With Indian tech firms traditionally focussed on Western markets, India may not “really have a player in the future”, but government’s impetus on entrepreneurship will be necessary to turn this around, said Soumitra Dutta, founding dean of the Cornell SC Johnson College of Business at Cornell University. Edited excerpts:
The Indian information technology (IT) sector is reeling under pressure of not being able to create as many jobs as in the past. What is the way forward?
IT sector has always had the problem of skills, which is why Infosys, TCS, and all these companies have massive in-house training institutions. Today IT companies are hiring not just computer graduates but any science graduate. So there’s a problem of skilling, which they’ve addressed it somehow.
But there are more fundamental issues because a lot of the growth was driven by the need for jobs in the west. But now with the H-1B visa issue, there will be pressure on IT firms to create jobs in the west and not in India.
If they have to create jobs in India, it will only happen if they increase their demand for customers in India. It is becoming harder to create jobs in India to serve the western markets. I think they’ll have to strategically shift focus to investing in the local markets, and, of course, all companies have to focus on digital transformation, and that’s how they’ll be able to create jobs locally.
While India created world class tech firms 20-25 years back, it hasn’t done so recently. Why?
If you look at Chinese companies, they focussed on domestic market first, and then went abroad. Indian companies have done the reverse. They need to look at the local market more aggressively. If there’s no investments happening in the Indian digital economy, the rest of economy will not be competitive, or you’ll have foreign players coming in. That’s already happening in the internet space. Chinese companies are taking the space. India hasn’t produced big players. We’re very proud of Infosys and TCS (Tata Consultancy Services), but we don’t have any Alibaba or Tencent. They became big because they operated in the domestic market, and now they’re expanding abroad. India doesn’t really have a player in the future. The future of the economy is going to be an internet economy, and there’s no big player out there.
But many new-age companies, including those in the e-commerce and fintech space, have focused on the domestic market…
It’s too little, too late. It’s partly because the Indian telecom sector and the mobile market developed late. So local players did not have the domestic market to grow, and the foreign markets were already occupied by the big players. They could not grow in the US or China, where their players became stronger, and are now entering the Indian market. Now it’s very hard for Indian players to compete against them because they’re very big and powerful.
Why do you think Indian companies didn’t focus on local business earlier?
It’s because investment in infrastructure wasn’t there. The country needs to invest in the digital economy, not just in IT services but new skills, access, and lot of other elements for the process required to make impact. The government has to encourage entrepreneurship in the IT space more actively. Right now, in the traditional space, it’s very hard for a new player to come and compete. So you have to find the next generation, you need innovation and entrepreneurship. IT sector in India was very innovative 25 years ago, but hasn’t been so recently. We need the next wave of innovation. But for that to happen, one needs to take risks. I think Indian entrepreneurs haven’t taken as many risks in general as they should have.
Do you think automation will take away a lot of jobs?
I think the threat is real. But companies will have to either find new ways to employ people, or people will have to re-skill themselves. With more automation, the need for new kind of products and services increases. My view is that if the economy is able to change people’s skills, and allow them to create new jobs, there’ll be more jobs created than lost. Historically, technology has created more jobs, that are different from the jobs it has destroyed. When computers first came in, a lot of people involved with data entry were removed. But then it also created a lot of different jobs. I think there’s potential for job creation, even though the threat of job elimination is more immediate. Let’s assume, we employ more intelligent AI learning techniques in education. On one hand it will increase access to education, which is good, but on the other hand it has the potential to remove jobs of so many people. But the same teachers can do something more, and different. I often say that the best antidote to automation is to be more human. Some human elements cannot be recreated by machines.
In the backdrop of demonetisation, India’s GDP growth slipped in the last quarter. What more effects do you see in future?
The Indian economy is in a very good position, it’s got a strong foundation, and is poised for further growth. Demonetisation clearly had a slight negative drag on the growth in the last few months, but I think the foundations are strong, and with the positive direction, the economy should be on a positive path going forward. It’s interesting to understand it in the long term, because a move like demonetisation of this scale has not happened in any other country. So it’s very hard to compare and say what the long-term effects will be. I think, clearly, cash in the informal economy has reduced a little bit, but not gone away. But there is a greater awareness of transparency, and more formal transactions, which I think is good in the longer run. On the whole, the impact should be a positive one.
A key election promise by this government was to create jobs. But, across sectors, job creation has remained a concern…
The two reasons why people don’t have jobs is if you don’t have the skills or if there are not enough jobs. It could be because the traditional engines of job creation, the government and large companies, are not creating as many jobs as the demand. The focus should be on allowing and helping people to create their own jobs, which is entrepreneurship. So people with skills who don’t have the right jobs should have the right support to create companies. The long-term solution for the country lies in helping people create their own jobs.
India will have goods and services tax (GST) in place from July 1. What are the effects of the new tax regime that India could see, and could you also highlight what issues other countries have faced while implementing GST?
Many countries have some kind of GST. Europe has a VAT, 20 per cent in most countries. I think in India there will be some impact on consumption. It will be an interesting issue in terms of who pays the additional cost. My worry is that it could have a short-term negative impact. In the longer term, it will simplify the system. In most countries with a single tax regime, the long-term impact is positive, because whatever simplifies business is good for the economy. The issue is transition, and who absorbs the cost.
What are the shortcomings in terms of ease of doing business and which key areas require immediate attention?
India ranks poorly on most elements. So improvements are required in all aspects and the magnitude should be large. Radical simplification should be the goal. The use of technology like Aadhaar can be a trigger for some simplification as successful automation will be the key for these changes.
Some sections of India Inc have said that Donald Trump’s protectionist measures may be a blessing in disguise for India. In the broader context, what could be the impact on India?
I do not think President Trump will or can turn the US into a closed market. The USA is the world’s largest market and is largely an open market and I believe it will continue to be so. President Trump may fine-tune some elements and this may cause trading partners to rethink some aspects. His views on H-1B visas will force Indian companies to rethink their strategy in the US and perhaps increased focus on domestic markets is a good result of this rethinking.
What impact could a developing country like India see with the US pulling out of the Paris Accord?
The negative impact on the perception of the US as the leader for the world is a major one. The vast majority of the American population and corporate world believe in actions to reduce global warming. Many US firms have to compete globally and, hence, have no choice but to also act in accordance with actions to reduce global warming. Trump’s decision to exit the Paris Accord opens the window for developing nations like China and India to show leadership on the issue. This is an opportunity for India.