Nansi Mishra 01:00

Hi everyone, welcome to the Neon show. I’m your host Nansi with your OG host Siddhartha and today we are going to discuss a very interesting topic and we were told that India is 15-20 years behind China and 20-30 years behind US and India is now world’s 5th largest economy and by 2027 it is expected that we are going to become world’s 3rd largest economy and we are living in a very exciting time.

And both I and Siddhartha are big believers of India story and we are very excited to see what’s coming in the next few years for us as a country. So today we are going to discuss what has happened in the last decade in India and what are the trendsetting things that have happened in India and what lies next.

So Siddhartha we have invested in 55 companies at Neon. What makes you excited as an investor about Indian market and Indian founders?

Siddhartha Ahluwalia 02:15

So let’s go back historically, right? US became a 1 trillion dollar economy in 1969, I think the same year that they launched man on moon. India became a 1 trillion dollar economy in 2007, right?

And China became a 1 trillion dollar economy somewhere in the 90s, right? And what has happened is, as you see right, India when they hit a 1 trillion dollar economy and US when they hit a 1 trillion dollar, there is a gap of 38 years, right? And since 2007, today in 2024, after 17 years, India is a 4 trillion dollar economy and it’s expected in the next 10 years, India will be a 10 trillion dollar economy, right?

Today the US is around 30 trillion dollars or more than that. China is 18 trillion dollars. But the biggest factor that’s in India’s favour is that India is now a capitalistic nation.

Like there are some elements of still, you know, old socialism that we carry, but by far, right, capitalism gets rewarded, effort gets rewarded, adventure.

Nansi Mishra 03:31

Doing business is no more a bad thing.

Siddhartha Ahluwalia 03:32

Doing a business gets rewarded.

Nansi Mishra 03:35

Entrepreneurs are celebrated now.

Siddhartha Ahluwalia 03:37

And what has happened in the US, it was for the last 200 years, this was getting rewarded. And if you see India’s 1947 to 1991, India was a socialist nation for 44 years. To give you an example, what happens when socialism becomes the norm, the right part of Germany, East Germany got captured by Russia, and it became a socialist state.

So you can imagine there was just the Berlin Wall between the two parts of Germany, West and East. The West prospered because it was guided by the US. And the right was a socialist and people were getting shot whenever they want to cross from East Germany to West Germany when crossing the Berlin Wall.

And in 1991, the Berlin Wall got destroyed. And, but it was not even a border, it was just a wall. As you see both these sides have very different sets of citizens, one more capitalistic in nature, one more socialist in nature.

And over a period of time, why Germany became, you know, the fourth or the fifth largest economy globally is because it became a capitalistic nation. It favoured capitalism, favoured efforts, it favoured creation of new enterprise, right? So India was grappling with socialism for the first 44 years of independence.

And only once we were forced in 1991, because of the fiscal deficit, that we had to open our economy and start our path towards capitalism, start a path to rewarding enterprise, right? I think India woke up in 1991. In the last 34 years, what we have seen is, right? You can imagine the first 16 years 1991 to 2007, it just took stabilising the economy, creating new enterprise, right, making sure we do away with old policies, right?

And so it created the first trillion dollar economy in India. But from 2007, since we had a momentum till 2024, in spite of all 2G scams, coal scams, India has been able to maintain the momentum and grow to a 4 trillion dollar economy. Now, a lot of things are in India’s favour.

India has the highest amount of youth globally, the largest population, but the highest amount of youth, right? Which means that if this youth is directed, and if youth is ambitious enough at scale, they’ll start setting up their own enterprises within India. And what is the other thing in favour of India?

Back in 1991, all the top 1% of the youth of India, which was the same colleges like IIT, they were going abroad for their masters. Now they are not going at scale, they’re staying back in India. And you have to remember a Pareto’s principle at play, where 1% top 1% of the population will produce 80% of the wealth.

Now these guys were creating wealth for the US. These are people like Vinod Khosla, Sundar Pichai, Satya Nadella. Now the new Satya Nadellas like Binny Bansal, Sachin Bansal, they’re staying back in India.

Mukesh Bansal, right? India now has a tremendous amount of these new young millionaires and billionaires staying back, creating wealth for their country, paying taxes for their country. That is the biggest thing, I think, why I am so bullish on India and why I think, as the theme of this podcast is, can India become a $50 trillion economy?

Nansi Mishra 07:02

So what do you think makes these Indians ambitious?

Siddhartha Ahluwalia 07:05

So the first is, previously, you know, what is ambition? Let’s think that. Ambition is, let’s say for many people, they want to become financially free, right?

That’s one kind of ambition. And that’s one of the largest kind of ambition that has ever existed in a capitalistic world, right? In US, they suppose that there are around 10 million, $1 million people, right?

And in India, this population is in thousands, right? Now those who have net worth beyond $1 million. So this, the last two decades are the first few decades in the first 75 years of independence, that we have seen the highest number of self-made millionaires come up in India.

And because of this, right, earlier, you know, the youth would say that, you know, business is bad and youth were trained, right? If you see in your households, that if you’re a businessman, you must be doing something wrong. That was a mentality in the 1980s movie and what our parents used to say.

But today that perspective is completely changed. Like if you have your own business, you have more respect because the kind of risk and the effort that you are taking. So first time in the country, rather than just the outcome, people are recognizing the risk and the effort of an individual when they take an adventure, like a business.

Nansi Mishra 8:33

So earlier, we didn’t have enough examples. We have now like, we have so many examples now.

Siddhartha Ahluwalia 08:38

For the longest point in time, we used to quote Dhirubhai Ambani for a self-made man. Now, at least India, it’s not a reliance scale, at least has 1000 Dhirubhai Ambani’s of 50 years ago, what Dhirubhai Ambani achieved 50 years ago. So this is a huge testament for youth to look up to, that they can have the best of their life, and they can stay in India, and they can be financially independent.

And what are the most positive outlet for energy is to create. So these are able to create new products, new businesses.

Nansi Mishra 09:10

And what are, who are these individuals who are really inspiring India?

Siddhartha Ahluwalia 09:15

I think most of these folks, if you see, right, because India’s tier one population anyways has been well established. Like if you consider the cream of the tier one population Delhi, Bangalore, Mumbai, right, they’re still 90% struggling. But most of the India’s new millionaires among the youth, they have come from tier two towns.

So again, coming back to the example of Sachin Bansal, Binny Bansal, Mukesh Bansal, these folks are all from tier two towns of India. If you consider folks from Bihar, they’re establishing business like Dheeraj Pandey of Nutanix.

Nansi Mishra 09:50

Yes. And I think now, like, there’s this new perspective that is being developed that there are people who don’t see IITians as good examples. But I think IITs have played a massive role, you know, bringing these tier two city talent, you know, into the mainstream.

And then these people are like have played an important role shaping the Indian startup ecosystem.

Siddhartha Ahluwalia 10:20

Yeah, I think education has played a major role in the development of India. That’s why education till now and till now, has been considered for a poor family, the only stepping stone or stepping ladder to come out of poverty. If one of the kids in a very poor family, living in a, you know, a broken home without any facilities, goes to IIT, they have a real shot at making out of poverty.

We always talk about now, the NVIDIA, Apple, Alphabet, Microsoft and Meta is called NAAMM of the US, right? And these are the companies which have the highest market cap in the US. And they’re all tech companies at one point of time, they’re all startups.

Right? So that is the power of tech that the top five companies by market capitalization in the US, and let’s say US GDP is $38 trillion out of that $10 trillion is because of these companies. So India needs its own NAAMM.

And that NAAMM can be Zomato, Flipkart, Paytm, of the likes, right? So I’m most excited about these companies, like Zomato, Flipkart, Paytm, and more of the companies like Swiggy, Zepto to reach $100 billion valuation mark in India in public markets. Once we reach that, we’ll see like, sky is the ambition for the youth and they will believe that they can also like the US build $100 billion companies sitting out of India.

Nansi Mishra 11:59

Yeah. And like, since you have mentioned about NVIDIA, can you tell us more about NVIDIA? Like NVIDIA is in news for all the great reasons, like how that company reached to the level that it is?

Siddhartha Ahluwalia 12:10

I think the founder of NVIDIA kept on building for 30 years. And he was building the hardware, the chips on which processing for AI runs. And now once, you know, five, six years ago, the world was ready in terms of application layer like ChatGPT, OpenAI for AI.

They were the picks and shovels for the AI business, right? All the AI businesses getting built on top of NVIDIA, because AI runs on NVIDIA. That’s why NVIDIA today became the largest company by market cap globally.

Nansi Mishra 12:47

Very interesting. And Siddhartha like, we also talked about this in our podcast with Pranay, that China is ahead of India. And there are things we can learn from India, from China as country.

Can you tell us more about that? Like, what is China doing that India can also, you know, start working on like, what India can learn from China?

Siddhartha Ahluwalia 13:15

I think the biggest evil that India adopted ever was socialism. If you study the history, right, let’s go back. US was from the beginning a capitalist country.

So capitalist means that those who are in favor of progress and those who make progress will get rewarded the highest. Socialism means no matter how much hard work you do, it will be equally divided among all the people. So Russia was a socialist USSR, former USSR, was a Soviet Union, as we call it, was a socialist nation and the US was a capitalist nation.

Both attained, you know, both were victorious after World War II. But Russia kept its socialist agenda and the US kept its capitalist agenda. Let’s imagine Germany, which was captured after World War II.

Half of Germany was divided, which is West Germany, by the US and Britain and France, and half Germany was taken by Russia. And the part of the half of Germany was socialist, half of Germany was capitalist. When the Berlin Wall broke down in 1991, almost like 46 years after World War II, this side of Germany, the side which was had the support of US had flourished, had a completely different lifestyle, right?

And this other part, you can imagine a single wall in between, there’s no boundary, were extremely poor, and people were shot by Russian army, or the East German army for crossing from East Germany to West Germany. Because that shows a tendency of people to jump from socialism to capitalism, for the sake of progress to make a better life. A similar thing happened in India.

For the first, you know, I think, till 1991, 44 years of independence, India was a socialist country. Every public sector, every undertaking was controlled by the government and government said that it’s our responsibility to make sure that we can provide living for the mass population of India. And all undertakings, be it manufacturing, banking should be under government.

And India was a huge foreign deficit. We have shown in a previous podcast with Sanjeev Sanyal and so many other policymaking podcast that India had, India was forced to adopt, to open doors and be to move towards capitalism. It didn’t become a capitalist nation overnight.

But right now we are on a road to becoming a capitalist nation, we have progressed very far. What has happened in the last 33 years, the DNA of India has changed from a socialist country to a capitalist country. I think that is one of the most exciting things to have happened in India, without which we would still be a very poor nation if we were still a socialist.

Nansi Mishra 16:07

So we have talked about all the good things that are going to help India become the third largest economy in the world. And we have a living in Amritkal, we have the world’s youngest population living in India. What are the challenges India is facing?

Siddhartha Ahluwalia 16:27

I think what your previous question also was, what can India learn from China? China had a single party rule, which is Maoist rule. It was like a capitalism form of communism, single party rule for largest period of time, let’s say 40 years.

And what it enforced is a single party rule, the policies which were set right by that party, the same policies continued for 40 years and made China a developed nation. So it had a large streak of compounding in good policymaking and those stayed consistent. India had never had the good fortune of consistent governments throughout its history.

The governments have come and gone. Only the last 10 years with the current Prime Minister Modi’s government has been a stable government. Previously, if you see eight years of UPI government, the first four years were very good and the last four years were completely shadowed with scams, coal scam, 2G scam, so many scams.

India never had a large streak of 30-40 years of prosperity where it can compound. What do I mean by that is, if India can continue to grow at 8% on its GDP year on year and can keep on creating wealth, there’s a path for citizens to create wealth for themselves, either by building companies or being employees, then India will see a path towards being a developed nation by 2047, what Prime Minister Modi says. But I think this has been the biggest crippler for the Indian economy.

Can we have a stable government for a very long period of time, which can ensure that rather than popular votes, they can do what is right for the country.

Nansi Mishra 18:27

We talked about China, that China has been ruled by a single party, right? But it has its disadvantages also that China is almost considered a closed economy, right? People would prefer to invest in India over China. Tell us more about that.

Siddhartha Ahluwalia 18:46

For the last 20 years, people who invested in China made like 10x of their money because all this ecosystem of Alibaba, Bytance, electric vehicles manufacturing was getting created in China. What has happened now is we would have transparency of what is happening in China when the biggest you imagine Jack Ma is the Mukesh Ambani of China. If Chinese government can make him disappear overnight, then which citizen is safe?

Any citizen expresses dissent against the Chinese government, their life is in danger, right? So why would a foreign investor want to invest in a country where they’re seeing, you know, stability disappear over a period of time, like industries will not get created by themselves, right? You need people like Jack Ma who created China.

And if you are making sure that you know, people like Jack Ma are not able to perform at their best because the government is fearing that Jack Ma can do something against China. If you’re fearful of your best citizen that’s created China, then that why would an investor bet on that country? Whereas an investor would bet on India. We are seeing it’s an open playground.

Yes, India has a tough time in policymaking, tough time in governance, tough time to set up a business here, tough time to run a business here. But these things are easing over a period of time and people see India as an open economy. So that’s why people have , people want to invest in a smaller economy, which is open, which is growing, as compared to a large economy, which is closed, and it’s like a black box.

People don’t know what is happening, especially how China handled COVID destroyed its reputation.

Nansi Mishra 20:32

And how are these foreign investors seeing the Indian market, like in terms of exits that we are now seeing? Earlier it was said that we don’t have… Indian market doesn’t have exits.

Siddhartha Ahluwalia 20:47

So what happened in 2016 is Flipkart got acquired for $17 billion dollars by Walmart. And it was said to be the largest exit. And after that, for four, five years, we didn’t have exit.

But now what has happened in the last three, four years, we are constantly seeing at least 10 to 15 startup IPOs every year. This year, Mamaearth went IPO, right?Companies like IdeaForge, which produced drones, went IPO.

Companies like Swiggy have filed to go IPO, Ola Electric has filed to go IPO. Zomato went IPO last year and very successful IPO. Paytm went IPO, it was not a favorable one for them, but still the company continues to exit.

And so these have shown that India has produced now 50s of exit through startups for public market and private investors. Now the question is, foreign investors are betting on India thinking that these 50 will grow to 1000. So can India still continue its momentum of the lively IPO market that we have today?

In the past three, four months, we were seeing one IPO every two weeks. On some weeks, it was like one startup IPO every week. Ixigo went IPO.

And before that, there were a couple of more IPOs. So if we continue this trend, then foreign investors would keep on betting more in India, because the US IPO markets are closed. And globally, there’s no robust IPO market as robust as India.

And the good thing is that Indian regulators like SEBI and RBI, they protect the retail investors. So they make sure that, you know, and they’re able to avoid at least 90% of the fraudulent companies to go IPO, whereas in the US, it’s not possible.

Nansi Mishra 22:46

But like, thanks to these regulators, we have too many regulations also.

Siddhartha Ahluwalia 22:51

Yeah, they’ll go away. And the best part right now is these regulators are active, they’re not sleeping. And they’re active in policymaking.

They’re very, very active right now. They’re active to change their old policies. They’re listening to the market.

That’s why we could see Zomato and Paytm IPO when they were even unprofitable. Earlier, unprofitable company couldn’t go IPO in India. But now they’re starting to go.

Nansi Mishra 23:20

So as we are also experiencing, and we see people saying this, that it’s truly difficult to start a company in India, it’s really difficult to build a company in India. And there are too many regulations. Government support is not enough.

And like recently, we have this new regulation that founders who are raising money from global investors, the government will, you know, apply tax on that money also, irrespective of the fact that that money is not even income, right? And then we are seeing these Indian people moving back to India and choosing to, you know, build from India and for the world, like, what’s really happening here.

Siddhartha Ahluwalia 24:05

So see, regulators are risk averse in India. That’s why you see less number of frauds as other countries. In India, there are some but they’re not as, as large as what happened in the US.

So regulators are constantly monitoring the market. And obviously, the policy change is slow, but it is there, right?. So all these things that you talked about the negative, I think over a large period of time, they will go away.

With a large country like India, regulators also understand the government also understand, they, it’s better to build a free economy and build systems that people can govern themselves, companies can govern themselves rather than regulating companies, if the country has to prosper. And such a large country like India can’t prospers by government interference. We tried to do that from 1947 to 1991, it didn’t work.

The government has learned its lessons. I think it will take, it will not happen in five years, 10 years, but it will keep on happening slowly, steadily and reforms will keep on compounding over a period of time. You should not expect any drastic changes in any major ease of doing business in five years, but I say, over decades, it will keep on easing out.

Nansi Mishra 25:20

You mentioned about the policies that we like, because of these regulators, we now have better policies or new policies. So what are these policies that you think that founders are like, they’re really helping founders to build the business?

Siddhartha Ahluwalia 25:35

So for example, when you open a company account, current account, I think you really don’t have to travel to a bank, the bank as a well, will come to your place. Earlier to open a current account, it took three to four months and now you have created two companies. You know, like the first one took maybe one month, the second one took five days.

So this is a drastic shift in how policies are impacting the creation of companies. Second is opening up a current bank account. The process has become so much easier for, they’ll come to your office and within the next two days they’ll open, earlier it used to take one or two months.

And on opening personal accounts, it happens completely digitally, the KYC happens completely digitally. So these are the things on policymaking that have happened in India. The other thing is that earlier for an IPO, it was almost impossible for a startup to go IPO because only large companies would go IPO in India.

But today, a startup is able to go IPO with one or two years of preparation. And I think this will ease down over the course of time. This is the policy changes that the government has brought.

Earlier unprofitable companies couldn’t go IPO, now unprofitable companies can go IPO in India.

Nansi Mishra 26:56

Can you tell us more about that? Like, how does an unprofitable company goes to?

Siddhartha Ahluwalia 27:02

For example, when Zomato filed for its IPO, it was still unprofitable. And it showed a path that within three to four years, they will become profitable. As of today, they have become profitable.

And earlier investors hammered them when they went IPO at 10 billion valuation and the valuation in public market came down to 5 billion. Today, the company is valued at 20 billion. So even the public markets are celebrating risk taking.

When Zomato acquired Blinkit, the share went down. Almost the company valuation went down to 4 billion dollars. Today, they say the Blinkit occupies more than 10 billion dollars in zomato’s valuation of 20 billion.

So public market investors are appreciating risk taking and they are rewarding you by the increase in share price. And the government is supporting that kind of risk taking.

Nansi Mishra 27:56

And there are so many interesting companies that are going IPO and people like, they were not that celebrated, people didn’t know them. But like one such example is GoColors. Can you tell us more companies like that?

Siddhartha Ahluwalia 28:10

I think more retail companies like GoColors, Mamaearth, which have traditionally been PE backed, you know, small NBFCs, non-banking financial institutions, they are going public in India. I think it’s a great path for entrepreneurs, their team to create liquid wealth for themselves and show a path to financial retirement very early on in their life.

Nansi Mishra 28:36

And there is one set of entrepreneurs who are, you know, shifting their base from India to US, right? And then there is this different set of entrepreneurs who are shifting their base from US or Singapore to India. Like, what are these people thinking? Like, what’s the thought process?

Siddhartha Ahluwalia 29::00

I think entrepreneurs who used to go to the US were going because their customers were there or they were incubated by accelerators like Y Combinator.

Now, entrepreneurs from these countries, Indian entrepreneurs are coming back in, which is called reverse flipping, making India back their headquarters, because their domestic market consumption is in India. For example, Razorpay, Meesho, Pine Labs, they are all reverse flipping from their US or Singapore entities back to India.

Nansi Mishra 29:30

How does this actually work? Like, when they started, they knew that they’re going to serve them.

Siddhartha Ahluwalia 29:36

Back then when they started 10 years ago, the Indian markets were, public markets were not there, you know, as vibrant as they are today. There was no path for these companies to go public. And because the regulations are easy in the US, that became the easiest choice for these companies to incorporate in the US.

Nansi Mishra 29:56

And how do you see that for SaaS companies, like the companies that are flipping back are mostly consumer companies? How do you see that for SaaS companies?

Siddhartha Ahluwalia 30:07

Yet to be proven, but let’s see over a period of time, do SaaS companies reverse flip to India or not? It’s yet to be proven at a scale. Consumer companies, yes, because the domestic consumption for Meesho is in India. Retail investors know Meesho, so India, when they IPO in India, they’ll get much favoured brand recall.

Nansi Mishra 30:28

And we have talked about like how we have reached almost 4 trillion, right? So what do you think will take us from almost 4 to 10, like what are the shift we will be seeing in the next coming years?

Siddhartha Ahluwalia 30:44

I think more disposable income you will see from 4 to 10 trillion dollars among the middle class and lower middle class in India. You will see more and more foreign brands coming to India, you will see better quality of roads, transportation, more amount of public transportation, like trams, more metros come up in India, more number of airports, so I think your quality of life is going to increase by a lot.

Nansi Mishra 31:14

So whenever we talk about quality of life, whenever we talk about elites returning to India kind of topics we explore, in the comment section we see people sharing that we just talk about the 1% of India, what’s the other, like rest of the people, what they are doing, like what policies are there for them, are we just talking about the 1%?

Siddhartha Ahluwalia 31:42

No, I think, I will take an example, there are currently more than 2 million delivery boys in India across platforms like Swiggy, Zomato, Blinkit, Zepto, Big Basket, 20 lakh delivery boys or girls.

Now these each are able to earn an income of 20,000 to 30,000 rupees per month, working 8 to 12 hours per day, and most of them have come from villages, tier 3 towns of India. 10 years ago this opportunity was not there, right, so you can imagine the quality of life of these people are changing, and now once these people come to cities, they are able to educate their kids, and their next generation would have opportunity which is better than what they have.

Nansi Mishra 32:30

But still for upper middle class, the monthly income is around 25,000, so like how this is going to change?

Siddhartha Ahluwalia 32:40

I think it’s changing, I think the income has improved, it’s not 25,000 for a family now, for a middle class, I think if both partners are earning, that income is between 80,000 to 1 lakh rupees per month.

Nansi Mishra 32:53

But are we still talking about one % where both the partners are earning?

Siddhartha Ahluwalia 32:57

Yeah, but I think this is a trend which is changing in India where both the partners are working. 30 years ago it was not the case, it was only the family dependent on one member.

Nansi Mishra 33:08

Okay, and Siddhartha, like at Neon we have now invested in 55 plus companies, right, we are meeting so many new founders every week, so how do you, like if a founder comes to you to pitch for their startup, how do you structurally think about investing in them, and how do you align your investing thought process with this India opportunity?

Siddhartha Ahluwalia 33:34

I think India has the largest developer base, and India has the largest export of IT services globally among all the countries, 200 billion dollars of IT exports by companies like Wipro, TCS, Infosys, and hundreds of other IT services companies.

So what has happened because there’s a developer base, and for the developer base which is right now let’s say 3 million developers, serving in, most of them serving in these IT companies, they’re shifting to product companies. And India is the first time seeing the creation of go-to-market talent at scale, like where you can sit in India and sell globally, or you can have hybrid teams, you know, one in India, one in the US, and selling to global customers.

So this is happening at scale, so that’s the biggest opportunity right now, and I believe the kind of revolution India saw in IT services, we’ll see like a 200 billion dollars of opportunity in software products created for B2B companies, and that will happen in India, from India.

Nansi Mishra 34:42

Yeah, I think we had a very interesting discussion today, so thank you so much for joining us today, and thank you Siddhartha, you have severe colds till you are recording with me.

Siddhartha Ahluwalia 34:52

No, I’m passionate about India, and my purpose in life is to see India within my lifetime as a 50 trillion dollar economy, so that keeps me awake and inspires me.

Nansi Mishra 35:02

Thank you. And we’ll be recording more such interesting internal episodes, and we’ll be sharing them on our channel, so please feel free to share your suggestions in the comment section, and your honest feedback has always helped us, so we’ll just try to improve, and we’ll bring more such insightful discussions to you every week. So thank you so much for your support, and stay tuned for the new episodes coming every week.