From Bollywood (India’s Hollywood) film exports to counterterrorist intelligence to superstar software firms, India seems to be everywhere these days. Indeed, the New York Stock Exchange just announced its intention to double the number of Indian companies it lists in the next two years. But with the general economic forecast still foggy, can the world’s largest democracy hold on to its competitive advantage in information technology while fulfilling the basic needs of its population?

“Global Leadership: Vision 2020” was the theme of the sixth annual Wharton India Economic Forum, held November 30 in Philadelphia as part of the Wharton 2001 Global Business Forum. All of the subcontinent’s familiar issues – infrastructure, bureaucracy, education, health care – were on the table, as attendees debated the best way to speed India’s transformation from IT powerhouse to global leader. Notably absent this year, though, were the Enron officials and dot-com power players who headlined the conference in the past. In contrast, the conference this year seemed to be firmly grounded in bottom-line reality.

A Guardedly Positive Outlook

Keynote speaker Victor Menezes, chairman and CEO of Citibank, N.A., opened the conference by describing the present state of the Indian economy. “On a purchasing power parity basis, India is the fourth or fifth largest economy,” he noted. “It boasts the largest movie industry, and has more than 30 cities with a population in excess of 1 million. It is a market with substance and complexity, marked by a rapidly growing middle class, and has enjoyed a 6.6% compound growth rate over the last few years. Equally important is the Indian diaspora – more than 20 million nonresident Indians (NRIs) with about $160 billion in annual income are responsible for billions of dollars in annual remittances back into the country.”

That rosy picture is marred, however, by a high fiscal deficit that is unlikely to shrink anytime soon, and the country’s often disproportionate focus on certain sectors. “We’ve built temples of higher education that are the envy of the world. Where we missed the boat,” Menezes said candidly, “was spending on basic education, literacy, and health services.” China, he noted, has done nearly the opposite – and that country could soon catch up and move ahead in areas that are now India’s strengths.

Poor infrastructure and delayed privatization of businesses have also held India back, he said. The nation’s legal framework is bogged down by a huge backlog of cases and complex administrative procedures that desperately need an overhaul. India also lags behind other countries in foreign direct investment ($2.5 billion, compared to more than $40 billion for China and $30 billion for Brazil). “There’s no reason NRIs couldn’t be tapped to raise more money; the restrictions on direct investment are a legacy of India’s [postcolonial] mistrust of foreigners,” Menezes observed.

The good news is that progress has been made. State monopolies have begun to be dismantled; foreign investment restrictions have been eased; and tariffs have been reduced, said Menezes. But more needs to be done: “We must encourage government to be transparent and accountable. The country should leverage its competitive advantage and not be so domestically oriented, and must start managing its fiscal deficit,” he advised.

Show Me the Money

Clearly, such changes represent a tall order for the world’s second most populous nation. The featured morning panel on Finance/Capital Markets emphasized the role of financial institutions in bringing about badly needed reforms. Ravi Narain, managing director and CEO of India’s National Stock Exchange, identified three areas for the country to tackle: Corporate governance issues, venture capital and greenfield projects, and payment systems.

But reform in India usually only occurs when the nation is in dire straits, warned Udayan Bose, chairman and CEO of Lazard (India). He illustrated his point with a key example: “In 1991, India ran out of reserves. The press picked up the story, creating a sense of panic. That’s what started the reforms.”

Arjun Mathrani, former CEO of ING Barings, agreed. “Global capital market involvement will be restricted,” he said, as long as India is still in the realm of non-investment grade ratings. “When you look at the balance of payments statistics, you might feel those data don’t justify such a low rating from Standard & Poor’s, Moody’s, etc. But India can get away with not making necessary structural reforms. Its crutch is the huge flow of NRI remittances, which provides the country with support in times of difficulty, much like the oil resources of Venezuela. Easy access to cheap money allows the country to delay serious reforms.” Mathrani proposed that cross-border asset securitization might be one way of upgrading credit risk – and even country risk – through structured finance procedures.

Back Office to the World

Perhaps India’s best-known strength is its information technology services. Many multinational corporations have recognized the advantages of remote outsourcing – situating call centers, data processing operations, accounting functions, Web services and more – offshore. Call a customer-service representative at your credit card company, and you might be speaking to someone halfway around the world. India’s highly skilled workforce and English-speaking population give it a clear leg up in the competition for such business; other nations angling for a piece of this action include Ireland, Israel, Singapore, and China.

The conference’s Tech/IT Enabled Services panel explored some of the issues surrounding the use, offering, and management of these outsourced functions, forecasted to become a $17 billion export business for India.

“Any work that doesn’t require face-to-face interaction can be done remotely,” said Raman Roy, president and CEO of Spectramind. Manufacturing, he noted, saw the advent of offshore production years ago – witness all the products for sale that are “made in China” or “made in Taiwan.” “Now the same is happening to the service sector,” said Roy.

“Today, the customer decides how to interact with service providers – it could be via e-mail, phone, or Web chat. The skill set required to manage such multimodal customer contact is large,” Roy said. India’s educated yet relatively inexpensive labor is a perfect fit.

Phiroz Vandrevala, executive vice president of Tata Consultancy Services and chairman of the National Association of Software & Service Companies (NASSCOM), highlighted some reasons for companies to use Indian IT-enabled services. “What they’re finding is that – besides cost – productivity and throughput in this space and the motivation and low turnover of staff makes a difference,” he said.

Companies can partner with India in one of three ways, explained Vandrevala: Some are setting up their own operations there; others use third-party liaison companies with U.S. offices; still others might choose to deal directly with Indian service providers.

Progressive Insurance’s Tony Laska, who was instrumental in convincing his company to use Indian service providers, contributed the client’s perspective to the discussion. “It took six months to convince my organization that an Indian firm could do mission-critical application support,” he said. The outfit that got the job demonstrated a thorough knowledge of the business: “They came over here, dove in, analyzed the operation, and showed us the approach they were going to use. The educational system in India is a big plus. There are people tailored to the software development industry. Now, I’m a spokesman for the organization I hired – I convince others that the risks are minimal.”

More, Better, Faster

Lalit Mansingh, India’s ambassador to the United States, summed up the conference’s vision in his closing keynote remarks. “Fundamental economic reforms have transformed India’s landscape. The benefits of reforms are visible. Inflation is under control. Overall literacy has gone up, from 43.7% in 1980-81 to 63.1% in 1998-99. Population growth is less than 2%. India is an important ally of the U.S. in the war against terrorism. But the public mood is still one of discontent,” he noted. “The voters of India are signaling that all of this is good – but not good enough.”

That, said Mansingh, should be everyone’s call to action: “Global leadership will go to nations that are pluralistic. The capacity of nations to influence ideas and thoughts – to use them to bring about change – is an asset.” Whether India can accelerate its internal economic development and sustain its dominance in technology – while playing an ever-growing political role on the world stage – remains to be seen.