Bangalore: In the US and Europe, people worry that their well-paying, high-skill jobs will be, in a word, “Bangalored”—shipped off to India.
People here are also worried about the future. They fret that Bangalore, and India more broadly, will remain a low-cost satellite office of the West for the foreseeable future.
Even as the rest of the world has come to admire, envy and fear India's outsourcing business and its technological prowess, many Indians are disappointed that the country has not quickly moved up to more ambitious and lucrative work from answering phones or writing software. Why, they worry, hasn’t India produced a Google or an Apple?
While innovation is hard to measure, academics who study it say India has the potential to create great products but is not yet doing so. Indians are granted about half as many American patents for inventions as people and firms in Israel and China. The country’s corporate and government spending on research and development significantly lags behind that of other nations. And venture capitalists finance far fewer companies here than they do elsewhere.
“The same idea, if it’s born in Silicon Valley it goes the distance,” said Nadathur S. Raghavan, an investor in start-ups and a founder of Infosys, one of India's most successful technology companies. “If it's born in India it does not go the distance.”
Challenges ahead:?Mahindra Group’s Anand Mahindra says: ‘We were in an economy where, forget innovation,?expansion was discouraged, creating wealth was frowned upon,?there was no competition to?speak?of.’ Rajkumar / Mint
Raghavan and others say India is held back by a financial system that is reluctant to invest in unproven ideas, an education system that emphasizes rote learning over problem solving, and a culture that looks down on failure and unconventional career choices.
Sujai Karampuri is an Indian entrepreneur who has struggled against many of these constraints.
His Bangalore-based company, Sloka Telecom, has developed award-winning radio systems that are more flexible, smaller and less expensive than equipment used by phone companies today. Mobile phone companies and larger telecommunications equipment suppliers are buying and testing his products, but he has not been able to interest Indian venture capitalists. For the last five years he has run his firm on $1 million (around Rs4.68 crore) he raised from acquaintances.
Companies such as Sloka Telecom are important, analysts say, because they are more likely to create the next wave of jobs than large, established Indian technology companies, many of which are experiencing slower growth. These companies could also help offset some of the outsourcing jobs India will likely lose because of greater automation and competition from countries where costs are even lower.
There are historical reasons why starting a business in India is difficult. During British rule, imperial interests dictated economic activity; after independence in 1947, central planning stifled entrepreneurship through burdensome licensing and direct state ownership of companies and banks. Businesses found that currying favour with policymakers was more important than innovating. And import restrictions made it hard to acquire machinery, parts or technology.
“We were in an economy where, forget innovation, expansion was discouraged, creating wealth was frowned upon, there was no competition to speak of,” said Anand Mahindra, who heads the Mahindra and Mahindra business group and has spoken about the need for more innovation.
Indian leaders began embracing the free market in the 1980s and stepped up the pace of change in 1991 when the country faced a financial crisis. Those changes increased economic growth and made possible the rise of technology companies such as Infosys and Wipro, which focused on providing services for American and European corporations.
Yet, the government still exerts significant control, especially in manufacturing, said Rishikesha T. Krishnan, a professor at the Indian Institute of Management, Bangalore.
“To start a services company it really takes you just two or three days to get going,” said Krishnan, whose book From Jugaad to Systematic Innovation: The Challenge for India is to be published in 2010. “The moment you are looking at manufacturing, there are hundreds of inspectors and regulations.”
Raising money is one of the biggest challenges entrepreneurs face. Venture capital funds have flocked to India in recent years, but they are more likely to invest in established businesses than young firms.
There may yet be hope for Indian innovation. Some are looking to fill the venture fund vacuum.
Separately, N.R. Narayana Murthy, the chairman of Infosys, recently sold $38 million worth of shares in his company to start a new venture capital fund. Raghavan, the former Infosys executive, has invested about $100 million in start-ups such as Connexios Life Sciences, which is developing drugs to treat diabetes and other diseases. Indian universities have also started entrepreneurship programmes and classes.
Vivek Wadhwa, a former technology entrepreneur who now researches innovation, said the climate for start-ups in India was a lot better than it was a few years ago. It should continue to improve, he said.
Another change may augur well. Until early this decade, the Indian market was too small and isolated to make it very lucrative for businesses to develop products here, so most technology companies focused on selling services to the West, said Girish S. Paranjpe, joint chief executive of Wipro’s information technology business. “That will change dramatically because the Indian market has become bigger,” he said.
In the last eight years, the size of the Indian economy has roughly doubled along with the importance of global trade. There could still be something to envy and fear.