Thursday, November 13, 2008
The 20th century has been called the American century. In 1900, the US was just another nation, a Johnny-come-lately with great natural resources and an emerging promise of wealth and opportunity. Although at the time, people all around the world recognized that the US was a promising land for entrepreneurs and adventurers, it was by no means a superpower of any dimension. What a difference a hundred years makes.
Now the US stands head and shoulders above all other nations in power and influence. The US enjoys enormous advantages moving into the 21st century, and is unlikely to be replaced as numero uno. This does not prevent pundits from making forecasts about who will become the next superpower (and that’s an economic term these days).
Perhaps a united Europe, a belligerent China, a resurgent Japan? While these discussions are replete with scholarly socioeconomic babble, most people indulge in this sort of speculation because it is great fun. However, if we are to seriously prognosticate a winner in the global war for market growth, we should consider India.
Which India?
Discussions about prospects for China always encompass the Chinese diaspora — the hundreds of thousands of people of Chinese origin who have settled overseas. Similarly, when discussing India, we include all people of Indian origin who have settled overseas. For although they contribute to local economies by paying taxes and by creating and filling jobs, they also constitute a significant source of funds, ideas and influence for India.
Are the Stars Aligned?
Seemingly, the 21st century holds great promise for India’s growth. The information-based New Economy is not defined by agricultural or industrial might driven by financial capital, but by ideas and information, which in turn is driven by human capital. The premium paid for higher education has never been this remunerative, and it keeps increasing.
This plays well to India’s strengths, thanks to its ability to churn out large numbers of bright, well-trained and motivated engineers each year. The world is beating a path to its door to gain access to this pool of human capital. Major corporations from various developed countries have set up large campuses in India or hired Indian companies to carry out software development and other activities. At the same time, developing countries are falling over each other in an attempt to bring the same human capital to their shores so that the jobs and resultant tax base remain within their boundaries. However, because immigration to the most desired countries will always be capped, the growing demand for talent can only be fulfilled by greater expansion of offshore facilities, which means that more and better paying jobs will be created in India. The gap between salaries paid within India and those paid overseas is closing rapidly. India will be less about gaining access to good talent at bargain prices, and more about gaining access to good talent — period.
Government and industry have teamed up to significantly increase the output of young, bright and skilled engineers to meet this ever-growing demand. The number of engineering seats has been more than doubled, and new world-class institutes are being set up to produce technologists and managers.
Not Exactly the Poor,
Huddled Masses
What do these world-conquering engineers have in common with the millions living in abject poverty in rural India? The truth? — Very little. These are offspring of urban, salaried workers who have seen their parents struggle to make ends meet; who have had it drilled into them that higher education is the Holy Grail; and who have grown up listening to rags-to-riches stories from the dream world (Bollywood!) and the real world (Silicon Valley!). As a group, they are far hungrier and more driven than their brethren in developed countries.
While the bulk of the population remains illiterate and impoverished, the middle class and the elite live an increasingly affluent life. So why pour more money into higher education? The reason is simple: Expand the middle class in a big way by creating lots of high-paying jobs, and let trickle-down economics do the rest! Today, India’s tax base is a shocking 3%, because the fairly small middle class bears the brunt of taxes, while the rich and super-rich avoid taxes (through the “black” economy) or divert their earnings abroad. Increasing the middle class will increase the tax base, and generate considerable additional revenue every year for the government, as these earnings are taxed at source. This will allow for increased government spending on infrastructure, basic education and welfare, among other needs. In addition, middle class consumption will drive the local economies, create lower level jobs (especially in the services sector) — you can get the picture.
One can see easily how the Indian mindset parallels that of early 20th century Americans. Success is a real opportunity for those who work for it, and it is leading to business development that is far outpacing that of other established and up-and-coming nations.
The Impact of the
Indian Diaspora
Over the past 10 to 20 years, Indian-born managers and entrepreneurs have come into their own, particularly in the US. They are found in the highest echelons of global powerhouses like McKinsey and Nortel, and new economy giants like Sycamore, Exodus and i2. These executives display a deep sense of commitment to their homeland, from helping the government develop policies that encourage foreign investment to setting up top notch educational institutions, contributing personal wealth to a variety of worthy causes to setting up early stage venture funds. Besides setting an example that will inspire generations to come, the steps they have taken will, it is hoped, improve the future of India, much as those taken more than a century ago by Stanford, Carnegie and Rockefeller did for the US.
VCs Rush In Where
Angels Fear to Tread
While it remains to be seen how successful they are, a large number of venture capitalists have set up shop in India, including major names like Softbank. New funds count among their investors leading corporations such as Microsoft, Intel and GE. The success of Silicon Valley is tied to this availability of risk capital, and has been emulated successfully by Israel, where technology emerging from the defense sector was funded by VCs and taken to commercial success in the public markets. With access to VC funding, it is now possible for entrepreneurial teams from successful Indian companies, and from offshore operations of US-based technology giants, to set out on their own and create new companies. Young entrepreneurs with brilliant minds and great ideas are now more likely to avoid the options of going abroad or working for a multinational corporation, and instead, are giving it all they’ve got and making their dreams a reality.
The Government Gets It
— Thank God!
Never before has the government been as open and willing to new ideas and as committed to action. The prime minister has sought and followed the advice of successful executives and businessmen, and new guidelines regarding venture capital were issued within days of a meeting during which such advice was given.
Besides the central government, certain states have also made aggressive moves to attract foreign investment and create jobs. In particular, Andhra Pradesh has done a remarkable job, thanks to its take-charge chief minister, Chandrababu Naidu. Representatives of major corporations were taken aback when senior ministers received them at the airport, spent hours with them in meetings clearing hurdles and offered proposals that couldn’t be refused. As a result, the state capital, Hyderabad, is beginning to rival Banagalore as an emerging center of high-tech.
Other Crytsal-Ball Visions
As the new century unfolds, what else is in store for India? For one, the “digital divide.” While this is an issue even in developing nations, the magnitude of the gap is far greater in India, where a large segment of the population has no primary education, let alone access to computers. To provide the less fortunate even basic tools for the information economy will require wiring schools and villages throughout rural India.
Just as alarming is the digital divide between the north and the south. The southern states of Karnataka, Tamil Nadu and Andhra Pradesh continue to get the lion’s share of foreign investment and concomitant job creation. They are also the main source of software engineers leaving for well-paid jobs in the US and other developed nations. As a result, the region’s standard of living and relative prosperity threaten to leave the northern states well behind. The north has long dominated the nation’s political and economic scenes, thanks to its significant strength in agriculture and industry. The tables are about to be turned, and hopefully, will lead to nothing more harmful than hand wringing, and perhaps even lead to something positive — a determined effort by the northern states to catch up.
The Indian Century is Now
Despite the recent setbacks in the public markets, one cannot deny the growing importance of information and the critical role of technology. The market retreat has to do with the sudden rediscovery of the importance of profits and the remarkable return of business sense. This reawakening can lead to even greater opportunities for Indian entrepreneurs.
The future lies in the growing convergence of technology and media, in the great expansion of bandwidth and its uses, and in the exploitation of these trends for business and profit. Great businesses will rely increasingly on smart, tech-savvy individuals, and VCs will continue to fund brilliant and driven entrepreneurs. The factors that have led to the emergence of Indian-born executives and entrepreneurs continue to become stronger, and the Indian diaspora has just begun to flower.
Should the global economy falter (or that of any one developed nation), this would likely lead to even more reliance on offshore services and a greater interest in the Indian market. After all, it’s all about profits. Increasingly, global businesses recognize that the India technology market is the quintessential clearinghouse for purchasing IT growth at an affordable price. All in all, the stars are aligned for this to be the Indian Century.
Ashok Trivedi is Co-founder and President of iGATE Capital Corporation. Write to him at ashok@corp.siliconindia.com.
