Bureaucrats to boardrooms: Murthy on India's remarkable journey

India has made a remarkable journey from a top-down system of economic decision-making to one that unleashed our entrepreneurial spirits but the next big jump lies in enhancing the quality of our tale, says N R Narayana Murthy.

1991 was a watershed year in the economic history of independent India. Till then, most decisions for an Indian corporation were made by bureaucrats sitting in Delhi and, in some cases, bureaucrats sitting in state capitals.

But after 1991, those decisions are discussed, debated and decided by the board of directors in the boardrooms of corporations. 

That is the first and perhaps the most impactful change that occurred in the life of corporations in India. It happened for several important reasons. 

One, licensing was removed in several industries though it remains in some important sectors of the economy. We are still debating how to get 49 per cent foreign direct investment in insurance.

 We have made some progress in industrial production for our defence. It is still in its early stages.

Other than that, in most sectors of our economy, particularly in high-tech, financial sectors and retail, we have now moved quite a distance forward from the draconian days of pre-1991. 

Second, today, we have current account convertibility capability. We can take our own decisions regarding opening offices abroad, sending our sales people abroad, hiring world-class talent from outside India, in areas such as marketing, branding, quality and technology. 

The movement from 1975 to 1991 in terms of liberalisation was very gradual and slow. Back in 1975, the business environment was extremely stifling. For example, no Indian corporation could import a computer to improve its information system and thereby its efficiency.

The process of obtaining a licence from the government to import a computer took three to five years. It required somewhere between 40 and 50 trips to Delhi and, after all the effort, the probability of success was less than 50 per cent. 

All this was done to protect one public sector company - the Electronics Corporation of India that produced a set of low-power and low-capacity minicomputers called TDC 312 and 316.

Instead of focusing on exports and helping Indian companies become globally competitive, our focus was on import substitution or on extending the commanding heights of the public sector.

Our focus on keeping out multinationals led us to fall behind most developing countries in the world, particularly those in East and Southeast Asia. 

The import of computers was allowed grudgingly for software export companies in 1977 or so after the Rajaraman committee recommended it. Sometime around 1985 or so, the Rajiv Gandhi government also made it a little easier for companies to import computers.

His government created additional incentives for software export companies by allowing us to import software packages to the extent of 50 per cent of the net exports we achieved. This helped us sell packages such as Borland International and add value to our economy. 

Another area where much improvement has been made is communication. Thanks to the deregulation, today, we have reasonably good communication facilities within the country and with other countries.

In 1976, I could not get a telephone connection in Pune during the entire life of my first venture, Softronics. It used to take five to eight years for a telephone connection to get allotted in those days.

Very interestingly, the highest priority for a telephone connection in those days was given to residences of politicians and bureaucrats and retired bureaucrats and not to a company that was exporting! 

India took a major retrograde step when George Fernandes was appointed commerce and industry minister in the Morarji Desai government in 1977. He introduced a law that mandated every multinational company operating in India or wanting to operate in India to dilute its holding in its Indian subsidiary to 40 per cent.

A few well-known companies such as Hindustan Lever and Bosch agreed to it and continued. But well-known companies such as IBM and Coca Cola walked out of India in response to this draconian law. 

The government was so omnipotent and powerful in those days that, other than a few people such as J R D Tata, who once in a while expressed his frustration at being stifled by the government, and Ramnath Goenka, there was hardly any Indian business person who stood up and protested against the government.

It is only after 1991 that the voices of a few leaders of the software export industry and that of a few people such as Rahul Bajaj became stronger. 

An important incentive for entrepreneurship was created in 1991 when then finance minister Manmohan Singh abolished the office of the Controller of Capital Issues (CCI). CCI was a bureaucrat who sat in Delhi, and had no idea of what the capital market was about.

He decided on the pricing of initial public offerings (IPOs). He rarely gave any importance to the future prospects of the company and decided the IPO price purely on past performance in a very conservative way. 

For example, we were allowed to go public by this bureaucrat in 1990 at Rs 11 a share when the par value of our shares was Rs 10. When we finally went public in February 1993, we offered shares to the public at Rs 95 a share.

Therefore, by abolishing the office of the CCI and by allowing companies to list their IPOs at a market-driven price in consultation with investment bankers, the government created a huge incentive for entrepreneurship. 

An important change in the business landscape in India after liberalisation has been the entry of a large number of multinationals who have brought with them their global experience in human resources practices, leadership, technology, sales, customer service, quality and branding.

Thanks to this challenge, several Indian companies have stepped up their capabilities to compete successfully with these multinationals. 

In the fifties, there was hardly any public sector unit and the main job creator was the government. The most prestigious career for youngsters was the Indian Administrative Service (IAS).

When I was a high school student, my parents wanted me to clear the IAS examination and become a civil servant.

Almost all my friends aspired to become a deputy commissioner in one or the other of the nine districts of Mysore at that time. Today, the biggest ambition of youngsters is to become entrepreneurs. We have come a long way indeed. 

I joined my engineering college in 1962. Those days, we had just three steams of engineering - civil, electrical and mechanical. I pursued electrical engineering.

The job opportunities were brightest for civil engineers because, at that time, several huge construction projects including the Bhakra Nangal Dam were works-in-progress.

However, that situation changed soon. With the emergence of companies such as Bhilai Steel Plant, HMT, BEL and several public sector companies, there were opportunities for mechanical and electrical engineers also but not as many as there were for civil engineers. 

We have received lots of encouragement from the government. There is much freedom for corporations to compete in the marketplace and it is easier to obtain finance today than in the pre-1991 days. 

However, one major area of huge concern to the well-wishers of India is the lack of well-trained talent required for accelerated industrial growth. 

As a company that recruits about 25,000 engineers today, I have data to show that the quality of our recruitment today is much worse than what it was 20 years ago. 

While we have scaled up in terms of quantity, we have not put enough effort in the quality dimension. 

Very clearly, there is no Indian institution of higher education that is in the top 300 in the Shanghai index. We do not produce enough doctorates of acceptable quality in India nor do we file enough patents. 

The need of the day is to focus as much as possible on improving the quality of higher education in India. We have to enhance our collaboration with well-known universities in the US, other Western countries, and with Japan and Australia. 

We have to a send a lot of young Indians to get their doctorates in science and engineering to the US, Canada, the UK, France, Germany, Japan and Australia. 

We have to bring back the National Scholarship for Studies Abroad scheme with a stringent penalty for those who break the bond. 

We have to make it easy for well-known researchers and academics from the West to visit India and spend time here. I have confidence that the new government will move towards achieving this. 

N R Narayana Murthy is co-founder, Infosys.