For the past few years, India has experienced something of an economic dream. Led chiefly by the IT services explosion, the country has enjoyed an economic growth rate of about 9%, attracting, in turn, a wave of overseas capital. But during the past year, the pace has started to slow. Rising inflation and a slowdown in industrial production have put off investors, leading foreign observers to forecast a 2009 growth rate of a healthy, but slower, 7%. For some, the Indian dream is now fading into reality.
None of this, however, fazes N R Narayana Murthy, co-founder and chairman of IT services giant Infosys Technologies; entrepreneur and venerated grandee of the Indian private sector. He has been lauded by international commentators as an industrial and social visionary ranking alongside the likes of Bill Gates, Steve Jobs, and even Mother Teresa. Global appreciation of his influence has earned Mr Murthy a shopping list of awards and accolades, among which can be found the French Légion d’Honneur.
Under his 22-year executive leadership, Infosys grew from a start-up, founded in 1981, to a Nasdaq-listed international corporation. From his office at the Infosys campus in Bangalore’s Electronics City, Mr Murthy surveys daily his hard-won success, all of which has been achieved in a country that has not always made it easy for entrepreneurs.
Perhaps this is why Mr Murthy remains optimistic that India will continue to flourish, despite what he concedes to be “physical constraints”, especially those represented by the country’s lagging manufacturing sector and anaemic agricultural growth rate of just 2%. But India’s historical high GDP growth rates, he believes somewhat unscientifically, have become familiar to Indians and the country is now “mentally prepared” for further strong growth. “In my opinion, that is the most important requirement. Once you have prepared your mind and your aspirations are set, then physical limitations do not seem as constraining as they would otherwise,” he says.
Such mental preparedness seems necessary, not least because India, as Mr Murthy sees it, is a country all too full of just such constraints. In particular, its infrastructure, he says boldly, is “pathetic”. Anyone who has had the misfortune to travel down Bangalore’s Hosur Road, the main artery connecting Electronics City with central Banaglore, can testify to this: hyper-congested, chaotic and frequently static, it has become emblematic of India’s wider infrastructural problems which extend to water plants, bridges, airports, sewage systems and power resources, all of which are buckling after 60 years of underinvestment.
In Bangalore, these difficulties have been compounded by the city’s huge population influx (prompted mainly by the IT services boom) that has far outstripped even the most generous government forecasts. To a large extent, the IT services firms have been forced to pick up the resulting tab: Infosys, for example, reportedly spends more than $5m a year on transporting its employees to and from Electronics City. Meanwhile, the availability of housing and good schooling in the city is also under duress, says Mr Murthy. “Whether it is housing, healthcare, commuting or schooling – we have all of these problems.”
Former chairman of the Indian Institute of Management in Ahmedabad, Mr Murthy is quick to single out India’s higher education system as an area of specific concern. Although the country’s economic boom has been underpinned by a strong heritage of research and development, fostered by a raft of once world-class higher education institutions, India has, in recent years, struggled to sustain its rapid growth.
Mr Murthy, whose company recruits 15,000 leading technical graduates every year, says that the volume, quality and variety of the graduates the country produces yearly must increase significantly if the IT services sector, and the economy in general, is to continue to flourish.
Esteemed though Mr Murthy might be, he is not an uncontroversial figure. His forthright views on India’s infrastructural problems have brought him into conflict with local politicians; disputes that have frequently reflected a broader disparity between the economic aspirations of the private sector and that of the government. “While there has been a big change in the mindset of the private sector, we haven’t seen a big difference in the change in the mindset of the politicians, particularly at state level,” he says. “So while the infrastructure is being built at a certain pace, the demand for infrastructure has been growing much faster and that gap is increasing.”
Although Mr Murthy’s supporters have urged him to run for India’s presidential nomination, it is clear his interests lie elsewhere: he believes it is the private sector – if liberated from red tape and restrictions on ownership – that will make a tangible difference in alleviating the country’s infrastructural and social problems. The government should take a back seat, says Mr Murthy. “Unlike in the 1970s and 1980s, when there was very little interaction between the private sector and the government, today I see a greater sense of respect for what the private sector has been able to achieve,” he says.
Yet to a large extent, political will is not the issue. Mr Murthy says state-level politicians are confronted with an intractable dilemma stemming from the country’s demographic profile, which remains dominated by the 70% of Indians who live in rural areas and remain unmoved by the fortunes of Infosys and its peers. “Because the success of globalisation, to the extent that it has succeeded, of course, has benefited primarily the urban people and because we have had a slowdown in the growth of the agricultural sector, there has been a sense of scepticism among the rural people about globalisation,” he says.
With about one-quarter of the population subsisting below the poverty line, few could deny that India’s economic growth has been inequitable. But the resulting economic envy within many rural regions has also had profound political consequences, giving rise to radical Maoist movements in some states in a phenomenon more generally referred to by city dwellers as the backlash. “While the economic energy is in the urban areas, the electoral energy is in the rural areas,” says Mr Murthy. This makes overt infrastructure development in urban areas if not politically suicidal for regional politicians then at least extremely unappetising.
At a federal level, this problem is generally thought to be less acute. This is not to say that the federal government has not been undone by rural resentment towards perceived urban wealth – the national elections of 2004, which saw the exit of the incumbent Bharatiya Janata Party government, being a salutary case in point. Many observers, including Mr Murthy, believe the government’s ‘India Shining’ campaign, in which urban programmes were highly celebrated, alienated the country’s strong rural voting base, leading to the government’s defeat at the polls.
Nonetheless, says Mr Murthy, it remains “easier to interact with the government at a federal level”, although even then, what is referred to as the country’s revolving door democracy has virtually paralysed the policy-making process. The rise of regional political parties representing rural interests has upset the dominance of national parties, leading to unstable consensus-led coalition governments that are unable to effect change at anything other than a glacial pace. This political trend serves only to compound the country’s already labyrinthine bureaucracy.
These roadblocks have already inhibited India’s ability to compete against rival offshore locations, in particular China. “In my opinion, China has already left India pretty far behind,” he says. “Because of the governance mechanism they have they can make quick decisions. There is no need to go through the elaborate judicial process that we have in India.” China, it is also worth noting, ploughs more than twice as much money (proportionally) back into public infrastructure than India. If India were to match China, however, a large chunk would be eaten up by what Mr Murthy refers to as “misuse” – the rampant corruption that continues to fundamentally undermine government-led initiatives.
Creating a proper governance structure under which such practices are eradicated is the only way in which the country can hope to realise “inclusive growth”, says Mr Murthy. He is optimistic, however, for India’s future. He believes that public discourse on such sensitive subjects is now mature enough to make change possible. “Some 20 years ago, I don’t think you could come across a CEO who could tell a foreigner the problems his country has, like this. So to me, this is a very positive development,” he says.
In time, he says, India’s “environment of introspection, criticism, discussion, debate and pluralism, can only lead to a better level of confidence”, and, in turn, a better India.
N R NARAYANA MURTHY
Chairman of the board
Executive chairman of the board