The New Road-Map for the Asian Elephant
India's Emergence as a Global R&D Hub
2 interviews that can change your
mind about the next R&D global powerhouse
R.A.Mashelkar, general director of CSIR of India and
Ashish Arora, professor at Carnegie Melon (USA)
Interviews by Jorge
Nascimento Rodrigues, editor of Gurusonline.tv,
Transition Report is a quarterly online journal edited
A view from an eminent scientist
«We can predict that by 2020 India can become
the number one knowledge production center of the world»
R.A. Mashelkar is General Director of
the Council of Scientific and Industrial Research of
India. He is known for his Road-Map for India in the
India opened its economy in July 1991 by announcing
a new industrial policy and the government has become
less and less interventionist. These winds brought in
a "silent revolution". It was more than a
decade later than China did its reforms, but the change
was profound - in ten years, the emergence of India
as global actor take the cover of the world magazines.
The country is granted with the "off-shoring"
award and a new generation of entrepreneurs arrived
- like Infosys and Wipro in IT or Bicon in biotech.
India, like China, is also designing a grand geo-strategy,
profiting with the shift for multipolarity in different
fields. India wants to be the global R&D powerhouse
in 2020 and be recognized as a knowledge centered society.
The hot buzzwords are: "global hub" or "global
platform" in science. The goal: to transform India
as an R&D destination. «Indian advantage
is not just the cost - but the cost-cum-competence,
considering the huge talent pool», explains
Dr. Mashelkar in this interview with Gurusonline.tv.
With this strategy India wants to reverse the brain
drain that provides huge human capital to the US. Apparently
the first faint signs of the reversal just appeared
- data collected by NASSCOM (National Association of
Software and Service Companies, of India) shows that
over 25,000 professionals have returned over the past
three years. Dr. Mashelkar's preferred motto is this
one: India's future is in IT. But do not
read IT as "information technology". Read
Who is R.A. Mashelkar - "a son of the Indian
Dr. Mashelkar, 62, is a native of Goa, the ancient Portuguese
colony, that returned to India in 1961. He is a son
of the true "Indian knowledge dream". His
father died when he was six. His mother, who was uneducated,
did menial work to bring him up. In the 1950's he was
a little boy struggling to have two meals a day, who
studied under the streetlights and went barefoot to
the school until he was twelve years old. He was about
to leave the studies in 1960 after passing his secondary
school examination, despite of securing a position in
the top twenty of the 135,000 students who appeared
in the Maharashta State Board Examination. This was
because his poor widowed mother could not support his
education. He continues to study with a scholarship
of 60 rupees (over a dollar, today) a month for six
years granted by Tata Trust. He completed his Chemical
Engineering degree in 1966 from Bombay University. He
preferred to do his Ph.D. in India and then went for
his post-doctoral research in the UK. He was professor
in the UK and in the US but returned in 1976 at the
age of 32 to join the National Chemical Laboratory.
Today he is the director general of the most influential
Council of Scientific and Industrial Research (CSIR),
in New Delhi, and also the President of Indian National
Dr. Mashelkar can be contacted by email at email@example.com
Site of CSIR: www.csir.res.in
|FORECASTS ABOUT INDIA
FIRST IN POPULATION
India will be the first country in population in 2050: 1.5 billion, more than China (1.4)|
FIRST IN SCIENCE PRODUCTION
India will be the number one knowledge production center of the world by 2020
A YOUNG GIANT
By 2015, over half of the Indian population will be less than 20 years old
Working population will be growing over the next 3 decades, giving India a sustainable competitive advantage in labor productivity.
HIGH GROWTH RATES
Officials say that the target is a GDP growth rate of 8% per year until 2007. Some analysts believe that the GDP should even be approaching 10% growth rate, at least over several 3 to 5 years periods.
BPO AND OFF-SHORING HUB
India has been able to create a world-class environment for BPO due to the committed, qualified and competent youth who are IT savvy. As service institutions develop further in India, the off-shoring of many services to India, for example such as engineering design and medical based services, will develop in the near future.
THE DIASPORA ASSET
The Indian diaspora, the so-called "bollystan", is India brain bank.
FIRST IN MIDDLE CLASS
50% of India's population (around 600 million) will form the 'middle class' in another decade or so, a formidable market by any yardsticks, larger than the US or Europe
India, Brazil and South Africa are already looking forward to forming a strategic golden triangle.
How India specialists see the forecast from Goldman
Sachs about 2050 with India as the 4th (after China,
US, European Union) economic power? The 21 century will
be finally the Asian Century?
Goldman Sachs' long-term projections about the Indian
economy are based on sound analysis and reasoned projections.
India is now reaping benefits of the investments made
in time and money in creating sustainable democratic
institutions. India's other advantage is that the working
population will be growing over the next 3 decades,
giving India a sustainable competitive advantage in
labour productivity. I believe that the probability
of the projections being realized are very high. The
annual GDP growth rate of over 7% is now a reality -
I believe given the present tempo, we should even be
approaching 10% growth rate, atleast over several 3
to 5 years periods.
How has this global recognition emerged?
The IT sector has helped India achieve global recognition
and self-confidence. Quality manufacturing sector is
also now beginning to emerge. In the last 3 years, Indian
exports have increased tremendously not only because
of the cost advantage but mainly due to quality aspects.
But realizing the vision is not easy, we would need
to put in efforts to: establish a dynamic quality educational
system; create a world-class infrastructure; build high
value industrial growth, which could pull labour from
under employment in agriculture into high productivity
jobs in industry; and modernize agriculture and related
industries through innovative S&T inputs.
The Larger Democracy
India is the largest functioning democracy in the world with political consensus on the economy. 619 million voters.|
A true Babel
18 major languages, 1600 minor languages and dialects, 6400 castes and sub-castes, 52 major tribes, 6 main ethnic groups.
The average annual GDP growth rate was over 5% in the last 10 years (1995-2004). In 2004 was 6,6%.
As regards the quality of technical and management schools is concerned India is placed at number 8.
A stock of over 3 million scientifc and technical manpower
100,000 Indian professionals leave India every year to take jobs in the US. The resource loss of this brain drain is up to 2 billion per year for India. 25% of Silicon Valley companies are founded or managed by Indians.
India today has a 'middle class' of over 300 - 350 million (with an average purchasing power of 3000 dollars per month) and with increasing number of youth entering the economic system the sector is growing at double digit figures. China, as a benchmark, at this time is about 125 to 170 million that can be considered middle-class.
100 global companies set up their R&D centers in India during the last five years. GE's second largest R&D center in the world is in Bangalore
23 stock exchanges with more than 9,000 companies listed
High Tech Exports
Indian IT exports are of the order of $12.5 billion. By 2008, will be around 30 billion.
From the 137 software houses certified by the SEI-CMM at level 5 in the world, 80 are from India.
The intellectual capital available per dollar in India is the highest in the world. India is the top world nation in SCI journal publications per GDP per capita per year, with 31.7 papers. China follows with 23.32 and then the US with 7. India is also the top world nation in citations per GDP per capita per year, with 77.40 citations, followed by China (69.06) and the US (67.27).
IT, biotech, pharmaceutical (generics exporter), space, milk (1st world producer), diamonds (nine of every 10 finished diamond stones sold in the world pass through India), entertainment ("Bollywood").
A McKinsey & Co. recent study concluded that China remains years behind India in software development; China's IT services revenues are rising, but are barely half of India's $12.7 billion;
United States (21% of exports) and the Arabic Gulf Countries (11,4%)
United States (6,6%), UK (4,7%), China (4,7%)
Foreign Direct Investment
The world's second preferred market destination for FDI after China (2004 A.T.Kearney Report); 14 special economic zones
A huge internal gap
24% of population leaves above the line of poverty. PIB per capital is of 3,200 dollars per year in purchasing power parity (less than 270 dollars/190 euros per month). More than 1/3 of population is illiterate.
India and China together could become an economic juggernaut if they built closer technology ties.
What is the main strength of India in a benchmark
with China, the other emergent global power?
India's basic strengths arise from the quality of its
human resources. The top echelon of Indian technologists
and management personnel are manning prestigious MNCs
the world over. The global competitiveness report 2003-04
of the World Economic Forum has ranked India 37th out
of 102 countries as against China's ranking of 46. The
ranking, based on Business Competitiveness Index (BCI),
considers a country's quality of business environment
as well as the sophistication of the companies. As regards
the quality of technical and management schools, India
is placed at number 8. India thus has a formidable strength
in its creative and innovative human resource base as
demonstrated by the IT experience.
Is India the BPO hub of the world based in English
language? Or the off-shoring trend is reversing or can
be reversed in near future?
The outsourcing of manufacturing commenced around half
a century ago and was followed by off-shoring of manufacturing
about a quarter century ago. However, outsourcing of
services, which is more value added, commenced only
about a decade ago - propelled by the developments in
ICT. I am sure the next step will be off-shoring of
services, this is a natural evolutionary economic process
and cannot be stopped by extraneous factors. From an
economist's point of view, labour arbitrage in services
is no different from labour arbitrage in manufacturing.
Today India's pre-eminent position as the BPO hub of
the world is derived from various advantages and admittedly
our command on English language is one of these. India
has been able to create a world-class environment for
BPO due to the committed, qualified and competent youth
who are IT savvy. As service institutions develop further
in India, I do see the off-shoring of many services
to India for example such as engineering design and
medical based services in the near future. It was Jack
Welch, the former GE CEO, that once said: "India
is a developing country but it is a developed country
as far as its intellectual infra-structure is concerned".
One can venture to predict that if India plays its cards
right, by 2020, it can become the number one knowledge
production center of the world. Indian advantage is
not just the cost - but the cost-cum-competence, considering
the huge talent pool
Can the Indian diaspora - the so called "bollystan"
("Bolly-" connotes culture, like Bollywood
and "-Stan" is Farsi for "land")
- help the geo-economic strategy of India?
Yes, of course. I have always been advocating that the
Indian diaspora is our brain bank. However, till very
recently we had no specific policies in place to involve
and systematically tap this latent resource. We have
recently announced dual citizenship for our diaspora
and put in place several other policy measures to tap
this resource base. I am sure in time to come Indian
diaspora will be able to contribute more significantly
with their financial, technological and managerial inputs.
Can India develop a market of middle class so huge
as China, or even larger, in a short-period of time?
India today has 'middle class' of over 300 million
and with increasing number of youth entering the economic
system the sector is growing at double digit figures.
The opening up of trade in agricultural products under
the WTO and with the initiatives to modernize agriculture,
I see a burgeoning 'rural middle class' emerging too.
Thus on the whole, I see atleast 50% of India's population
(around 600 million) forming the 'middle class' in another
decade or so, a formidable market by any yardsticks!
How is the process of globalization influencing
The Indian companies have responded very well to the
phenomenon of globalization within a very short period
of time. This has been possible primarily due to the
facilitative and enabling policies put in place by the
government. About two decades ago only some Indians
would have been conversant with Information Technology;
however today Indian exports from this sector are of
the order of $10 billion.
What are the main reasons for foreign companies
to invest and localize in India?
India is the largest functioning democracy in the world
with political consensus on the economy. It has abundantly
available qualified and competent human resource base,
untapped natural resources, rich mineral base and agricultural
surplus. The manufacturing capability is huge spanning
almost all sectors. The consumer market is large and
expanding exponentially. Special investment and tax
incentives for infra-structural development prevail.
What are the more dynamic regions in India?
Generally in the recent times the Indian peninsular
region has been more dynamic 'economically' - especially
the metropolis of Bangalore, Hyderabad, Chennai &
Mumbai-Pune. Some of the other peninsular towns such
as Cochin, Goa, Ahmedabad, Surat, Indore etc. are also
fast emerging as counter-hubs to these metropolis.
In what sense Europe could be an ally for India
Europe has been India's trading partner since ancient
times. We have complementarity of resource endowments
and synergism of objectives. While India has a large
young working population, Europe has mature technological
resources and markets. But let the EU firms not underestimate
the huge buying power of the Indian middle class. Indian
and EU companies can form win-win partnerships.
How do you see the relationship with Brazil and Portugal?
India, Brazil and South Africa are already looking forward
to forming a strategic golden triangle. I visited Portugal
a few years ago and found that we could do so much together
in science & technology as well as trade.
|EXAMPLES OF GLOBAL SUCCESS OF INDIAN MULTINATIONALS
Indian firms supply automobile components to
about fifteen major companies around the world. In 2003-04
the exports of auto-components were $ 1.5 billion in
comparison to $375 million in the previous year. Exports
are expected to touch $15 billion within five years.
The Bharat Forge has the world's largest single location
forging facility of 1.2 lakh tonnes per annum. Its client
list includes most of the well known auto manufacturers
such as Toyota, Honda, Volvo, Cummins, Daimler Chrysler.
The pharmaceutical industry of India is recognized
as much as its infotech industry. It is already worth
$ 6.5 billion and it has been growing at 8-10 percent
a year. It's the 4th largest globally in volumes and
13th in value terms. Its exports have crossed $2 billion,
and all the top 10 Indian pharma companies have subsidiaries
or associates in USA, Europe and other regulated markets.
Moserbaer - is the world's 3rd largest optical
media manufacturer and the lowest cost producer of CD
recorders. The firm exports data storage products to
several of the world's top 10 CD-R producers. The company
has acquired Capco, Luxembourg, Netherlands and has
set up a subsidiary in United States.
The Essel Propack is the world's largest laminated
tube manufacturer. The company has manufacturing plants
in 11 countries. It commands a global manufacturing
share of 25 percent. Among its major clients are P&G
and Unilever to which it supplies 100% and 40% of their
In the domain of paints and coatings, the India's
Asian Paints has put in place manufacturing facilities
in 22 countries which are spread across five continents.
The Berger International has been acquired by Asian
Paints. It adds access to 11 countries additionally.
The company has monopoly in 11 countries.
Specializing in inks, the Hindustan Inks has
the world's largest single stream, fully integrated
ink plant which has capacity of 1 lakh tonnes per annum.
They have in US a manufacturing plant and 100 percent
subsidiaries in Austria as well as US.
India is one of the world's largest diamond cutting
and polishing centres. Nine of every 10 finished stones
sold in the world pass through India.
A view from the "bollystan"
(the Indian diaspora)
«India will be a great place to locate some types
of R&D operations»
Ashish Arora is Professor of Economics
and Public Policy at Heinz School, Carnegie Mellon University,
Professor Arora's research centers around the areas
of economics of technological change, management of
technology, intellectual property rights, and technology
licensing. He is currently the Research Director of
the newly created Software
Center at Carnegie Mellon, and specifically, is
studying the development of the Indian software industry
and its links to the US. He has a PhD in Economics by
Stanford University, California. He just published the
book "From Underdogs to Tigers: The Rise and Growth
of the Software Industry in Brazil, China, India, Ireland,
and Israel", edited by Oxford University Press.
In 1980 the Indian software industry was practically
non-existent. By the 1990s the industry was one of the
largest employers in manufacturing. Similar patterns
of growth can be found in other emerging economies -
the book has chapters on big and small emergent countries.
So given that the software industry is commonly viewed
as a high-tech industry, how is it that such spectacular
growth has occurred in countries where high-tech industries
would not seem likely to develop? This book examines
the reasons behind this phenomenon, and asks whether
it suggests a new model of economic development.
Order at Amazon.com here
His website: www.heinz.cmu.edu/researchers/faculty/ashish.html
Prof. Arora can be contacted by email at firstname.lastname@example.org
The most positive sign are that there is a broad consensus in India on the direction of economic and legal reforms that will sustain economic growth in the future.
The biggest strength has been that it is a democracy, so changes have to be consenus based. This ipmlies that abrupt changes are less likely.
The success of the indian software firms shows that there is more to India than simply cheap programmers. Rather, we are seeing the rise of new capabilities to provide services on a global scale.
Our multinationals are also beginning the process of converting from indian firms sell in overseas to firms who are multinationals, drawing on talent and resources from all over the globe.
How do you see the forecast from Goldman Sachs about
2050 with India as the 4th economic power?
Brad de long's estimates indicate that since 1984, the indian GDP growth rate increased from about 3.5% to about 5.5% per year. Though not as impressive as the performance of the chinese economy, the extra 2% growth implies that india's GDP is 50% higher than it would have been. This growth has been accompanied by positive changes, again perhaps less rapid than in China, in physical infrastructure. However, the most positive sign are that there is a broad consensus in India on the direction of economic and legal reforms that will sustain economic growth in the future.
What is the main strength of India as benchmarked
Indian legal and economic institutions are stronger and more transparent to both insiders and outsiders. The growing middle class is more confident in its own abilities and less defensive about indian weaknesses (and therefore more determined to rectify them). However, the biggest strength has been that it is a democracy so changes have to be consenus based. This implies that abrupt changes are less likely. It also means that as globalization and economic growth continue, and their fruits are shared, the political support for economic growth with justice will remain strong.
And the weaknesses?
There are a number of well known weaknesses, also related to the indian democratic structure. These include the slowness with which political and economic decisions are taken, tensions with Pakistan and the problem of Kashmir. as well, credible ways have to be found to ensure that the benefits of economic growth are broadly shared and are not confined to the urban middle and upper classes.
Is India the ITO and BPO hub of the world based
in english language? Or the off shoring trend is reversing
or can be reversed in near future?
It is based in english language but it is also based on the commercial and economic infrastructure. any firm can locate in India and hire indian call center operators. But the success of the indian software firms shows that there is more to India than simply cheap programmers. Rather, we are seeing the rise of new capabilities to provide services on a global scale. This is a facinating development that gets overlooked because of the attention paid to wage differentials.
Can the Indian Diaspora - the so called bollystan
- help the geo-economic strategy of India?
Undoubtedly. they are sometimes a key export link between indian exporters and their overseas customers. in many cases, they have provided the entrepreneurial spark and the seed capital. They can provide technical expertise. However, a large country like India, with a billion people, will mostly depend on its own populaton.
Can you give examples of global success of Indian
Indian companies are slowly learning to become multinationals. The leading it companies (TCS, Infosys, Wipro, Satyam, HCL) already have large operations in their major markets such as Europe. They are also beginning the process of converting from indian firms sell in overseas to firms who are multinationals, drawing on talent and resources from all over the globe. other companies are less known but are likely to follow in their footsteps, including firms in manufacturing, such as Bharat Forge or Tata Automobiles.
What are the main reasons for foreign companies
to invest and localize in India?
Initially, it is to TAP into the cheap and talented work force. more recently, because India will be a great place to locate some types of R&D operations. But increasingly because India is going to be a large and important market.
|THE SHIFT IN 1991
| Following independence from the
British rule in 1947, India embarked on a so-called
socialist strategy of development, which envisaged
a heavy role for the government and the public sector
in shaping India's economy and industrialization.
The strategy relied on import-substitution, emphasized
the role of the government in providing infrastructure,
as a regulator, and as a provider of goods and services.
Throughout the 1960s and 1970s, the growth rate
of GDP in India had been stagnant at 3?3.5 percent
per annum (what came to be known as the Hindu rate
of growth). Beginning in the early 1980s, there
was some emergence of thinking about the need for
a change in trade policy. During the late 1980s,
the then government took the first steps towards
reducing state control. These were not only on the
external policy front but also related to domestic
industrial policy. Steps were taken to ease industrial
and import licensing, replace quantitative restrictions
with tariff barriers, simplify the tariff structure,
and importantly, this was the first instance of
a three-year trade policy. There were conscious
efforts to dismantle the import licensing regime
via reductions in the number of products listed
under banned/restricted category. The years 1989-91
were marked by difficulties, both on the economic
and political fronts. As the new government took
over the treasury benches in 1991, India was facing
an impending external payments crisis with foreign
currency assets less than US$1 billion, just enough
to cover two weeks of imports. The Government of
India requested a Stand-By-Arrangement from the
IMF in August 1991 and entered into an IMF-supported
In 1991, after decades of pursuing an import-substitution
industrialization strategy, India initiated a drastic
liberalization of its external sector. The average
tariff in manufacturing declined from 117 percent
in 1990-91 to 39 percent in 1999-2000. The reduction
in tariffs was much more drastic in India than in
the trade liberalization episodes in Latin American
countries like Mexico, Colombia, and Brazil. In
addition to tariffs, India also has reduced nontariff
barriers (NTBs) since 1991. The average import coverage
ratio (the share of imports subject to nontariff
barriers) declined from 82 percent in 1990-91 to
17 percent in 1999-2000. In fact, the 1991 trade
reform in India represented one of the most dramatic
trade liberalizations ever attempted in a developing
country. Second, the trade reforms in India were
exogenous and came as a surprise. In response to
a severe balance of payments crisis in 1991, India
approached the International Monetary Fund for assistance.
Source: "Trade Liberalization
and Wage Inequality: Evidence From India",
IMF Working Paper 05/20, Prachi Mishra and Utsav
Kumar, January 2005