India’s Second War of Independence: Biggest IT Challenges

When India was waging the world’s best-known peaceful struggle for political independence, the slogan that gained currency was that good governance cannot be a substitute for self-governance. Today, five decades later, after having missed both the industrial and services revolutions, India needs to learn a new lesson: Self-governance cannot be a substitute for good governance.

Having recognized the need to learn this lesson through several painful experiences, India has embarked on a war for economic freedom and prosperity powered by IT. It is almost as if India is waging a second war for independence—albeit this time for economic, rather than political, goals.

IT is happening everywhere in India—in boardrooms, in schools and colleges, in roadside telephone booths and even in government. In fact, IT is rapidly becoming the only thing to cheer about in contemporary India. It’s also the only sector of the economy that’s recording blistering growth rates. Let’s look at some predictions:

New York City-based consultancy McKinsey & Co. pegs e-business in India at $1.5 billion by 2004 and around $10 billion by 2020, which will represent approximately 1 percent of the world’s e-commerce business. McKinsey also estimates that Internet advertising revenues are likely to reach $220 million to $600 million by 2010.

In addition, India is likely to have around 3 million households connected to the Internet by 2004, according to conservative estimates. If one adds Internet penetration through cable and Web phones, that number will be significantly higher. Furthermore, each Internet connection in India is used by four to six people, so the total number of people online will be much higher than that indicated by the number of Internet connections.

To fulfill the projections above, India needs to immediately address several key areas and concerns.

First, India needs to create a world-class telecommunications infrastructure in order to improve call completion rates and drastically reduce tariffs, which currently are among the highest in the world. Several major call center operations that are keen to relocate to India from the United States and Ireland are staying away because India is unable to provide quality bandwidth with attendant service standards at international prices.

India has two powerful incentives to improve conditions for the call center industry. One, the industry can tap India’s low-wage manpower and create several thousand jobs in areas such as medical and legal transcription and data entry among society’s lower-middle class where they are needed most. Two, the industry can push jobs and growth away from the major city centers to smaller towns, thereby helping to reduce several urban problems—chief among them being overcrowding, environmental pollution and overloaded infrastructures.

Second, India needs to create an enduring supply of knowledge workers and IT professionals who can feed the insatiable demand worldwide for such a workforce. In a report commissioned by the National Association of Software and Service Companies (Nasscom), McKinsey concluded that India’s IT sector has the potential to reach $87 billion by 2008; more than half of that total will be export revenues and will contribute over 7.5 percent to overall gross domestic product growth. In this scenario, 2.2 million IT jobs can be created, compared with the 280,000 that are in the country today.

India’s higher education industry must move from a completely state-funded model to a synergistic private-public partnership model, wherein the dynamics of economic decisions are dictated by the market, rather than through political populism. New educational institutions need to combine the academic credibility and infrastructural comforts of government sponsorship with the efficiencies and state-of-the-art technologies of a market-oriented system.

Third, India needs to make dramatic improvements in its overall infrastructure—especially power, roads and public transportation. The power sector alone is characterized by blatant theft, high costs and huge transmission and distribution losses that annually waste millions of dollars across the country.

Fourth, India urgently needs to produce its own multinational corporations and some noteworthy global products. Even today, the migration up the value chain has barely begun for various IT companies in India; most still earn their revenues through different forms of “body shopping,” rather than through premium services.

Fifth, since government occupies a huge economic space in India, there must be concrete efforts to create a regulatory and policy environment that stimulates growth and works with market forces rather than against them. Government must do what it alone can do best—create growth-enhancing regulatory frameworks, make transparent rules for international exchange of manpower and resources, create a system of clear property rights, forge innovative private-public partnerships in infrastructure development and management, and establish an enforceable legal environment.

Sixth, as a major user of IT in India, government needs to invest heavily to IT-enable its activities. Government is sitting on a huge untapped demand for government-to-citizen, government-to-business and government-to-government services. Several studies have demonstrated that it is usually G2C services that drive various B2B and B2C services. Thus, a cleverly designed public-private partnership will help deliver citizens’ services in a commercially viable, competitive manner and make it profitable for private companies, as well.

What e-government initiatives will do, quite apart from opening a huge market for IT products and services, is spread IT culture among the common people. By building a huge constituency of support among citizens for electronic services, the power of organized vested interests and unions—which have blocked such progressive reforms in several government sectors for a long time—will be undermined. As a consequence, future IT-enabled reforms will be easier to implement inside India’s vast public sector.

Finally, several progressive economists argue that the success of the U.S. economy is largely because of links among government, private industry and the Department of Defense that pump billions of dollars into high-tech R&D. India’s government needs to forge similar relationships with the high-tech industry and research labs. In India, academia, research think tanks and industry are relatively insular from each other. We need to develop relationships for a greater cross-fertilization of ideas and resources.

The ongoing IT revolution is a timely reminder that India needs to harness its huge talent to move from a slave labor kind of knowledge economy—which is still nascent—to a full-fledged knowledge society in all respects. What needs to be recognized by both industry and government is that this is just the beginning of a beginning, and much more remains to be done.

If India doesn’t seize the opportunity that’s well within its reach now, posterity will judge it harshly.