Sunday, January 6, 2013

India’s Ascent in IT in spite of Infrastructure Problems

(Anurag Sharma)
Though most experts were optimistic about Indian economy, some showed scepticism. The sceptics worked hard to stereotype India as a backward country with no hope for modern development. An earlier IMF report complained about “domestic structural constraints” in India. In an interview with Manjari Raman published on December 29, 2004 issue of, Michael E. Porter (2004) of Harvard Business School strongly denied India's economic progress as overstatement.

It is obvious that the pessimistic view about India was completely wrong. India's GDP is growing fast and steady. Foreign exchange reserves are over $ 100 billion. NASDAQ has opened office in Bangalore. NYSE has bought 5% stake in India's National Stock Exchange (NSE) for $115 million. Year 2006 recorded 14.4% growth in industrial production. Indian economy is third largest in the world. India has awakened. India is shining.

Not only India is successful, the success is too obvious to deny. Then, why so called experts were not able to see the obvious? There are two possibilities. First, their theories were too flawed to first predict and later explain India's success in an advanced industry. Secondly, because they were comparing apples to oranges. Both, IMF and Porter failed to see the presence of alternative infrastructure in India. The highways in India may be in bad shape when compared to USA but the fact remains that India has one of the largest and busiest railway network in the world. New Delhi's new $2 billion subway system called Metro is impressive. It is being studied for implementation in other Indian cities. Most of Indian cities have already started following Delhi's lead of using compressed natural gas (CNG) for public transportation system. India adds 7.5 kilometers (4.5 miles) to its existing highway network every day. Around 250,000 people are currently employed in an ambitious nationwide project called Golden Quadrangle to upgrade 45,000 kilometers of national highways at a cost of $40 billion.

In 2006, India's Power Finance Corporation signed an agreement with the National Rural Electric Cooperative Association of USA and the World Bank (IFC 2006) to set up a public-private partnership for rural electricity distribution and advisory services. This alliance is an important step toward India's goal of achieving universal electrification by 2012. Similarly, a private sector company Posco is included in a $900 million project to build a seaport in Orissa. India also has a well established network of hospitals, schools, banks, insurance companies, and other institutions.

India certainly has a serious shortage of power to support the industries. The total infrastructure investment requirements for the next five years have been estimated around US$ 115-130 billion. Improving power system alone will require approximately $45 billion during the next three years. India is working in this direction through public-private sector collaboration. Also, India has taken a successful alternative approach to overcome the negatives of the infrastructure in form of cluster-based development. Carmel (2003) suggests cluster-centered infrastructure (technology parks or high tech office centers) as the preferred alternatives for software industry in case of absence of infrastructure on a national basis. This is exactly what happened in India. The schemes such as STPI and the regional strengths as in Bangalore helped the growth of the Indian IT industry in spite of lack of infrastructure on national level.
There was another flaw in the judgment of Porter and IMF. Their assessments give more than balanced importance to infrastructure. The fact is that the infrastructure does not have to necessarily act as a prerequisite for success. On the contrary, the dependence on pre-existing infrastructure is inversely proportional to the development of new technology. For example, a development model that binds success of Internet in any country to tele-density is a little imbalanced. This phenomenon is elaborated further in the next paragraphs. Consider News media for a test.

Newspapers depend on a large network of infrastructure and supporting industries at various stages of production, pre-production and delivery. Forestry industry is required to produce the trees. The capital intensive pulp and paper industry is needed to produce the Newsprint; you need printing press to print the papers and at the end you need a network of transportation and delivery mechanism. A superficial model may link all this dependence on infrastructure to the delivery of the news. Suppose there is change at the technology frontier, for example, use Radio as the medium of news delivery. Delivery of news through Radio does not involve forestry, newsprint, transportation etc. All that is needed by the customer is to purchase an inexpensive radio set just once. We definitely need an electronics industry to manufacture radios but we needed a printing press manufacturing industry too in newspaper's case. Both these industries can be substituted with import. Radio not only does away with a lot of infrastructure building, it can provide any news instantly and enhanced features such as live coverage which were never possible through news paper. Conclusion: Any theory that fails to distinguish the news industry from news-paper infrastructure will fail to predict the future trends in media.

Yet anther example is photography. Switching from film based system to digital system does away with the dependence on photo film and film developing laboratories. A model that considers number of film developing laboratories as a basis for development of photography industry might have worked for pre-digital era. Ultimately, it would fail to make reasonable predictions due to imbalanced dependence of an antiquated infrastructure indicator. The same is true in Information technology too.

It is important to highlight the differences in other existing models too. Be it Porter's (1998) diamond model, Software Export Success Model by Heeks and Nicholson (2002) or Carmel's (2003) Oval model, existing models insist on availability of infrastructure as a pre-requisite to development. The reality is that the dependence on infrastructure changes with other conditions. One standard global benchmark cannot be applied for infrastructure. This is especially true in case of IT. Considering infrastructure as a prerequisite to success is one reason of several models' failure in explaining India's success in IT and other advance technological areas. The fact is that the dependence on infrastructure reduces as the technology matures. This dependence falls much sharply in case of IT and related industries. The relationship between the maturity of the industry and the infrastructure is shown in Figure 1.

Figure1: Maturity of the Industry and the dependence on Infrastructure

Having an existing infrastructure based on an older and less efficient technology may actually prove as a stumbling block to the success. For example, in mobile phone technologies, the GSM helped the mobile phone industry to become an instant success in India. The same technology was struggling in the USA because of the existence of older but alternative CDMA/TDMA technologies. Similarly IBM's departure of 1970s allowed India to switch to the agile and open platforms instead of the legacy mainframe operating systems. In both these cases, lack of infrastructure actually proved to be a blessing in disguise for India because it allowed the industry to get the best and most efficient technology as the starting point without having to deal with serious change management issues. The case of Indian IT sector has proved that the development theories considering the infrastructure as a precondition to the development are not the right tools to predict or explain the trends in technological development.

[An excerpt from "India as an IT Superpower: Strategy for Success" © 2007-2013 Anurag Sharma]


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