A typically wordy Barron's article that says very little. Is the wired infrastructure in India good enough for wired internet? This article fails to inform.
<<It's a reasonable question in the world's most populous democracy. India's already the fastest-growing software-services exporter among emerging-markets nations, and many IT observers think it's poised to become the tiger economy of the high-tech world. Sound far-fetched? Not when one considers the fast-changing rules of the global economy. Sure, excess regulations and poor infrastructure hamper this nation of a billion-plus people, but in our increasingly digital world, location means little. Far more importantly, India boasts the globe's second-largest collection of English speakers and the key competitive advantage of low costs.
The explosive growth in the technology sector has generated wealth unprecedented in Indian history. Broadly speaking, the white-hot industry has provided high salaries and wages and launched an affluent, worldly digital society in a nation otherwise mired in abject poverty. Increasingly, the trickle-down effects of stellar growth in IT businesses is giving rise to a middle class. But it also has created its share of billionaires as stocks of public software firms have surged.
Table: Life In the Fast Lane
Naqvi wants to be the next IT genius. In recent years, he's watched scrappy startups like Infosys Technologies, Wipro and Satyam Infoway turn their creators into wealthy masters of the IT universe. So Naqvi spends every waking moment in his native Bangalore promoting his Internet-based software consulting company. "Getting together with investors is a big part of the game," Naqvi says. "It's a game I've learned seeing peers of mine go from rags to riches. Given where our economy has been over the last few decades, IT is India's best hope for prosperity."
This point isn't lost on the international economy's biggest guns. Perhaps the most obvious sign that attention is turning to India was U.S. Treasury Secretary Lawrence Summers' visit to the country last month, the most senior visit since the U.S. imposed economic sanctions after New Delhi conducted nuclear tests in May 1998. It also was the first serious contact on economic issues since the U.S. angered India and the rest of the developing world last month with proposals to add labor conditions to World Trade Organization talks.
Despite the diplomatic tensions, Summers wants to put India back into the international spotlight. "As one looks at the global picture in this century, India is increasingly looking like it will be a strong force in it," Summers said in Bombay. "India does not get the attention from the United States it deserves."
Summers believes India's economy may one day be among the biggest and most dynamic in the world. This nod from the influential economist could be good news for the nation, which the Treasury Secretary thinks holds the potential to grow by 10% in the near future, a rate that would boost Indians' standard of living five times by 2020.
The emergence of India as a high-tech power stands in sharp contrast to the picture that confronts an American first setting foot on the subcontinent. A walk through the streets of Bombay and New Delhi presents a nation teeming with poverty. Homelessness and illiteracy remain severe problems. And even with an average annual 6.5% growth rate over the last decade, roughly one-third of India's residents live amid disturbing destitution. Infrastructure is sorely lacking.
A peek behind the surface, however, reveals a pool of trained scientists and engineers, for example, that is second only to the United States'. Equally important has been the prowess of India's software firms in discerning and capitalizing on emerging IT trends. They did so in Europe, providing software and expertise to companies forced to change data networks to accommodate the euro. The same was true of the run-up to potential Year 2000 computer glitches.
Another example of how India is staying ahead of the curve is how rapidly its software companies realized the profit potential of tapping the country's emerging service economy. Early on, India's high-tech powers understood that they could provide outsourcing for capitalintensive back-office operations anywhere.
In a study of the economy's performance in 1999, Deutsche Bank economist Sanjeev Sanyal noted that satellite communications and the availability of cheap, skilled labor increasingly would allow multinationals to outsource a variety of services, like corporate accounting and transcriptions, to India.
Indeed, globalization is driving this trend. While India's clogged ports and poor transportation networks punish the nation's traditional industries, IT firms are immune to those problems, needing only high-speed phone lines to keep their virtual shipping lanes open. Likewise, the government's huge budget deficits whipsaw the country's old-line firms by keeping the cost of capital prohibitively high, while all the service industry needs is workers -- an asset India has in abundance.
And the government, which has often proved obstructionist for business, has embraced the IT trade, freeing its practitioners from the burden of prohibitive tariffs that have long kept foreign investments at bay.
The result is that large companies like General Electric and British Airways already have begun shifting back-office operations to India. The town of Gurgoan, just outside New Delhi, is a major center of such services. Independent analysts have estimated the potential global size of this market at $200 billion.
Among India's indigenous IT firms, Infosys by far is India's biggest success story. The software firm, launched in 1981 by seven students with $250, now boasts a market capitalization of some $22 billion and employs 5,000 persons.
But many more large players are emerging. And an increasing number are following the lead of Infosys and Icici, a financial-services firm with a big online presence, in offering American depositary receipts. Over the next six months, four more Indian IT firms will issue shares in the U.S. Be warned, however, that Infosys ADRs currently trade at a 200% premium to the common shares on the Bombay exchange.
India's success in the IT arena have helped it establish a beachhead in the global economy. But if the country is to succeed in transforming its economy, it will have to become globally competitive in other areas as well. Take banking, for instance. The government allows some failing companies to stay afloat, shackling banks with bad loans. The key, Summers believes, is to enact policies to empower larger Old Economy companies to embrace the New Economy and change with it. At the same time, newer businesses need encouragement and a fighting chance to thrive. Otherwise, the economy will languish and India's IT phenomenon will have little hope of pulling up an economy badly in need of stability.>>
|
