Communications and IT minister Kapil Sibal is said to be formulating a new information technology policy for India, with likely emphasis on two issues: the creation of software products on the one hand (as distinct from IT or IT-enabled from services) and making India a manufacturing hub (possibly with the focus on semiconductors).
The minister might do well to watch his step. First, he may be fixing a problem that does not exist. Second, every time the government is persuaded into a policy, all we have is increased government spending that bloats the fiscal deficit.
Software products, contrary to popular impression, are not really new to India. Oracle paid nearly one billion US dollars to acquire iflex solutions, which created Flexcube, a core banking product that has gone to more than 100 countries after being built in Bangalore. Its competitors include Finacle — made by our very own Infosys.
Other India-made products include accounting software Tally and customer relations management (CRM) product Talisma. It is true that both iflex and Talisma had US-based CEOs, but that’s how globalization works.
There is enough money among software billionaires such as Azim Premji and N R Narayana Murthy. There is no need for the government to spend money where private equity and entrepreneurs do the job well.
Meanwhile, disruptive “cloud computing” is coming in to help rent software products over the Internet or high bandwidth networks, threatening shrink-wrapped software. Even in this, companies such as Zoho, based in the US but for all practical purposes Chennai-based, are doing great work.
Both services and product development are creating jobs by the millions in India.
In semiconductors, India had a bad experience in nurturing semiconductors in the public sector during the 1980s. This is a cutting-edge area in which capital costs and risks are high while the jobs created are not as many.
The government may only bleed through subsidies, cheap land and other incentives. Moreover, in both IT and in semiconductors, globalisation levels are so high that no nation can any longer claim truly inward-looking “leadership” in technology. On the flip side, semi-conductor design as a service industry is thriving in India and fabrication need not necessarily be done in India.
Do ownership and national pride matter in the age of international trade and globalization? If so, how much? These are the questions Sibal needs to bear in mind as he crafts a new policy. My two pennies: hasten slowly.