‘It’s important that we demonstrate that acts of fraud will be treated firmly’https://indianexpress.com/article/news-archive/web/its-important-that-we-demonstrate-that-acts-of-fraud-will-be-treated-firmly/

‘It’s important that we demonstrate that acts of fraud will be treated firmly’

<B><font color="#cc000">Nandan Nilekani</font></B> is a man of many parts—<B>an entrepreneur,a technocrat,a co-founder of</B> <B><font color="#cc000">Infosys</font></B> and as his book Imagining India shows,a man of ideas. In this <B>Idea Exchange</B> moderated by <B><font color="#cc000">Subhomoy Bhattacharjee</font></B>,<B>Deputy Executive Editor</B> of The <B>Financial Express</B>,Nilekani speaks of the need for reforms,the Satyam scandal and the role of the state and the market

&#149;Seema Chishti: Why did you write and what was the central idea behind it?

When I took up this idea of writing a book,a fairly eccentric venture,I guess — people wondered why some corporate guy was writing a book on India? My view was that there is a window of opportunity for India based on its demographics and I have talked about that. I felt that to do justice to this opportunity required a fairly in-dept look at what was happening. A lot of people were looking at this through a prism,the economist would look it as an economic issue,the political scientist as a political issue,a sociologist as a societal issue so on and so forth. Whereas what was really required was to bridge this entire world and that one had to look at it much more holistically.

&#149;Dhiraj Nayyar: How much of our political class accepts that private businesses play an important role in the development of the country?

I don’t know how many accept it but my view is that the reforms process has to be articulated in a different language. Why do you have reforms? You have higher education reforms,labour reforms or build infrastructure simply to expand access of opportunity for the people.


That’s really the name of the game. What distinguishes me from a kid in Bihar? I happened to grow up and get education in an urban city and I became part of the techno global world. A kid in Bihar who doesn’t have access to English,who doesn’t go to school,where is his mobility? The key is how we create access and mobility for everyone and then the reform arguments become politically salient.

Markets don’t operate in a vacuum. Markets need to operate in framework,with regulations and good enforcement. They should have a good incentive structure. There is appreciation of the fact that we need a free economy. That’s what I am trying to address in my book: what is the balance between market and state? Where do markets have a role? I believe there is huge role for the state.

&#149;Seema Chishti: The economic meltdown abroad is re-negotiating the relationship between state and the private business. How will that play out in India? Is the business class re-negotiating its relationship with the political class? Is the praise for Narendra Modi from investors a part of this re-engagement with the politician?

I am hesitant to draw long trends from episodic instances. But the back and forth between market and state is not a recent phenomenon. In the last 150 years,we have had a huge era of globalization until the First World War but after that and the great Depression in the USA,it went to the other extreme. The failure of the US economy brought in a lot of social legislation. So,we moved towards a bigger role for the state; then in the last 30 years,we moved towards the markets and now again we have seen the end of that era. So I think these changes are part of our history and this will always be there because there will be periods when the state becomes so stultifying that we want to get out of that and create freedom and that freedom without the right framework leads to abuse. This back and forth is going to be part of our lives.

In the Indian context,the level of fraud we have just seen,automatically makes an argument that unless we have stronger regulation and enforcement,more episodes like this will happen. When an episode has a negative externality on jobs,brand image of India,once you start having a systemic impact of an event,public policy demands that we create an environment where such events are discouraged from happening. We should create regulations and enforcement to minimize this.

I learnt about the Modi-investor meet from the media. I think there is clearly a desire for good development and Mr. Modi has provided that in Gujarat. People’s lives have improved and I think that’s probably why there are accolades. The message to my mind is that if any of us don’t agree with him,his politics,we have an obligation to provide an alternative — an equally good development model with a different kind of politics.

&#149;Ritu Sarin: What do you think should be done with Satyam? We have the statement from Mr. Narayanan??? Murthy saying the decision should be left at least for a while to the new board of directors. Do you agree?

I agree with Mr Murthy. We can’t run or second-guess a company on 24×7 news channels. That’s not fair. The government has moved decisively.

If you look at the Bernard Maddoff ?? scandal,it’s a $50 billion scandal and he is still not in jail. He is under house arrest and negotiating to go to jail. In India,the authorities moved very quickly. Forming a new board in just three days is remarkable.

However,the fraud which happened has to be investigated.

&#149;Ritu Sarin: Is it a case for a government bail out?

You have to ask the board of the company. I think that’s best left to the board to negotiate.

&#149;Leher Kala: In terms of jail time,how much time do you think Raju deserves?

I am not an expert in jurisprudence. All I can say is that it’s important that we demonstrate to the Indian people that act of fraud and misrepresentation which have huge negative externalities should be treated quickly and firmly.

&#149;Surabhi Agarwal: After the Satyam episosde and the World Bank disqualifying several Indian IT companies,what do you think will be the impact on the IT industry?

This is a black eye on Indian industry,not just IT but industry as a whole and it’s particularly discomforting. Entrepreneurs are assets who we can demonstrate to the world. This is a clear setback. But we don’t have to see this as a systemic problem. The world has seen enough examples of big scams.

&#149;Neha Pal: News reports say that IT companies including Infosys will not employ Satyam employees. Please comment.

What we said was with noble intensions but it went into the hyper-ventilation model of Indian journalism and got into the spiral.

Here is a company which has been severely impacted. The business has been threatened. Any effort of this company to come out of the situation should be encouraged. This is not the time to go and poach people from the company. We have utmost respect and sympathy for Satyam employees who are outstanding professionals.

&#149;Rishi Raj: Your book has ideas for all spectrums except legal reforms. Any specific reason?

A lot of instructional reforms are required. But I don’t see too much of it happening from within. My point is that by 2020 you will have 500-700 million people below the age of 25-30. Most of them would be voting. We’ll have 90 per cent literacy and a lot more functional English knowledge than today. You will have 35-40 per cent urbanization. That change is the whole dynamic and that will drive reforms on these kinds. Obviously the switch won’t happen overnight. Judicial reforms are linked to that.

&#149;Gunjan Pradhan: In this Satyam case,to what extent can we blame the auditors and the banks?

We don’t know where the breakdown happened. We will just have to wait and see. Corporate governance should be from within and people have to feel that. The other part is disclosure and transparency. The auditors must have direct access to the bank statements. That’s what we do,we allow auditors free access to all our banks. We have gone one step further. We have given public information on how much money we have with which bank. We have increased this kind of transparency.

&#149;GunjanPradhan: How easy is to keep the auditors in the dark?

Well,I think certainly the fact that these things have been going on for the last seven years does scare the imagination.

&#149;Sanjeeb Mukherjee: How do you think this fiscal year will end for Infosys given the present downswing?

It is a very challenging environment. Companies are functioning in this environment,and it has nothing to do it individual performance.

The whole macro climate is so bad.

&#149;Sanjeeb Mukherjee: Will you cut down international exposure after this?

We have to put that in context. The USA economy is $14 trillion in size and they spend about 8 per cent of the GDP on technology. The Indian economy is trillion dollars in size,out of which $5-$10 billion is spent on technology.

The export industry is about $50 billion. The whole notion that Indian IT spend can compensate for global weakness is as mythical as de-coupling was.

&#149;Vikas Dhoot: We had an original target of stabilizing our population by 2025. But I don’t see any effort from the system towards this. Even the hum do,humare do campaign has not been actively pursued recently. Do you think that the demographic dividend can actually turn into a nightmare?

It can turn into a nightmare but not because of the reason you gave. In 60s and 70s,the perception of population was clearly as a burden and there was a lot of international pressure on India and China about the population. India was among the first country in the world to have a major family planning program. The way it was done and the coercive techniques used let a huge push back from the voters which let to the defeat of 1977. I think that was the last time that any Indian politician embraced family planning. The Janta government in 77 changed the name from family planning to family welfare. I don’t see that happing as a big political thrust. The process of education,reduction in infant mortality and female mortality are the reasons of fall in birth rate. Even today the fertility rate of Kerela is that of a West European country. Birth rates are falling. Population rate have gone down from 2% to 1.5%

&#149;Unnirajen Shanker You talked about village kid who doesn’t get opportunities. So,how do we bridge the gap and why do cities fail to bridge the social divide?

If you look at the constitution of 1950,there was no role for cities at all. For a state level politician,he has no incentive to have a strong city because he believes that strong city is plot by the centre. He doesn’t want to get squeezed between state and city. There is no way a state level politician will voluntarily want to have a strong city. The state government who doesn’t want strong cities can just ignore it,which is what is happening today.

Cities which are under- performing or dysfunctional,with them,obviously the city public services are not able to cope up.

Automatically the politics of that city will be the politics of pitting in one against the other and part of that will be communal.

But,I believe that cities will be changed. There will be more urbanization. Most of the migration is happening with dalits. In that sense city gives anonymity. The incentive structure is more for dalits migration than upper-class migration. I think cities will get powerful in the coming years.

&#149;Malvika Chandan: Someone said that 2009 is going to be worst for India then the US. Do you think this is possible?

Well,I think India and US will have lower growth as compared to the previous years.

&#149;Malvika Chandan: What will be the case,in terms of US job losses in proportional to the total population and similarly India job losses,What do you think?

The challenge for India is 93% of un-organized sector labour with no rights. They are going to get hurt first. But I don’t know whether it will be better or a worse year.

&#149;Malvika Chandan: The big idea of the late 90’s was outsourcing. What is the big idea for this decade?

The big idea is there are going to be new generation of business services which are not effort based. The services provided by transaction or by some other way of pricing. Basically new model of business services like software as a service,utility computing etc.

&#149;Subhomoy Bhattacharjee: You have also talked about primary education in your book. This area has arrived but not really been appreciated. Given the demographic bulge,one would have expected it to build up to this election. Do you think this is one of the issues that could have been useful but is yet to be recognized?

The challenge with primary education is its implementation. We have accepted that education needs to be done. If we look at it in terms of focus and resources,there has been a dramatic change. From 2000 when Vajpayee talked about Sarva Shiksha Abhiyaan till today there has been a huge change. If the total tax collection,direct or indirect is about six hundred thousand crores and you have a 3% cess on that,which means every year you are raising twenty thousand crores. This amount of money,we have never spent before. In the 10th Plan,the total amount spent on education was 7.7%. In 11th plan,it was 19.9 %.

People want education. This is an unexpected consequence of liberalization which we have not really said. Today even the poor are completely aware that lack of education is denying them income and social mobility. So,they are willing to make sure their kids get education. In all the metros more than 50% of children are in private schools. In some areas where there are both government schools and private schools,the child is enrolled in government school but actually going to private one,the data also is fudged. This has to break somewhere.

&#149;Neha Sinha: If you were to place a dream,where would you place it in the human development index of the country today?

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If the gap between aspiration and reality is too much,it leads to huge amount of dis-satisfaction and that’s the basic challenge. Therefore this needs to be bridged. Aspiration is a part of human indicator settled in India. Next five years is really going to be the make or break years. From a strategic point of view its more critical,from a political view it will be more volatile which makes it even more complex.

&#149;Purna: How much do auditors depend upon the management for information? How do we believe in the figures provided by the corporate account,after the Satyam fiasco?

An episode of this magnitude and ramifications does question the system we believe. It does cause some amount of introspections. Companies have strong accounting practices. Auditors have strong regulative practices. I believe the episode will lead to a lot of positive outcomes. The auditors will be careful. The company management will be careful especially independent board members; I can assure are going to be very careful.

&#149;Dhiraj Nayyar: We have seen your expertise from a technical man to an entrepreneur and now you are a public intellectual with this book. You are also engage with government and various policy bodies. Is this a step towards politics? Secondly,as you said entrepreneurs are role model for many people in India,to what extent should they engage with policy and government?

The relationship between businessman and politics is a subtle one. But it’s encouraging. Coming back to the political question,this is not political manifesto which I am writing. I believe that India with all complexities have enough role for people to contribute in public life without the formal political hat.

&#149;Dhiraj Nayyar: Do you have a target audience in mind at all? Was it policy establishment or was it young people?

The focus of my book was to make it readable and interesting. Otherwise,public policy documents you don’t read it unless it’s a job. I did that to make this issue accessible to a larger set of people and especially the young people because they will be able to benefit out of it. Policy discussions have tended to be shallow. This is aimed at people who think of policy issues. I have to strike a balance between making it accessible and readable to young people and being sufficiently researched and profound for the hard-end policy guy.

&#149;Gaytri Verma: After,the Ssatyam issue,how much harder it will become for Asian firms to get business in the western countries?

There is no monopoly on corporate scams. What you are seeing is the general hangover of a bull market. All the things which got hidden in the bull arena are now coming out. There will be scams in the world. I don’t think any country will have monopoly on this.

&#149;Jayant Singh: Do you sense some sort of difference in the way Obama would tackle the sourcing of IT jobs to India and manufacturing jobs to China? What sort of apprehensiveness do you sense in the industry at this point?

The larger economic crisis issue is much bigger than those kinds of things. If you really look at President Obama’s election plans,it’s really about creating incentives to keep jobs in the US and invest in green infrastructure and green technology. Slow economy does provide opportunity for protectionism. I think the overall economic slowdown is what everybody is worried about.

&#149;Shekhar Gupta: We all talk about IITs and IIMs. Does it worry you that this country has such poor emphasis on liberal arts in terms of higher education?

If you fix the issue of de-regulation and allow private investment to come into education and some foreign universities to come into India with a proper system there will be some guy who will come out and build some world class liberal arts university. These IITs and IIMs are post independence structures. We need to protect their autonomy.

To reform them,we need to reform the way they are covered. The world class liberal arts structure will come in the second phase.

&#149;Surabhi Agarwal: You have announced the names of your bankers. Do we see more changes in your disclosure policies?

We have always been in the leading edge of disclosure policy and transparency,1993 onward. We will do what ever is required.

&#149;Dhiraj Nayyar: All the major political parties have affiliated trade unions. Is that a major obstacle to labour reform?

Labour reforms,All the major political parties have affiliated trade unions and that’s a major obstacle in labour reforms. Labour thing is also a classic case of our hypocrisy. Business guys are quite happy with unorganized labour. The trade union is also happy because they are not affected. It’s a sad situation. There are higher numbers of young people; Every entrepreneur is saying how I investing in labour saving devices. They are creating a negative incentive structure to create jobs.

&#149;Coomi Kapoor: Do you think there is a change in mindset to be a technocrat first and then an entrepreneur?

I didn’t go from being a technocrat to entrepreneur but from a software engineer to an entrepreneur. Entrepreneurship is all about taking risk,having a long term view,dealing with adversity.

&#149;Mahima Kaul: IT industry has ushered in an age of meritocracy in India. What is you take on this?

The IT industry,because of its focus on selecting people of the right caliber irrespective of background and gender will definitely help in creating more merit based environment.

There is a similar thing done in the US on African Americans. It was a very small sample. Not even statistically significant.

&#149;Anindita Singh Mankotia: Which sector can replicate the IT success in India now?

The IT success is a part of larger phenomenon with global factors and technology; we are able to do more. That will continue to grow because technology will allow to do more and more work accessible remotely.

The demographic will drive the lack of people in the western countries. Any kind of outsourcing will continue to be a big thing.

&#149;Dhiraj Nayyar: Is a services sector led growth strategy a sustainable strategy in the long term?

You have to grow on all engines like services,manufacturing and agriculture. The sequencing might not be agriculture to manufacturing.


In India services is a national market where as product is a state market and agriculture is a provincial market. Therefore the combination of services operating in a national market with free movement of labour and no taxes is the success of services. We are fortunate that our insurance,banking,pension,telecommunication markets are all national markets. What I am saying is we need standardization and simplification.

Transcribed by Malabika Sarkar