As a new national government takes shape in India, promising to increase growth while also broadening the set of beneficiaries of that growth, the country’s technology and business services industry has provided its own blueprint for continued success. The Perspective 2020 report was prepared by consulting firm McKinsey and Co. for the National Association of Software and Services Companies (Nasscom), to define—quoting Nasscom chairman Pramod Bhasin— “the opportunities and the challenges for the industry to drive sustained growth in the domestic and global markets”.
Some of the challenges faced by India’s technology and business services industry are exemplified by the global financial crisis, the recession that followed and policy changes that may be undertaken by the Obama administration to discourage outsourcing. There is an obvious need to explore new sectors, geographic markets and customers, moving away from a strong dependence on serving the needs of US information technology (IT) and financial services firms.
Perhaps the most important market that can be served more fully is the domestic market, across a range of needs. Empirical work I collaborated on recently demonstrated emphatically the potential productivity gains to IT investments in Indian manufacturing firms. Empirical studies from industrial countries indicate that realizing these productivity gains requires complementary organizational innovations. Other work establishes that managerial practices and efficiency vary tremendously across Indian firms. Putting all this together, one can conclude that there is an interrelated set of issues that needs to be addressed, even broader than the report’s stated emphases on higher education, corporate governance and infrastructure. Essentially, a regulatory environment needs to be created that allows businesses to start, expand and shut down more easily and rapidly than is currently possible. Creative destruction, combined with a better supply of key inputs such as talent and infrastructure, could give Indian industry a productivity boost.
The report stresses the value of technology in specific sectors of the Indian economy. In particular, technology is offered as a solution for expanding access to basic healthcare, financial services and education, by lowering costs and overcoming distance. This sectoral focus meshes with one aspect of the report’s vision, that of harnessing information and communication technologies for inclusive growth. Interestingly, this idea has been around for almost a decade, and numerous implementations have been tried by corporations (ITC, ICICI), hybrid organizations (n-Logue, Drishtee), NGOs and purely government efforts. None of these has been fully sustainable and scalable. What have been the obstacles? Getting the costs of technology low enough was an initial issue. Economical access to the telecommunications network is still a problem. But many of the difficulties have arisen from lack of institutional capacity on the side of implementing organizations, and from lack of sustained governmental support. It is not clear how these barriers will be overcome to achieve the 2020 vision. The report calls for stakeholders to “act together in a concerted manner,” but how exactly will this come about?
Nevertheless, putting the idea of concerted action on the table is precisely the value of the report. Consultants tend to simplify, to make their message crisp and attractive. But that simplification provides a welcome contrast to the more typical approach in government documents, such as those describing the five-year Plans, where every possible positive action is outlined and recommended, without much prioritization or discussion of implementation and feasibility. And, in a sense, I have been unfair to the report by picking on the area—technology for inclusive growth—where progress is the most difficult. The Perspective 2020 report is on somewhat easier ground when it pushes for making India more of an innovation hub, expanding quality higher education, expanding into new export markets and developing India’s reputation as a trusted provider of professional services worldwide.
My own suggestion on how to move things forward is that before concerted action and collaboration can occur, an alignment of thought is needed. The report is at one end of the spectrum, representing business interests, but in a more sophisticated and encompassing manner than old-fashioned lobbying efforts. At the other extreme are the kinds of documents that tend to be written within the Planning Commission, various ministries, and even the Reserve Bank of India. In the middle are a range of committee reports written by a mix of academics and practitioners. It would be useful to parse these different documents, comparing the choice and articulation of ends and means across the groups of writers, to identify areas of agreement as well as differences in thinking.
The benefits of an explicit discourse on business strategies, economic policies and economic development would be greater clarity and consensus on action. The subtitle of the Perspective 2020 report is “Transform Business, Transform India”. That connection of business and national transformation is one that needs to be explored more systematically and deeply.
Nirvikar Singh is professor of economics at the University of California, Santa Cruz. Your comments are welcome at email@example.com