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AUGUST 11 , 2000 VOL. 26 NO. 31 | SEARCH ASIAWEEK


Namas Bhojani for Asiaweek.
Rajesh Reddy says Indian IT professionals are high up on Silicon Valley's food chain.

Clicking to Success
High-tech plus economic reforms equal an Indian business boom
By ARJUNA RANAWANA Bangalore

ALSO:
Spreading the Wealth: India's old and new economies have sired billionaires and millionaires galore — here is a selection of some of the principal ones

Subrahmanyam Yadavalli is a man with a vision. The 38-year-old computer engineer quit a safe, corporate job last year to start a venture that aims to put farmers in Andhra Pradesh online. He wants the 4,600 agricultural cooperative societies in his home state in southeastern India to buy his product — a computer and a program — that will let farmers check prices, weather forecasts and credit information. To bring high-tech to the countryside, the program uses easily understandable symbols and simple local-language phrases. "I want to take the latest technology to India's grassroots," Yadavalli says. "By empowering farmers with [the ability to make] better choices, we should be able to help them increase their income." And lest you think this man is a dreamy do-gooder, check out his business plan. "Most of India's people are dependent on agriculture, and this product should have a good market," he says. "I have had inquiries from a number of other countries and have been invited to make a presentation to the Malaysian government later in the year."

Yadavalli is just one of innumerable ambitious and well-educated Indians looking for and creating opportunities in a burgeoning India. Combining high technology, increasing freedoms granted by economic liberalization, and a zeal for entre-preneuralism, they are forcing the Indian economy to change gears from bullock cart trundle to Internet speed. As a result, their country is enjoying its best economic performance in its modern history. For the past five years gross domestic product has grown around 7% per year. It dipped below 6% during the Asian economic crisis, but growth is expected to bounce back to 7.5% or more this fiscal year ending March 2001. Government and private analysts expect the torrid pace to continue and perhaps increase over the next four to five years. This is twice the average annual rate before reforms started in the early 1990s, when India began pruning its socialist roots by easing state controls, increasing domestic competition, and opening the door to imports and foreign investment.

The reforms have unleashed the en-trepreneurial spirit of Indians. No longer is the economy under the thumb of bureaucrats and political interests. No longer is business the fiefdom of a few mega-rich families. Says Harsh Goenka, chief executive of India's fifth-largest conglomerate, RPG Group: "Today a bright young graduate with a good idea will have venture capitalists running after him. To me, this is democracy. In the old days, even if you had a good idea, you needed capital. If you didn't have that and you went to a bank, they asked you for your track record and your equity. So there was no equality of opportunity." It is not just about young entrepreneurs. All businesses are benefitting. "Corruption is coming down, mostly because of the opening up of the economy," says Goenka. "We also don't have to go to Delhi and navigate the labyrinth of some ministry to get permissions for this and that. We are free to do our business."

More free than before, anyway. India still has a ways to go before its economy is fully unleashed. Privatization of state firms has dragged on due to re-sistance from bureaucrats, unions and populist politicians. Red tape still entangles many industries. But the pace of reform seems to be picking up. More importantly, the direction is set. In fact, the often contentious and always public way in which In-dians have fought over economic reforms paved the way to a broad consensus that has kept India fairly continuously liberalizing despite five changes of government in the last decade. No longer can Asia's authoritarian re-gimes point to India as proof that democracy is not good for development. Automotive tycoon Rahul Bajaj says that his country has an economic advantage because of its democratic traditions. "Because we have got the stability we want through democracy and we have also begun to liberalize the economy, we can spurt ahead," Bajaj says. "It also en-sures that there are no sudden shocks, political or otherwise. There are no U-turns in policy. That gives both local and foreign investors confidence."

The effects have been visible across the full spectrum of the economy. Industrial production grew 11% last year, led by traditional sectors such as cement, textiles, vehicles, consumer durables and machinery. But nowhere is the new Indian economy more visible than in information technology. The rise of India's IT industry was marked initially by the success of its nationals abroad, primarily in California's Silicon Valley. The image was set by Sabeer Bhatia, who started the Internet-based e-mail service Hotmail and sold it to Microsoft in 1996 for $400 million. These days, Rajesh Reddy tells of sitting in a Madrid bar a few months ago and being approached by a local man. "Are you Indian," he was asked. Reddy said yes. "Are you in software?" and again he said yes. "Then you must be rich!," said the stranger. Bingo. Reddy, 29, is a "double-digit U.S. dollar" millionaire after he invented a messaging system that integrates mobile-telephony and the Internet in Bangalore and turned it into a Silicon Valley venture.

But what is changing India is not so much what Indian IT professionals are doing out there in the world. It is how they and the technology they wield are connecting India to the world. Global IT giants are flocking to the country, setting up their own software development centers as well as spurring the growth of local firms. The attraction is highly qualified engineers and programmers available at a fraction of the wages of Western counterparts. The industry employs some 280,000 professionals today. "Indian minds are naturally analytical and have a mathematical bent, so the IT industry is a natural for us," says T.G. Ramesh of software house Bangalore Labs. "The new millennium belongs to the New Economy — that is why we say this is the Indian Millennium." The process is fanned by the fact that India's middle-class speaks English, the lingua franca of technology and the Internet, which gives its professionals a leg up on those of, say, China. The Indian IT industry today boasts a 2% share in the $461 billion global market. At the rate things are growing, by 2008 India hopes to increase exports to $85 billion in a trillion-dollar global market.

One factor behind the IT industry's blossoming in India is improved international telecommunications that allow it to communicate with and send products to customers worldwide. Better telecoms have allowed another more mundane but also promising industry to boom — the provision of back-office functions to far-away clients. European companies can e-mail receipts to India for processing by accountants overnight. U.S. doctors dictate notes into digital recorders; the sound clips can then travel to India via the Internet for Indian typists to transcribe. IT giant Wipro plans to introduce technology so that mass-market helplines for customers of U.S. Internet services such as America Online can be run in India. A $10-billion-per-year business today, these back-office services are expected to grow to a $300 billion industry within the next five years. "India can be the back office for the world," says Naresh Malhotra of U.S.-based Global Internet Ventures. "This, as you can see, is just the tip of the iceberg."

Traditional industries are also embracing IT. Goenka has already begun putting RPG's products for sale via the Internet, such as compact discs and cassettes from recording company His Master's Voice. More fundamentally, RPG is using computers to streamline innovatory management and scores of other operations. This is where the real impact on the economy is expected to come from in the future, when the power of computers and telecoms spreads from beyond the relatively small IT industry to the giants of the Old Economy, making them more efficient and competitive. Textiles and chemicals concern Reliance, India's biggest private company, is planning over $400 million in IT-related investments over the next five years.

There is yet another way in which the economy is being affected. Much of Indian industry has traditionally been controlled by a few rich families who managed their holdings in an opaque and often archaic manner. IT companies, particularly leading lights such as Infosys and Wipro, tend to be run very professionally and transparently. That has enabled them to list their shares on foreign stock exchanges and raise money internationally — most recently, Internet portal Rediff.com raised $55 million with a NASDAQ listing, and software solutions provider Silverline Technologies raised $108 million via the New York Stock Exchange. Their example is encouraging other Indian executives to smarten up. New Delhi also loosened rules that had kept Indian companies from raising money overseas or spending money to acquire foreign firms. Says Goenka: "Indian companies have been freed to quote themselves in America. That brings in several things: you bring in total transparency, you have a governing code, you have a better balance sheet presentation, and you can progress to take over companies around the world." In other words, the best Indian companies are now as well managed as their global competitors.

IT firms are also pioneering the use of stock options. That is helping create a more participatory corporate culture, as against the rather feudal style of traditional family-owned Indian companies. It is also giving vast wealth to many Indian entre-preneurs who a few years ago may have had little hope of getting beyond the middle class. "The IT industry can transform the wealthscape of our country," says Azim Hashim Premji, chairman of Wipro Group and perhaps the richest Indian ever. "It is in the business of creating wealth and redistributing wealth." In fact IT is believed to have created more millionaires in India in the last five years than all the other industries put together did in the last 50. There is more to this than making a few more people rich. Dreams of success are motivating increasing numbers of entrepreneurs, and drawing back many who had gone abroad. And their efforts are creating new companies and new jobs for thousands more.

And don't forget the myriad small impacts that technology — coupled with reforms and entre-preneuralism — are having. Most importantly, they are shrinking this vast and fractured country that has long been hamstrung by an underdeveloped transportation and communications system. Hundreds of thousands of privately-run telephone "booths" have sprung up across India to provide phone access to millions of people who cannot afford lines at home. Cyber cafes that charge $1.50 an hour or so are proliferating in cities like Bombay and Bangalore to allow just about anybody to surf the Web. The post office is even accepting e-mail messages and printing them out for delivery to recepients with no phone or computer.

But of course IT and the New Econo-my are still only small slivers of the whole Indian economy. Inefficient state industries still dominate many key sectors such as airlines and telecommunications. Energy production is drastically behind rising demand, although liberalization is bringing in more private participation. And agriculture still accounts for 24% of GDP and employs a staggering 60% of the population. India is home to more than a quarter of the world's poor, with over 525 million people living on less than $1 a day. Finance Minister Yashwant Sinha observes, his country has three economies: "The IT-driven New Economy, the bricks and mortar Old Economy and the bullock cart Older Economy." While the first is charging ever-faster ahead and the second is picking up steam, the last has not even left the station.

But that is where people like Yadavalli and his plan to wire Andhra Pradesh come in. Through his new venture, he hopes to give rural farmers the chance to make informed choices about how much to spend on inputs and ask for their produce, to free themselves from exploitative middle-men and give them more control over their work and lives. He is hitching the bullock cart to the New Economy. It sounds unwieldy, but rely on a savvy Indian entrepreneur to figure out how.

Write to Asiaweek at mail@web.asiaweek.com

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