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April 19 2019
‘Suddenness of FDI norm change surprises us’
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Give enough time before changing goalposts, says the founder-CEO of MakeMyTrip.com

Now is the greatest time to be a start-up in India, says Deep Kalra, founder and group CEO, MakeMyTrip.com, one of the earliest Internet start-ups in the country. Excerpts from an interview:

What happened during the recent stand-off between MakeMyTrip, Goibibo and hotels?

The issue has now been resolved. However, it is good to introspect. So, we take a commission from the hotel, and let’s say that commission is 25%... in most cases it never went beyond 30%… We invest a lot of that in the promotions we run, including cashbacks. Optically, it seemed like a lot. So, we said no problem, let’s bring this down to 20% but if you don’t invest in promotion, your business will come down. So, some groups got together, but group negotiation makes no sense.

Our contracts are with individual hotels or with chains. So, we can negotiate with individuals but how can we do it within an association which has no ownership or no right. That was our only point. It’s a privy piece of document and we went to each and every partner, and got support letters from all of them. Where we needed to renegotiate, we have renegotiated. You have to understand, we are providing a platform and there is a cost of running business.

Competition in the travel segment is intensifying...

I think if you’re in a vibrant and a robust industry, you have competition. It’s the nature of the beast, which is a good thing. If there’s no competition, it means there’s not enough market. If you don’t want to have it, you would stop innovating.And I think we’ve got it from all fronts...ticketing we have different competitors, hotel we have international competitors, holidays we have the traditional competitors… in bus, probably, we have fewer competitors. redBus is a massive brand.

But what about too much competition?

Normally, what tends to happen is that weaker players lose share with more competition. So, whenever we find a new competitor coming in with a discounting strategy etc., we’ve have not seen much impact on our brands. I think that fight, that churn happens between number four, five and six, and not so much between number one and two. In most of the areas, our brands are either number one or two.

Are cashbacks and discounts still driving the industry?

There is a certain level of froth, there is no denying that. Whether that is 10%, 20%, or 30% is anyone’s guess. We try and keep weaning people off. If you see our last quarter results, we have grown 30% but have also brought down losses. But clearly discounts and cashbacks are giving an extra kind of lift to things. But where has this not happened? People accuse Internet of that, but what did Big Bazaar do for the longest time, telcos did it… Reliance Jio has done the complete extreme saying you can get it for free. So, who doesn’t do it? It’s normally meant to induce trial.

After that, it should be taken away. Right now, what is happening is that the private market is very deep. Some investors are willing to put in a lot of money, so they’re using capital as a competitive advantage. Thankfully for us we have a strong balance sheet; we can fight that out.

What do you think of the current start-up ecosystem in India?

I think there is no greater time to be a start-up than now in India. And, I am not talking just about Internet firms… consumerism is booming. If you take the whole world map, and if I have to point one place today, it would be India. I ask my friends, who are investors sitting in the U.S., where would you invest and the answer is India. China is now slowing down.

There are some little pockets such as Brazil but you never know what will happen, it just became okay because of re-elections. There is Turkey…the other big market is Indonesia but India is number one for everyone.

We are getting closer to that proverbial tipping inflection point of $6,000 per capita income. We are still at $2,000-odd, but in the next 3-4 years, you will see it explode…what’s happening is just economics. The middle class have disposable income for things beyond just roti, kapda and makan. They are buying new phones, new clothes and want to travel.

So, fundamentally, if you’re bright, are willing to work hard and you have a good idea, I think there is opportunity here. If you look at the Walmart deal, I actually see it is as a positive. Look at the size of the exit. It’s humongous and huge. Earlier, there was a big question mark around: ‘are there enough exits in India?’ The other nuanced point I have been making as head of Indiatech — a lobby group for Indian tech companies — is that there should be a level-playing field. We had a scenario and still do, wherein foreign companies get away with all kinds of things. For example, a Chinese company were until recently shipping stuff as gifts without duty. So I think Indian companies are getting the short end of the stick. And my point is only this… if we just look five years ahead, are we going to have big Indian companies ruling the new age economy or are they going to be American or Chinese?

We can’t be protectionist… how come in many industries such as banking, insurance, aviation we had 51:49 rule for foreign ownership. Why not in this industry?... otherwise we will run the risk, and I say this as an Indian and a patriot, we will run the risk that everyone will sell out and American and Chinese companies have more capital than us, they have the know how, they will come and rule.

Do you think the new FDI norms can help create a level-playing field?

I think the way it has come, the suddenness, has taken everyone by surprise. In all fairness, you shouldn’t change goalposts like that. It [Walmart’s Flipkart acquisition] was a very big deal of $16 billion, and suddenly, the goalpost changed. Even if you’re changing it, then give enough time. By the way, there are many easy ways to work around this and they will… Maybe, what we did with Ikea is then better. We took our time but finally we said okay, local, you have to source so much… So, I think this a little ad hoc.

And, we have to think long term. What will this do? This will immediately put a brake on foreign capital. Is that the right way?

Or do you want to get it but enable local enterprise? The new age economy is understood that much here. Look at all the investments. How much has come from Indian companies? Very less. Indian firms don’t really invest in this. They don’t probably know this sector. Capital is still coming from outside and you are taking away the capital.

 

 

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