Friday, December 19, 2008

Must have thought

The following text was published in the Business Line. 

Excerpts from Imagining India: Ideas for the New Century by Nandan Nilekani 

“The 1980s was a period that marked the rise of software firms in India. Right out of college, I had joined Patni Computer Systems (PCS), a family firm, whose CEO Narendra Patni came from one of India’s traditional business communities. I met Narayana Murthy here, and when Murthy’s plan to set up a small, new software company inspired six of us to join him, we walked into a minefield of regulations. We did not need much from the government, but the rare times we did have to travel to Delhi to get permissions to import a piece of hardware, we would be trapped in bureaucratic paperwork for months. Once, when one of the co-founders, N.S. Raghavan, went to Delhi to change the ‘port of arrival’ from Madras to Bangalore in an import permission letter, he had to hang around in the lobby outside a bureaucrat’s office for eighteen days. The corridors of these government buildings felt like a maze you could not find a way out of.

Additionally, since India had huge shortages of foreign exchange through the 1980s, every trip that we made abroad required the approval and sanction of dollars from the authorities. One time I had to make two trips to the United States in quick succession, and the clerk at the Reserve Bank of India demanded to know why I was travelling abroad so often—he did not see the need of it, and must have thought I was a hedonistic wastrel.

We also witnessed how much people favoured working in the Indian public sector at the time. Soon after Infosys moved to Bangalore in the early 1980s, we had hired a few bright young engineers from IIT Madras. Within a few weeks, one of them came up to me and said he wanted to quit, to join a public-sector company in Bangalore—he told me that ‘a government company will never go under, and the job I have will be for life’.

It took one more crisis to change our small steps towards reform in the 1980s into a single leap to the other side. India’s particular nemesis has been the oil price rise, which sent the economy reeling towards bankruptcy time after time. In 1991 yet another oil price rise triggered a crisis that I would call ‘third-time lucky’. It was one that transformed our attitudes towards India’s entrepreneurs. 

India was staring into an abyss by the end of the 1990s—thanks to reckless government borrowings, our foreign debt had more than tripled since 1981 to $64.4 billion. Then came the Gulf War and high oil prices. With the Indian economy on the ropes, the finance minister Manmohan Singh introduced a reform agenda… the baton for growth passed from the government to ‘the human spirit of creativity, adventure and enterprise’. 

A flurry of activity 

In the 1970s and 1980s, nearly every Indian middle-class home had a cupboard made of wood or steel, with multiple locks and several small drawers. The favoured brand was Godrej Storwel, with its hard-to-pick lock. Most Indian families kept their savings and jewellery here. People avoided putting money in stocks because of the ‘wealth tax’ on such investments. When the ‘wealth tax’ was eliminated, money came out of these cupboards and into India’s stock markets. This combination of stock-market modernization and a vibrant market enabled an explosion of new entrepreneurs, who could tap into market capital to compete across industries, and turned many once-oligopolistic industry sectors, such as airlines and telecom, into highly competitive ones.

The businesses that emerged at the top of the heap after this struggle were different from the ones before—half of the top ten companies in market capitalization in 1991 had disappeared from the list by the decade’s end. Some of the most prominent entrepreneurs who emerged post-1980, such as Sunil Mittal and Dhirubhai Ambani, had built their firms from scratch, and were a breed far apart from the closed circle, family entrepreneurs of the 1960s and 1970s. 

Leading the way 

It is also interesting how the Indian government has begun to leverage the strength of India’s IT industry in its foreign relations with other countries, as IT companies have established offices and made acquisitions across the world. In the Middle East, for instance, India has pushed governments to locate and deport terrorists, while using investments by India’s software firms there — and the threat of pullout — as leverage. As the technology economy has expanded in India, IT companies have also shifted from software exports to addressing domestic opportunities. 

Excerpted with permission from Penguin Books India”

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