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High Tech and Hope

India wakes up to a new economic reality

By Janice Endresen, MA'85

High Tech and Hope – India wakes up to a new economic reality
India wakes up to a new economic reality
In just 15 years India has made the transition from an economy about to go bust to one neck-in-neck with China in its unprecedented rate of growth: India's GDP grew at 8.1 percent in 2005, and posted a growth rate of 8.9 percent for the first quarter of 2006-07.

With a middle-class population rivaling the entire population of the United States, India's spending power – and its appetite for consumer goods – is skyrocketing, too: Indian retail industry grew at a whopping 26 percent from 2002 to 2005.

But with infrastructure straining to meet demands, nearly two-thirds of the population scraping by on less than $1 a day – 80 percent live on less than $2 a day – and an adult literacy rate of 61 percent, India faces an uphill struggle to sustain its growing economy.

Is India up to the task? The unanimous response from Johnson School alumni in India is a resounding "yes!"

SETTING THE STAGE FOR A NEW ERA

Samir Somaiya, MBA '93
Samir Somaiya, MBA '93
Hands down, the liberalization of India's formerly socialist economy in 1991 was one of the biggest contributors to the country's economic renaissance, the reason it was able to break the bonds of what was euphemistically known as the "Hindu rate of growth" – 3 percent per year. "India was two weeks away from financial collapse when Manmohan Singh – now prime minister, then finance minister of India – opened the markets," says Samir Somaiya, MBA '93, executive director of the Godovari Sugar Mills and director of the Somaiya Group. "Until liberalization and relaxing of controls, all aspects of India's economic activity were controlled by the government and its five-year plans."

"Singh really opened the door, got rid of a lot of rules," says Mel Goldman, visiting lecturer of entrepreneurship at the Johnson School. "Indian businesses had to become competitive, because restrictions and tariffs were removed.

"Before, India had a distrust of an open economic environment – and of any foreign economic presence – because of the British East India Company," continues Goldman, who has helped to establish six venture capital companies in India. "They're over it now; it's a new era."

After that, it didn't take long for the rest of the world to realize that India had a highly educated workforce that spoke excellent English. In a country where 22 languages are officially recognized by the Indian Constitution and literally hundreds of other languages are in common usage, English is the most important language for national, political, and commercial communication, and is a de facto lingua franca, along with Hindi, the official national language. Newspapers, magazines, and even television and radio news and talk shows are commonly in English. "I get tired of people who think English is not my first language," says Sumanth Vepa, MBA '04, business development manager, IBM Research, Indian Institute of Technology. "I grew up speaking English at home with my parents, and all my schooling, from primary school through university, was taught in English."

Higher education in India began to flourish under the leadership of India's first prime minister post-independence in 1947, Jawaharlal Nehru, who established its now-famous Indian Institutes of Technology, or IITs. "The bottom 90 percent of education in India is very poor, but India's IITs produce some of the best students in the world – top-level, world-class students," says Goldman.

Nehru is also at least partially responsible for India's competitive position as a leader in science and technology. "Nehru was one of a very dedicated group of leaders post-independence in India," says Goldman. "He was very realistic, believed in science and technology, and built scientific laboratories as public-sector corporations. Pharma (now one of India's key growth sectors) is one industry that would never have developed without these institutions. They trained some of the best scientists, many of whom left and started their own private businesses."

Another relatively recent and significant contribution to higher education in India came from the establishment of private educational institutions. "Until the late '70s, all 'seats' for students were driven by education subsidies," explains Somaiya. "We had a very vibrant private education system, but we could only start what the government subsidies allowed. That changed in the late '70s, when four states in India allowed self-financing institutions to charge tuition to cover costs. In 1975 there were two engineering colleges in the country. Today, there are about 1,300; 970 of them are self-financing, private, not-for-profit institutions. And 700 of those are in those four states. The private institutions established after regulations regarding education were relaxed were essential for Y2K outsourcing. They played a major role in the upswing in India's economy, and produced IT engineers."

Somaiya's grandfather, founder of the Godovari Sugar Mills (the Somaiya Group's flagship company), also founded a private educational institution, Somaiya Vid-yavihar, in 1959. Somaiya Vidyavihar now boasts two campuses, 34 institutions, and 25,000 students. It offers a broad range of programs, from pre-primary and secondary school to graduate and postgraduate degrees in the humanities, management, engineering and information technology, commerce, and the sciences, including medicine. "My father runs the university, and I run the business," says Somaiya, who also serves as a university trustee.

In his renowned book, The World is Flat, author Thomas Friedman tells the story of many additional factors that converged in the 1990s to boost India to the forefront of the IT industry. These include the dot.com euphoria that led investors to connect the world with untold miles of fiber optic cable, and the Y2K scare, which created a huge demand for high-tech talent to go into computers and do the rote work of resetting computers' internal calendars. That job could be done remotely over the then-nascent Internet, and, in turn, led the Western world to discover India's highly educated, computer-savvy, young workforce. Subsequent to discovering that low-cost talent, the West began to outsource its back-office work in a big way, leading to the dramatic rise in business processing outsourcing (BPOs) and call centers in India.

All these developments have also brought about a change in attitude and mindset in India. "Young folks are very excited and optimistic," says Lakshmi Bhojraj '95, MBA '01, director of the Johnson School's Parker Center for Investment Research. "They know that multinationals value them as an English-speaking, educated work force."

Fast-track growth
For many years before liberalization, India's best and brightest emigrated to the West to find jobs that maximized their talents. Now, with the demand for knowledgeable, skilled workers at an all-time high, that trend is reversing, and nonresident Indians, or NRIs, are returning home in droves. In fact, according to a special report in the Economist ("The battle for brainpower: A survey of talent," Oct. 7, 2006), NASSCOM (India's National Association of Software and Service Companies) estimates that 25,000 Indian high-tech workers returned home in 2001-04, and the number is rising.

"Everyone wants to live in their own country, near their families," says Jaya Vaidhyanathan, MBA '98, a senior executive and partner at Accenture who returned to her native Chennai in 2002. "Now my mother can take care of my children when I go on a business trip."

Rahul Bhalla, MBA '93, general manager, Strategy and Business Development, for IBM India, lived in the United States for 18 years and returned to India in 2004. "I came back for both personal and professional reasons," says Bhalla. "I wanted to be part of this transformation; I also wanted to be near my family. I stayed in the U.S. for so long because it afforded me tons of opportunities, it was a good change. It was partly a timing issue; I always said I'd return to India."

India abounds with stories of young people working in call centers and BPOs who, with an annual salary starting at about $8,000, earn more in a year than their parents earned in 10 or 20 years. That newfound wealth is contributing to an exploding consumer market. Indian television commercials feature motorcycles, microwaves, washing machines, dryers, video cameras, wall paint, mixers, toasters, and other small kitchen appliances. Sameer Kothari, MBA '99, director of business development for the Vanity Case Group of Companies, reports that the cosmetics and personal care industry is expecting revenues to grow by about 45 percent this year. "Our economy is not dependent on the United States," he says. "India has its own domestic consumers."

"India has been sleeping," says Amol Palkar, MBA '04, CEO of Capital Explorations. "TV and the Internet have shown people what others have, and they want it, too – and now they see the possibility of getting it; it's within their grasp."