A 7% growth rate is not good enough for India and its IT industry has missed the bus on innovation by sticking to a template that worked 25 years ago, believes economist Soumitra Dutta who co-authors the World Economic Forum's annual Global Information Technology report. Layoffs and adjustments to tumult in its largest market – the U.S. — are transient factors and the real worry is that China is seen as more innovative now than India in the IT space, said Mr. Dutta, who is the dean of Cornell SC Johnson College of Business. Edited excerpts from an interview with The Hindu:
Are Indian student applications falling in U.S. universities under the Donald Trump administration?
Generally, foreign student applications are down this year. This is across the U.S. due to uncertainty about the visa and work situation after studies. Canada is being very aggressive to bring in foreign students and it’s also a very attractive country to go to. In the short-term, some negative impact is happening. But more worrying is the potential cuts the Donald Trump administration is making in research areas, because as grants go down, it affects output. And that’s the part that really worries me in the university much more.
There is also a concern about the environment on campuses as people are much more divided in terms of political views, but I am more concerned about the possible loss of R&D funding with many key research programs losing out. A lot of the funding for climate change will disappear. If you remove the intellectual horsepower that feeds the universities, that hurts more than losing student applications.
What are your views on the Indian IT industry’s current woes?
I think the traditional Indian IT players will have to restructure their business model and hire more people in the U.S. The costs will go up, so they will have to think about what that means for the employee balance across countries and the cost structures. That will of course, have a short-term effect on margins and they will have to look for new markets. A bigger issue that I see with the Indian IT sector is it was very innovative 25 years ago. There hasn’t really been another big innovation in the IT sector. They have been following the same template for too long. As a result, you don’t have an Indian Microsoft or an Indian Alibaba. And that’s the problem.
The product investment is not there, nor is the consumer Internet boom. So in some sense, the Indian IT industry hasn’t innovated in the last 15 years enough. China doesn’t have a TCS, but it has a Tencent and Alibaba which are more dominant and valuable in the future. China has succeeded in skipping a generation altogether and they got leadership in the next generation. Today, if you ask the question is China more innovative in the IT industry than India, people would probably say yes. The answer wouldn’t have been the same 15 years ago. So India has lost the leadership of the IT industry in many ways.
So do you see the current spate of layoffs in the sector as an outcome of redundant skill sets?
The Indian IT sector layoffs are, in my view, just a temporary balancing of the workforce. All companies go through this… The basic model of the IT industry is still stable and there’s enough business. They might have lower margins and lesser people. They are not going to go out of business, they will adjust a bit. There will be healthy companies like TCS and Wipro. But they are not going to be the next generation companies and they will never be. TCS, Infosys or Wipro will never be the next Alibaba. And that’s a problem.
The next generation of IT companies are coming from the U.S. and China, not India. If you look at the market capitalization of top 10 tech companies in the world, Alibaba and Tencent are No. 9 and No. 10. And the top five are big U.S. companies. So India, despite having all the lead in IT, doesn’t have an entry in that. That is not easy problem to fix. Because you miss a generation, it takes 15 years to catch up.
Any attempt for India to make a bid for that will require us to think about what’s the next big leap and be able to make that generational leap. Because 20 years ago, there was no vision of Alibaba or Tencent. But some people in China made that leap and got lucky. We need someone out here to think about what will happen 15 years from now. That is a big question mark. Because what we have right now in India is essentially copies of American businesses like Amazon or eBay. There’s no real innovation happening in the internet space.
What’s your view on India’s growth slipping to 6.1% in the last quarter of 2016-17?
The slight dip is not what worries me. What worries me is the overall number. I think 6% or 7% growth is not enough for India. Any country that has become an emerging global power needs to have 10-20 years of 10% growth. We are nowhere near that. Brazil at some point had 10% growth for 15 years. China had it for 20 years. India’s never actually had that. What worries me is will we actually hit 8%, 9% or 10% and will we be able to sustain it over 10 or 15 years. I am keeping my fingers crossed that the government’s focus on building institutions will lead to long-term results.
So I am not too concerned with the short-term dip which might be because of demonetisation and whatever other reasons. I am more concerned about can we move from 7% to 9%. Because at 6% or 7%, you are not really making a dent on the poverty reduction front, at least not fast enough. If you want to make it fast enough, we need to move at a different pace. We shouldn’t forget that India’s economy is still quite small with a very low per capita income. The U.S. economy is roughly 16-17 trillion dollars, China is about 10-11 trillion dollars, India is around two (trillion). And India’s nominal GDP per capita is still very low.
From a foreign investors’ lens, if a government with such a majority cannot address the tough structural reforms such as in factor markets like land and labour, is there a concern that India’s potential will remain untapped?
Now what the Prime Minister has really done is consolidated the BJP’s power at both the national and State level. In many ways, that was an important foundation to be laid. Hopefully, that will lead to faster and more effective action going forward. I think people and business like stability more than anything else.
Emerging markets have a problem as they usually don’t have stability. That’s what people hate about emerging markets. So the fact that the same party now controls the Centre and a large part of the States gives a sense of stability to the foreign investor and businesses. That is important as once you have confidence and stability, people take the right decisions or at least more encouraged to take the hard decisions.
Would now be a good time to take up land acquisition reforms, for instance?
I think so. There will always be some changes that are hard to do because of politics and democratic systems. There’s always a cost of change. But I think if we can still do a lot to simplify things and focus on health, education and infrastructure, it will help. There’s a lot of low-hanging fruit in India. It’s good to have analysis and new ideas, but I think the problem in India is less about ideas and more with execution. I do believe that government’s focus on stability and a sense of calmness and focused discipline on execution is critical. It’s very hard to govern a large and diverse country like India. It’s a significant achievement just to provide a sense of stability, direction and some positive confidence.
How do you see business education evolving? Will we see more consilience being weaved into what one traditionally learnt at B-schools?
I am also the chair of the AACSB, the global body for business schools’ accreditation. We went through a vision exercise recently and two themes came out strongly. The future would be about making connections between disciplines like engineering and business, health and business and so on and secondly, the connection with industry. The second theme was disruption. There was a strong feeling that the way we have done business education in the past will not be the same going forward.
We will have to rethink business education for the future. There’s no clear model but the field is ready for disruption and you can see that already with the traditional MBA market stagnating to some degree. We see some of the weaker players dropping out, some schools are stopping their MBA programmes. There’s a feeling that what got us here will not get us through the next 50 years.
The government has granted tax sops and other perks for startups but bureaucrats sit and decide which Startups deserve them. Do you feel this approach could work?
If you actually look at the venture capital investments into India, it’s quite good. Remember that many of the investments in China happen through Hong Kong or elsewhere. India is pretty high among most metrics in terms of investor money coming in. It is an entrepreneurial country with lots of opportunities so people want to invest in India and we expect it to continue in the future. Now the question is what is the best way to do it. What’s the role of the government in the process? That’s a very important issue as the government has an important role to play, but it shouldn’t be controlling every single element of the process in the cycle. I can give you two examples – even in a country like America, the government is extremely active in supporting R&D (research and development) through research and university grants. The government also picks a direction to invest more in, such as the human genome project that was picked some time ago. Now there’s interest in the brain… so the overarching fundamental domains the government can direct. The other example is Israel – where the government directed the VC part of it and a lot of the VC investments were started by it but then they moved into the private sector in a structured and rapid manner. Today, Israel’s VC sector is very strong in the private hands although it started under government control. So even in India, the government’s role is important – at the same time, the government also has to know when to get out. It’s like giving birth to a child. You have to take care of it but also know when to set her or him free. If you don’t get the freedom, you create a stunted adult. That’s the challenge for governments and bureaucrats. Having a market element is critical in the decisions that are made, as without that, you could run up huge losses and sometimes that happens.
The Planning Comission was replaced by the Niti Aayog. Do you feel its role has become clear yet?
I think Niti Aayog is a cross between a think tank and some execution (powers). The Planning Commission didn’t have execution powers. How much it will succeed in that remains to be seen. The jury’s still out on whether the modified version will work. As a think tank it has a lot of interesting ideas, now the question is how much of execution does it directly own and how much it partners. It might actually work if they don’t try to own everything in the execution and find the right partners, else it might get bottle-necked. So far, what I have seen is they are doing it smartly and not getting stuck in doing everything themselves.
You have worked a lot on how businesses can leverage social media, but we are also seeing this becoming a new political force in the US and India.
Yes, we are seeing President Trump use it in a way that is completely disruptive. No one remembers Hillary Clinton’s tweets, for example. But everyone remembers Trump’s tweets. Now you might say he can’t spell properly or his tweets are crazy, but people remember it. The question is the way he used social media was disruptive, given the way people were using it before. People are living in micro-worlds, so in the small micro-world you choose to live in, you keep reinforcing whatever bias you have and you keep listening to other people with the same biased views. Unlike what we thought would bring a wide variety of opinions, the reverse is happening and people are going to smaller cocoons and they are getting the same biased view. So this is a challenge for mainstream media as people are able to select a biased view and that is a challenge for society, governments and media. The French president Macron’s win is even more dramatic than Trump and Obama, as both of them used their party’s existing machinery to get elected. Macron didn’t use either one, which is remarkable. It will keep playing out the question is if it will be in a positive or negative way. It’s a challenge today and fake news is a good example. How do you fact check what you read online? It’s a big issue.
