What is it that enables India to be a globally effective competitor in the services industry? India brings a unique set of advantages. It is the only sizable nation that has a large number of English speaking, university-educated people who work for relatively low wages. India’s colonial history gave India poverty and low wages (growth averaged less than one-half of one percent a year for 200 years of British rule), but the British created an Indian elite that was educated in English-medium schools and colleges. English, first rejected as a colonial language on India’s independence, survived and eventually thrived because it was the only uniting language given India’s huge language diversity. And unexpectedly for a Third World nation, India had an educational focus that pre-dated the British. The Hindu Brahmins, while only five percent of the population, have an intellectual tradition that goes back thousands of years. India has some of the oldest universities in the world. After independence, India’s new government spent a disproportionately large amount of the educational budget on higher education rather than primary education. So India was well-positioned to generate English speaking engineers and graduates when demand emerged. Also, India’s huge population has become a competitive advantage. India’s services industry is important, not because a few engineers create a phenomenon a la Google, but because a single company like Infosys can hire twenty thousand new employees every year, or the industry as a whole can add 250,000 every year.
India has emerged as a global services provider mirroring China’s emergence as a global manufacturing power. Now the question India faces is whether this export-led growth can create a more inclusive growth that will bring its uneducated millions into the twenty-first century as well.
Lucien: Some economists complain that India’s legal and political structure causes substantial difficulty for would-be entrepreneurs. Did you encounter significant externally imposed constraints in the early 1990s when you founded your company? If inordinate government-imposed constraints on business startups still exist, do they vary depending upon the type of business?
Pradeep Singh: When I landed in Bangalore in 1994, it was the first time I was starting a business in India. I had been told that the government bureaucracy would be a major hurdle. As things turned out, starting a software company was substantially easier than had been rumored. We had to submit eighteen copies (yes, eighteen!) of a thirty-five page application, but there was a special “single window” clearance process for software services export companies that brought the various government departments (Labor, Power, Communications, Roads, Sewage, Police etc.) together in a single twenty-person committee. Thirty days after submitting the application, I was asked to present in front of this committee. It was a pleasant enough experience, but there was one stressful moment when a committee member questioned me on whether I was going to do most of my hiring locally. I had been cautioned that there was a government official whose niece wanted a job and that we may get some pressure in our application process. So when the question was raised, I was prepared to make a strong forceful response that I hoped would let all the officials know that we would not be bullied. My rehearsed response was simple: I didn’t need to start my new business in Bangalore; and that I would go elsewhere if I didn’t have the freedom to run the business in the way I thought appropriate. That outburst served us well—we acquired a reputation that we would resist corruption, and we have lived up to the “ethical” value in our value system ever since. We got off easy. We were a software services company.
Nandan Nilekani speaks to the relatively charmed existence enjoyed by the software services export companies in his book
Imagining India. When the industry began in the 80s, it was small and blessed with a few passionate bureaucrats in Delhi who enabled the favorable government policies—the single window clearance process described earlier and the tax-free status that (controversially) are examples—that continue today. The industry’s rapid growth (over thirty-five percent annually for fifteen years) and a very strong industry association (Nasscom) have enabled the software services industry to become powerful enough before the “permission givers” could figure out a way to get their pound of flesh.
It isn’t that simple if you’re starting any other business. If you need approval from ten to fifteen government departments, then that is the number of bureaucrats who have the power to stop or at least delay the process. This is the basis for India’s infamous “license raj”—every little thing requires approval from someone. Edward Luce, who for many years was India’s special correspondent for London’s
Financial Times writes in his book,
In Spite of the Gods, how the legal “licenses” for auto-rickshaws (small taxis) in Delhi is a small fraction of the numbers actually plying the streets. Everyone is aware that the number of legal licenses needs to be expanded many fold, but the powers-that-be prefer to keep it the way it is— and the poor minimum wage rickshaw driver is compelled to pay bribes to the local police.
Government interference and corruption still run deep. Politicians make infrastructure investment decisions like airports, highways, metros, and shopping malls based on where they own land. Bangalore’s new airport location was debated for years depending on who was running the state government. It has finally been built (quickly and efficiently by a private consortium) in a suboptimal location. Scandals abound around telecommunication licenses, government infrastructure contracts, and defense procurement contracts.
Many say that this is merely the cost of doing business in India. My view is harsher: not only does this unnecessary friction slow down investment decisions and create suboptimal outcomes, but it also saps the moral fiber of the country. It breeds a corrupt value system reflected in people’s relationships with their government, in taxes, and when they do business with each other.
Lucien: Do you think that prospects for entrepreneurial ventures have changed since the 1990s? If so, how have they changed? What political or legal reforms would improve the climate for business startups in India?
Pradeep Singh: India today is an exciting place for an entrepreneur. Opportunity abounds, entrepreneurs are heroes, and risk capital is easier to get. Yes, hurdles remain—government interference and permissions are still required and legal recourse is so slow that the rule of contract law is compromised. But India is still one of the most exciting places in the world for a start-up today—with its big, poorly served markets and a rapidly growing middle class that has a large appetite for goods and services.
In the late 80s and early 90s, entrepreneurs flourished by focusing on services export. That export industry created wealth and demand for products and services that has triggered the virtuous cycle of domestic-led growth. Today’s fortunes are being built by entrepreneurs who focus on local markets, whether it is modern retail, new schooling systems, or healthcare.
Poor infrastructure has, and continues to be, one of the primary hindrances. However, cellular phone technology has enabled the biggest infrastructural change that India has ever seen. In ten years, the number of telephones in India has gone from a mere ten million to 400 million. This has enabled huge gains in efficiency that have brought earning power to millions of ordinary people and improved their quality of life. It has enabled many small-scale entrepreneurs, including farmers and fishermen, to run their businesses more effectively by finding better prices.
Ongoing deregulation and lowered taxes have helped create the new face of India’s business, and it is likely that reform will continue. Slowly but surely, labyrinth rules that have been in place since the British ruled India in the eighteenth century are being changed. There is enough pressure from India’s business lobby that the government will to continue to reform.
Lucien: By most accounts, since economic liberalization began in the late 1980s and early 1990s, the material quality of life for millions of Indians has substantially improved. What do you believe are the most critical obstacles to India’s further economic development that need to be addressed?
Pradeep Singh: Even as I speak with optimism about India’s future, it is important to remember that while this is a country with promise, it is also one with severe deprivation. India has more people in poverty than anywhere else in the world, and for large parts of the nation, life has not changed for centuries. Infant mortality, absence of educational opportunity, non-existent healthcare, and lack of access to credit are everyday realities for hundreds of millions of people.
Enabling widespread literacy can make a vast difference to millions of people’s lives. It is the first step in lowering infant mortality and reducing birth rates while ensuring economic freedom, democracy, and efficacy. I am increasingly starting to get interested in technology, policy, and process solutions focused around education and literacy. I view it as India’s largest challenge over the next two decades. In Nilekani’s words, India’s youth can provide the nation “a demographic dividend” if educated, or be a source of severe unrest if uneducated and unemployed. Traditional brick and mortar solutions in terms of classrooms will be constrained by the amount of investment required, as well as the shortage of qualified teachers. Unorthodox solutions will be required.
India’s urban challenge is huge. Most of India’s growth is occurring in an urban context, and as huge cities emerge, the need for reliable infrastructure could be India’s Achilles heel. Sewage, public transport, and reliable power are all massive and rapidly growing needs. It has been argued that democracies cannot deliver this change as quickly as an authoritarian regime like Communist China. So far, the evidence supports that proposition, with New Delhi’s Metro being the exception that proves the rule.
Of course, traditional hurdles like the caste system remain. While rural India will continue to be plagued by this centuries old scourge, the caste system will crumble in the urban context. But the larger problem of inequality (caste, feudal, and now income and opportunity) will continue for the foreseeable future. This is scary—India has traditionally been less violent than other deprived societies, but growing awareness of inequality and breakdown of traditional ties could make India’s cities insecure like Mexico City or Rio.
Lucien: Pradeep, thanks so much for illuminating our readers through this interview!
Pradeep Singh is an internationally famous Information Technologies entrepreneur. Singh, who holds a BS in Engineering from the Indian Institute of Technology, Delhi (IIT) and an MBA from Harvard, founded the Bangalore-based Aditi Technologies in 1994, after nine years in management positions at Microsoft and previous employment at Texas Instruments and McKinsey. Aditi, an outsourced product development company, assists a wide variety of software companies and financial institutions across the globe—from Microsoft to MetLife—in developing consumer products and make their businesses more efficient through innovative uses of software platforms. Aditi has offices in five American locales and in the UK, has been selected for the Global Services l00 list as one of the top IT Companies in the world, and has won awards in India for its high quality work environment. The World Economic Forum named Singh as a Technology Pioneer. In the following interview, Singh briefly discusses his early years, India and IT, the evolving nature of entrepreneurship in India, and India’s economic prospects.