Sustained high growth in India will come from saving and investing enough, and from channelling that investment into the most productive uses. Innovation, both technological and organisational, is an important part of this process, because it overcomes the problem of diminishing returns. Innovation can be with respect to the global frontier of production, or, more likely for a country like India, with respect to its own current situation. With all these types of innovation being so critical for India, Silicon Valley is a natural source of expertise, and possibly also financial resources. The Valley’s strong contingent of successful Indian-Americans provides a bridge to bring these resources to India.
The prime minister’s recent visit to Silicon Valley focused attention on what might travel over a bridge between the world’s most significant hub of innovation, and a country that is desperate for change. I was not present at the various meetings and speeches, but from what I can gather, Indian-American entrepreneurs and venture capitalists in Silicon Valley have a crucial role to play in guiding that traffic. As I have argued in previous columns, the current Digital India initiative is lopsided, and it does not mesh well with what should be its natural complement, Make-in-India. Digital India is too government-centric and too much focused on the front-end, whereas what is needed is to bring digital technology to the heart of India’s manufacturing sector, as well as all the ancillary services that support it, such as retailing and logistics.
To illustrate, Indians smart-phone owners already have access to Facebook and Twitter, not to mention games and pornography. Extending internet access to more Indians is important, but using social media, playing most existing games, and viewing pornography are not going to enhance India’s economic growth. In this context, companies like Facebook have little to offer for Digital India. If the cost of having Facebook subsidise internet access is allowing that company to collect massive amounts of data on individual Indians, then the country can do better. On the other hand, Indian manufacturing firms, especially smaller ones, are seriously deficient in the use of digital technology for managing their operations, from supply chain to production to customer relationship management. My work with several co-authors, including Shubhashis Gangopadhyay, director, School of Humanities and Social Sciences, Shiv Nadar University, has shown that increasing information technology (IT) usage by Indian manufacturing firms could potentially increase productivity and profits as well as employment.
Why do these firms not invest in IT? There are financial and organisational constraints, but they also need expertise and appropriate software products. Indian firms need software for comprehensive enterprise resource planning, or for specialised functions such as accounting, product design, supply-chain management (including procurement and logistics), sales management, and so on and so forth. This software has to be tailored and priced for the Indian context, including installation and maintenance. This will require a complex transformation that needs to be at heart of Digital India. There are numerous Silicon Valley firms that have innovated enormously in all aspects of business software, but these firms were not the ones that seemed to get any mention, let alone headlines, during the prime minister’s visit to Silicon Valley. And on top of all these business functions, there is the critical issue of cyber security, which the PM has highlighted, but barely gets recognised in Digital India documents—security remains a weak link in corporate IT systems, even in advanced countries.
Facebook, Twitter, Uber and even Google and Apple are not necessarily the sources of cutting edge expertise and tailored solutions for building a Digital India, which needs a robust infrastructure, possibly even a next-generation one, which can leapfrog some of the constraints that are beginning to make the internet creaky in early adopting countries. This is where Indian-Americans, especially ones who have started their own successful companies and now invest in new ventures, can be a key source of guidance.
Indian-Americans also illustrate another key feature of Silicon Valley, one that has only fully emerged over time. The Valley is relatively non-hierarchical, and thrives on the existence of multiple, overlapping open networks, rather than those constrained by large company boundaries. Indian-Americans have taken the lead in bringing some ethnic diversity into this mix. Again, Google, Facebook and Apple are not necessarily structured to bring that ecosystem to India. Bringing the Valley to India will need creating an ecosystem of many small firms, disciplined by knowledgeable, specialised investors. This will require ground-level changes in tax laws, company law, labour markets, and so on, to support a robust start-up culture.
Ironically, the kind of diversity of thought and behaviour that Silicon Valley has come to epitomise is somewhat at odds with what seems to be emerging within much of the political structures that now surround India’s PM. These structures are hierarchical and intolerant of differences. They instil fear and distrust. This is something that India’s current leadership will have to address more squarely if it wants to work with Silicon Valley to achieve any significant economic transformation.
The author is professor of economics, University of California, Santa Cruz