India's IT industry and Marie Antoinette

Posted by: Manjeet Krpalani on July 7, 2008

In the spring of 2007, when the Indian rupee was appreciating smartly against the US dollar - it had hit Rs. 39 to $1, and there was talk of it even getting to 38 - most Indians were feeling an unusual pride in the usually-maligned rupee. For the first time in many years, this poor man’s currency looked like it had a little value after all.

But one small group of Indians were feeling nothing but anxiety. They were the exporters, purveyors of textiles, cut diamonds, software services, brassware, etc. A minsucule group that contribute about $120 billion a year - but a powerful one, particularly the IT lobby. This group, hurting from the appreciating rupee, marched to New Delhi, shed tears before the finance minister, and begged him to do something, anything! to dampen the rise of the rupee. The IT industry, quiet but determined, pointed out: how could IT, India’s pride, take a hit? Whatever would foreign investors say if they saw their IT stocks and profits wilt because of currency appreciation? After all, thanks to IT, India had begun to draw foreign investment in the first place, they argued.

It worked. Over the next few months, the Reserve Bank of India, India’s central bank which comes under the purview of the Finance Ministry, began to intervene in the rupee’s rise, and brought its price down from Rs. 39 to the US dollar, to the current 43.

Unfortunately, the timing could not have been worse, coinciding as it did with higher prices of oil - $145 a barrel at latest count. A depreciating rupee does not buy too many of those barrels, and India is in a financial hole now because it imports 75% of its oil needs and is finding it difficult to support those prices as also the 60% domestic subsidies on oil products like diesel. Already fears of shortages are running high; some petrol pumps have put out signs which say, “No petrol.” Inflation is at 11.65% in India, interest rates are over 9%, and the poor are now having to choose between school fees for their children and food in the thali for the family.

The IT industry, meanwhile, is Marie Antoinette. They’re doing so well, their export model is competitive again, profits are looking good again. Sure, some are cutting down staff - even they are not so immune from a slowdown. But by and large, they are back to their old business - applications maintenance, mostly, for which they get paid in US dollars or Euros. The rupee is forgotten, for very little of the business of India’s top IT services players, comes from India. They’ve been so focused on the export market, they forgot about doing something for their own country - like creating national ID cards, pushing the state to spend more on IT so corruption can be stalled and public services like banking can easily reach the masses, education can leapfrog from blackboard to laptop…the list is endless.

Instead, the number one IT company in India today is IBM, which views India as a vital market, and has penetrated the country in a way its Indian rivals - who scoff at the low fees they get in India - have never been able to do.

As for those hundreds of millionaires and billionaires that the listing of these professionally founded and run IT companies has created? No replication of the Bill & Melinda Gates Foundation here. No great institutes built. No institutions built - no school of IT, no business school, no major innovation labs. Some insignificant spending of a bit of those billions somewhere - but where is it visible? Maybe to a few insiders in Bangalore - but otherwise, invisible.

Other Indians have, however, taken note of this lacuna. India’s IT industry, says one, ” is creating a gated community within India. They use their clout to influence national politics, and to keep their interests safe.” Like the rupee depreciation. He complains that though they have been awarded high civilian honours, they put little back into the community, indeed keep themselves insulated from it, in gated intellecual communities.

Reader Comments

zzzzzzzz

July 7, 2008 9:04 AM

but IT and exports are good to India! Imagine 1991 when India had no dollars!

Amazed at your stupidity

July 8, 2008 5:26 AM

Manjeet, you obviously know nothing about economics. The dollar has risen against the rupee not due to RBI's intervention, but due to a complex interplay of global economic variables.

Worldwide, oil is traded in dollars as per OPEC norms. The rise in oil prices has forced oil companies in India to buy more dollars, easing the rupee as a result.

The markets in India are falling like crazy and that has played a substantial role in dampening the relentless climb of the rupee.

Get your facts straight.

sandvika_dude

July 8, 2008 11:23 AM

Hi Manjeet. I completely agree with you. IBM has become the number 1 IT services provider in India. Infy/TCS/Wipro have done precious little for India's own IT infrastrcuture and in fact have done even less to foster a culture of innovation. No investment in labs, no investment in raising University teaching standards, no interst in using their considerable clout in improving India's rotten governance. Look at IBM. Atleast the set up labs in India, have a large academic initiative and have focussed on improving Indian companies productvity.

manjeet has gone nuts.

July 8, 2008 11:56 AM

Manjeet is speaking in Brit language. Rupee appreciation is helping manufacturing more than IT. ($130 billion). Nothing has changed. Growth is still positive and going to be 8%.

Siddhartha

July 8, 2008 1:01 PM


Great Article from you atlast !!!... Its true India's billioniares are spending on billion dollar homes and other materialistic things when quarter of India's population is living on dollar a day.

India need people like Gates, Warren buffet who believe in giving back to humanity rather than people like Ambanis who rather than giving back quarrel like little kids. I despise these shameless billionaires and the people supporting them.

BM

July 8, 2008 3:34 PM

I cannot imagine BW publishing such a load of cr_p. let alone keeping such writers on their rolls.

Squeezebox

July 8, 2008 5:35 PM

The author makes a good point. The Ronald Reagan "trickle down theory" of the 1980's has been proven to be a failure worldwide. Common people don't get a slice of the wealth being generated by the rich, we just keep getting poorer. If rich people would donate a greater percentage of their income to charity we wouldn't be so mad, but when homelessness and starvation are increasing all over the world, there can't be much sharing going on.

Jay Bharat USA

July 9, 2008 12:17 AM

Manjeet gets an F for this Article because it is full of errors.
1. Infosys has the largest in house training institute in the world. Its finishing school trains 14000 It Grads every 6 months in cutting edge technology for industry.
2. Akshaya Patra is an IT Industry initiative to provide 1 million schoolchildren hot meals. Otherwise these kids would be working recycling used batteries.
3. India's bread ad Butter Industry for a hundred years, ie Textiles was killed by the appreciating rupee and China stole its lunch by pegging the Remnimbi at an artificial low rate. The Manchester of India, ie Coimbatore began to look like a ghost town. Alse affected were Steel, Iron, etc etc.
4. The villain was the $145 price of oil not IT.
Keep it up Manjeet, your credibility is hitting bottom.

BS

July 9, 2008 9:54 PM

Worst piece that can be written. Exposes the ridiculous biases and a total lack of sense and sensibilities. What do terms like "usually-maligned rupee" and "poor man's currency" mean? Are there two currencies - one for the poor man and one for the rich or is it that the writer can gauge the richness or poorness of a nation by the value of its currency?. The total lack of understanding of the subject is again reflected in the phrase "it had a little value after all". Go check the conversion rate of Yen vs Rupee if you believe that a higher number means a poorer nation. Also read about China and learn why the country is not letting its currency appreciate despite pressure from US on the contrary. If this sounds too much work, at least read a good grammar textbook to know what's wrong with "This group, hurting from the appreciating rupee". There is a limit to how low the rupee will go down but apparently there is none to how low BW will go with its standards. Who is this "other Indian" in the last paragraph and why is "he" complaining to the writer in private? If there is anybody even remotely like a editor in your organization, here is a little question. Do you actually pay this guy to write such BS?

Rajesh

July 10, 2008 5:25 AM

This is nothing but BS. Is Manjeet living in India or sitting in cosy home in UK and writting this article. 100% certified Crap.

Alok

July 10, 2008 7:26 AM

You missed one point ..

What about the huge tax IT professionals pay to govt ? Who is accountable for it ?

SourGrapes

July 10, 2008 10:29 AM

Poor Manjeet. He missed the IT bus. Sour Grapes story.

JAY

July 10, 2008 1:43 PM

The IT Industry has been the GOLDEN GOOSE for India bringing much needed foreign exchange. More than that it has transformed India's image from a land of snake charmers to a country of computer geeks. It is the envy of everyone.

Back in the fifties and sixties the LICENCE AND PERMIT RAJ, that out Socialist Govt followed emphaszed Brick and Mortar Heavy Indutry, Minig, Machine tools, State Trading in Commodities etc. The Govt Bureaucracy did not think anything of the IT or Intellectual property, so it just pretended it did not exist and thankfully ignored it. They even shut IBM down. With the Y2K crisis looming, and not many programmaers available to fix it, the west turned to Indian brains. Infosys and others who were quietly building their outsourcing business suddenly found themselves at the eye of the Y2K Tsunami. Thanks to their efforts, Y2K was fixed withou a glitch and the west was grateful and appreciative. So, in spite of the Govts apathy, an entirely new, eco friendly, industry was born, earning substantial foreign exchange and employing a millions of indians who would have otherwise competed to become Babus.
After succesfully solving the Y2K crisis the IT industry grew and grew. Computer science, not Mechanical Engineering, became the preferred choice of geeks. The earnings of IT was the product of the Brains of Indians(whcih India has plenty of), and did not need need any massive import of oil or fertilizers or timely rainfall. Failure is an orphan and the Govt quietly tried to get rid of its grandiose white elephants, like AiR INDIA. Even now in some states like Bihar, Cows are in and Computers are out. Even today, wheras the SEZs get all the breaks from the Govt, the IT industry gets scraps.

Yes, the IT elites live in gated
communities. They have EARNED it the old fashioned way, hard work and no Govt handouts. Also IT is in the corsshairs of Terror Groups. You seem to forget that the Govt is unwilling/unable to protect hardworking citizens from Coimbatore to Jaiput from terror attacks.

Manjeet Kripalani Sir, have you lost your mind. Are you trying to kill India's Golden Goose

Observer

July 11, 2008 4:06 AM

I think it is very unfortunate that someone writing for BusinessWeek magazine can exhibit such poor research capabilities. In fact, a cursory examination of the currency movements, and the RBI foreign exchange balance numbers presented every month over the last year, would make it clear that the RBI was not responsible for the depreciation of the Indian rupee from Rs 39/$ to Rs 43/$. Writing for a global business magazine, it is simply inexcusable to make these assertions without basic fact checking.

I now believe the anecdotes about the acute talent shortage in India, after seeing these types of articles. Perhaps BusinessWeek should search for someone who actually does some research, and has some sense of how business works, when writing business articles. Journalists writing on a particular subject should have some domain expertise, rather than just a BA in Journalism. Very disappointed reader. I am beginning to think that independent citizen blogs are of much better quality.

Runcie

July 11, 2008 7:57 AM

What Manjeet??? no response yet???? Very poor......
Thanks for all those folks who exposed Manjith's stupidity & ignorance about India & economics....

Indra Kumar

July 16, 2008 5:29 PM

Manjith was right when he said that IT is a powerful lobby and it has managed this time too. The tax sops for IT are ending in the next 2 years. Perhaps no other industry was taken that much care of. If govt can give that much tax sops to any industry, it is bound to prosper. IT doesnt even have trade unions or any sort of unions, despite the fact that BPO and lower end IT firms are exploiting youngsters.

IT grew because govt policies and timing. Just when IT began to prosper,Indians were able to get their pie in it.

It also became status symbol that we always run after and our pride.

Anyway, the success of IT cannot be attributed to its professionals. IT belongs to everyone. Its the industries and people who invested and interested in it made IT a huge success.

If there is nobody to buy a car, there is no use designing best of cars. If the car designer boasts that he designed the best car in the world!, when there are no buyers.. does it make any sense?

Similarly, IT industry needs to understand that its providing a service that has demand right now and are getting paid for that. IT is not the beginning nor the end of everything. IT professionals are not Mahatmas. But in India where we weigh wealth too much, we are treating IT professionals as gods that lifted indian economy? The truth is this is an overheated economy resulted from visions of great future. If at all for some reason, if this vision turns an illusion everything collapses too rapidly and too badly.

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