthcare, hospitability, electricity generation, roads, ports, transportation and logistics. Given the PM’s vision of doubling farm incomes by 2022, value added agriculture would also get a boost.

Thanks to GST and demonetisation, a large chunk of jobs in the informal sector will also shift to the organised sector—which will bring its own challenges. For one, there will be a bigger premium on skill, knowledge and quality---so training, re-training and vocational role in India will need to go through a dramatic shift.

Which sectors are expected to drive the growth?
For higher job creation, there’s also a need to move away from policies that favour micro-enterprises—which are defined as businesses with investment of less than Rs 25 lakh, with 1-6 employees. Typically, they do not drive job growth because they are neither able to invest in capital equipment nor be competitively productive. Conditions must be created where micro enterprises are forced to scale up.

Another startup Stayzilla was in trouble recently. Do you see the startup bubble bursting anytime soon?
Literally, when a bubbles blow up, it bursts. If an enterprise’s business model is not robust, or if the management lacks bandwidth, or if the industry vertical is susceptible to high external risks—it runs the risk of getting into a bubble. When bubbles burst, startups are susceptible as they lack deep pockets to last through rough patches. In a world where venture capital funding is becoming increasingly scarce and selective, bubbles tend to burst faster.

In the next few years, we will see many startups failing quickly; we will also see some startups streak across the sky like a shooting star—only to fizzle out after a period. Then there will be a third category of startup entrepreneurs who will go on to build million, and even billion dollar enterprises.

Spotting startups with the right potential is very important. As enterprises grow and gain size and scale, they become unstoppable. Alibaba rose from being startup to a giant in less than 15 years, culminating in a $25 billion IPO in 2014.

When there are risks, there are failures as well. How to motivate the start-up ecosystem?
For startups to become successful, national level support is vital. ‘Startup India’ is a good initiative, but needs to be sustained and re-tuned to be made more relevant. To begin with, there is need for much greater access to a national network of mentors and angel investors; fledgling entrepreneurs must also have easy access to long term debt capital without encumbrances. Also, rules on government procurement must be simplified and made completely transparent. A start has been made in a number of central ministries, but this needs to cascade across the country.

Do you think the enough chunk of management students want to join startups?
Unfortunately, not as much as the country requires. In the coming years, established industry and government will find it increasingly difficult to create jobs—so entrepreneurs must be given a chance to play their part in creating jobs.

To make entrepreneurship learning accessible and effective, the fire has to be stoked within classrooms; treating entrepreneurship teaching as an add-on to other courses can’t be considered an effective option any longer.

Entrepreneurship needs to be seen as a learning on its own. It also has to be taught in an experimental and experiential manner; it cannot be drilled or rote-learnt.

Luckily, today’s young are more risk averse; they are willing to take more chances. Millennials have grown up seeing an open world, empowered with information and digital technologies; they believe anything is possible, unlike their parents and grandparents.

We have seen revival in car sales post demonetisation. Do you think the temporary slump would impact the salary hikes in auto sector? What has been the average hikes and what will be the impacted or not impacted hike this year?
Demonetisation has certainly taken a toll across sectors --the auto sector is no exception. Within the auto sector, two wheeler sales have been the worst hit, because of the cash-centric nature of transactions.

However, there are now signs of recovery, and we should be back to trend rates of growth by middle of year 2017. So if at all there is an impact on salary levels, it will only be transient.

You are also president of All India Management Association (AIMA). How you plan to boost entrepreneurship and how many jobs entrepreneurship can churn in a year?

AIMA is in the process of setting up an entrepreneurship development centre, that will hopefully enable young men and women to create jobs instead of seeking jobs. This will be an umbrella organization that will coordinate the entrepreneurship development work of AIMA’s affiliates, besides providing direct entrepreneurship training. The Centre will teach young people how to think like entrepreneurs; and equip them with practical knowledge and skills to set up and scale up enterprises. It is expected that entrepreneurship can help churn out a 100,000 jobs in a year