Just yesterday I returned to Bangalore from three worthwhile days at the India Leadership Conference of the NASSCOM, India’s association of software and IT-enabled companies. The importance of the conference for the whole country could well be understood from the fact that The Prime Minister of India held the keynote the last day. Dr. Manmohan Singh frankly admitted that the success of India’s success in IT & BPO exports largely goes back to the non-involvement of the government. Being a soft-spoken, yet sharp-minded politician, in my view this remark was well directed to his own domestic agenda to curb reform, privatize faster and open up the economy with higher pace. At the same time, the Prime Minister recalled for the necessity to produce more of an “inclusive growth” so that the 9.2 percent GDP-increase would serve broader parts of the population beyond the million something who are employed in the sector.
The stage this year belonged equally to another acclaimed Indian economist, Prof. Amartya Sen who won the Nobel Prize for Economics in 1998 for his work on famine, human development theory and welfare economics. Prof. Sen, a fascinating broadly enlightened gentleman, joked that inviting him to an IT-conference must have been a confusion. On a more serious note, drawing to the 18th century philosopher David Hume, made the case that the social contract for a nation stipulated that the IT-industry should be contributing something back to the country which has enabled it to become so successful and changed the view of the world on India forever.
Much more than last year at the same conference where the triumphant speeches were self-enforcing, a positive, yet contemplative mood was prevailing this time. The fast facts for the Indian IT & BPO industry:
• Overall volume: US-$: 31 bn (up 30 percent from last year)
• Accounts 5 percent of India’s GDP
• Contributes 20 percent to India’s exports
• Growth well on track to reach the target of US-$ 60 bn by 2010 (and the Prime Minister asking to be more ambitious to go rather towards something like US-$ 80 bn)
Nobody really doubts that India’s performance is stunning. However, there are certain trends that do allow for some caveats. Some of them are India specific, others are specific for the Indian IT-industry. For the latter, Ganesh Nararajan who is heading Nasscom’s innovation initiative produced a vivid metaphor: “We all in the industry are moving very, very fast. But we all know that somewhere in front of us there will be a wall which we could eventually hit. A wall which comes from our billing rates remaining flat, and at the same time labor cost increasing with 15-18 percent a year which continuously erodes our margins”. As for his role at Nasscom, where he honestly seems to be passionate about, Mr. Natarajan reiterated his call for the industry to innovate effectively and move up the food chain in order to offer higher value services.
On a more macro-level, the thoughtful atmosphere was certainly fueled by a 3-pager special in “The Economist” on “India overheats” last week (subscription required). The theme there is not entirely new, but it is bringing various parameters together and coming to a focused conclusion that the current growth was unsustainable unless reforms were to relieve the current gap between over-demand and under-supply. The industry is running on overcapacity, loans are piling up and altogether prices are going up with an inflation rate of 6 percent. What is more, for the first time after years, there is a current account deficit of 2 percent.
A good point to discuss the topic in a high-caliber panel called “Is India declaring victory too early?” with Azim Premji, Wipro-CEO and “billionaire with a heart”, S. Ramadorai (CEO Tata Consultancy Services), Ronald Rittenmeyer (President & CEO of ED) and Kiran Karnik, President of Nasscom. The panel was moderated by Edward Luce, author “In Spite of the Gods – The Strange Rise of Modern India” which I had quoted already on this blog before.
Mr. Luce made a good head-start with proclaiming his three major challenges India’s will have to address in the wake of this massive economic upwind: First, not falling into complacency and accelerating reforms, second, the “gini coefficient” how also include the 300 mn Indians into the development who are currently living from below 1 Dollar a day and, third, caring about the quality of perception of India abroad. For the latter he pointed at the old political discussion getting traction again in the U.S., the main importer of Indian IT-services, which could even run into a legal backlash against outsourcing. Here, his advise: “A spirit of triumphalism is certainly not helpful.”
It’s over and over again the call for reforms. People I talk to in the west who are finally getting aware of the mother of all inflection points on a global scale, increasingly appear interested to visit Bangalore. And in their imagination they describe it like Hong-Kong, Singapore or Shanghai with skyscrapers wrapped in mirror glass. Nothing could be further from the truth. Bangalore has gone in terms of public infrastructure in the last three years of my living here from bad to worse: potholes in the street, catastrophic traffic jam, cables hanging down, men urinating at walls. I happily invite everybody to join me for a walk through the city which has rightly become world-famous for its achievements, but at the same time has entirely failed to laterally support this growth with basic infrastructure requirements.
Yet, in spite of the short-term not just challenges, but true problems at hand, nobody really doubts that the 21st century belongs to Asia, and India playing a major role in it. To quote Ramalinga Raju, Vice President of Nasscom: “We have barely scratched the surface”. And the Prime Minister in his speech had no doubt either that in the long term “the best is yet to come”.
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