Today's date:
Spring 2004

Insourcing India’s Future

Narayana Murty is executive chairman of Infosys, India’s IBM. He was interviewed in Bangalore, India, by NPQ’s Beijing-based correspondent, Jehangir Pocha.

NPQ | You’ve put in a lot of energy to build this company. What drives you, what keeps this energy going?

Narayana Murty | I’m firmly convinced that countries like India, countries in the South, have to realize that the only way they can make life better for themselves is by creating world-class institutions and high-quality, high-disposable-income jobs. That’s what makes me get up early in the morning and come to the office.

NPQ | The Infosys Foundation and some of your other actions are also oriented toward creating different circumstances for the wider population.

Murty | We operate and some of us live in India, where there is so much poverty, so much suffering. If Infosys is to be successful in creating long-term employment for more people, satisfying its customers and satisfying its investors, then it has to live in harmony with the environment. And living in harmony with the environment means we have to make a difference to the context. That is where the Infosys Foundation comes in. It uses a certain percentage of our profit every year to address the basic needs of the poorest of the poor in this country—destitutes, the rural poor, the elderly people, prostitutes who are being rehabilitated...We have cancer hospitals, pediatric wards. We have built homes for the destitute. We have built hostels for people being rehabilitated. We have built 10,000 libraries in this state. In addition, Infosys employees also work in some of these projects on the weekends. They teach rural children. They go to the hospitals and work there on weekends. Of course, in this country, it’s not sufficient.

NPQ | So what more would you like to see? What are the most critical ideas India needs to accept and act on?

Murty | I’d say that the biggest imperative is for our leadership to raise the aspirations of the people and make our people believe in the future. Our political leaders must believe in accountability and identify with the aspirations of the common man. Our corporate leaders must begin to benchmark themselves with the best on a global scale, in terms of customer focus, employee focus, investor focus, in terms of producing quality products, in terms of following the highest principles of corporate governance. Lastly, we also need better interaction between our intellectuals and intellectuals elsewhere, for we need more debate and we need to learn more from countries that are better than us. And I believe that, as Professor Amartya Sen says, unless we can address the basic issues of primary education and health care, we cannot be successful in the long-term.

NPQ | Yet India invests only 2 percent of its revenues in social services...

Murty | The fact is, this is an unfair society. But for me, what is even more important than just enhancing the allocations is using those funds effectively. That is where I believe the NGOs have an important role to play, for they can do a better job than government in utilizing these funds.

NPQ | What do you think we need to learn from the West?

Murty | We are very poor in honoring contracts and obligations. We are very apathetic. And I can tell you why. When I am mired in deep problems day after day after day, at some point in time, I accept this as my way of life. Because if I don’t see opportunity to resolve this, I don’t see instruments to resolve this, and I don’t see leaders who can resolve this, I hope and hope and hope, and finally say, “This is my lot.” Once you come to that stage, you become insensitive to suffering.

NPQ | Confidence does not seem to be a problem in India. In fact, everyone seems consumed by the “feel good” factor recent economic growth has brought. Ironically, some say this new feeling of power and possibility is breeding a militant Hindu nationalism. What’s your view on that?

Murty | There are only three things about which India can be proud. One, our democracy. India is probably the only experiment in the South where democracy has survived, even thrived. Second is our secularism. Thanks to visionaries like Nehru, Gandhi and successive leaders we have an innate desire to maintain and enhance secularism. From time to time you do see some violations of this spirit but, fortunately, they have been the act of a small group of people, and they have been contained in a localized manner. Third is the power, the enthusiasm and the energy of our youth. I think we should do nothing to lose these three. Otherwise, India will have absolutely no reason to exist.

NPQ | Do you believe that India’s secular democracy is in any danger?

Murty | We have had a few cases where this spirit was violated. But fortunately, it was localized. While there is, perhaps, a small section of the population which has such unjustifiably extreme views, by and large, I think people are peaceful. They let others live their lives. (The Hindu-Muslim riots that occurred in Gujarat in 2001) could have spread across the entire country. But they did not. So to that extent, I believe that Indians believe in secularism in their hearts.


NPQ | Even while you are calling for more globalization the US is passing legislation against outsourcing to India. Do you think the global trading system is fair?

Murty | The champions of globalization have always been the Western nations, or the g-7 countries. And fortunately for them, they benefited quite a lot. For the first time, thanks to China, India and perhaps a few other nations from the South, there is a fear of a possible loss of jobs on a big scale. Today it has not happened, for job losses are still very small. Still, the leaders of the West have reacted.

In the past political compulsions led leaders of the South to take unreasonable decisions. Now we are seeing that the political compulsions of the leaders of the g-7 countries are as unjustifiable.

But I would not throw out the free trade system. This is the time when we have to listen to people like (ex-Chief Economist of the World Bank, Joseph) Stiglitz. This whole debate has to be taken beyond just the governments of different nations, and that’s where I think the World Social Forum is a good forum. We need to create a forum where well-meaning people from all different nations come together and say “free trade will never succeed unless it is fair trade.” Unless everybody sees a win-win. And we also have to understand the sensibilities and perhaps the unpreparedness of different partners in the global trade. That’s the only way.

NPQ | Where do you think outsourcing will go in the next five to seven years? How will it affect the global trading system?

Murty | I define globalization as sourcing capital from where it is the best, producing where it is most cost-effective, and selling where it is most profitable, without being constrained by national boundaries. Of course, it is easier said than done. If that is the definition of globalization, and if everybody wants to subscribe to that, I think all players must accept the rules of the game. Yes, in the short-term, there’ll be pain. But it is the job of the respective governments and the job of the respective corporations to create alternative opportunities. For example, to retrain people. At the end of the day developed nations have a lot more experience in creating jobs because they’re all at unemployment levels of 2 percent to 8 percent. On the other hand, in India, we have been mired at unemployment levels of 20 percent. And that’s when you define basic human needs by Indian standards. If you go by global standards, it’s much higher. So I don’t know if we are in a position to offer suggestions. As I said, I have tremendous confidence in the ingenuity of the corporate leaders and the political leaders in the developed nations to sort out these problems quickly and effectively—if they want to bring value to their consumers.

There is also another side to outsourcing. Every morning, I get up, and I switch on my Sony TV. It’s imported, and it’s replaced jobs with the ECI Corporation of India which used to produce fully indigenous TVs. And then I open my refrigerator, which is an LG refrigerator, South Korean company. We used to have an excellent refrigerator company called Godrej. But I’m sure a lot of them would have lost jobs. And I use my Opel Astra, which is a GM car. Certainly, Indian auto companies have lost jobs.

Should I stand up against it? My view is, no. Because what these companies have done is enhanced the quality for the consumer, enhanced customer focus and brought better value for money—as against, perhaps, a few million people have lost jobs in India, but a majority of them have benefited. This happens all the time. It’s happened in India. It happens in the US. It will happen in Timbuktu. Outsourcing is about people giving you better value for money.

NPQ | For outsourcing, as a force, as an industry—how far do you think it could go? How much could we do from here?

Murty | When the cost of a transaction within a corporation becomes higher than the cost of the transaction within the marketplace, whether you like it or not, that transaction will move out. Otherwise, the future of that corporation is at stake. So, on the one hand, this is a good opportunity for corporations to become more and more efficient internally. And on the other hand, there are more and more opportunities for outsourcing vendors to become more and more efficient, and demonstrate to their customers that the cost of your transaction with us is lower than the cost of your transaction inside the company. So—this battle will continue forever. I don’t know if it’s over.

NPQ | It follows from this that free markets achieve equilibrium prices and equilibrium supply. For an unbalanced system to reach equilibrium something has to go up and something has to come down. If it is clear that the standard of living has to go up, and is going up, in developing countries will it have to come down in developed countries?

Murty | I’m not so pessimistic. As long as human innovation is alive and kicking, as long as there is a desire to solve problems, I do think that we will, the Western nations, the g-7 nations, will be able to solve this problem—to create new jobs, new kinds of jobs while lifting up the standard of living of the developing countries.

But one thing we must understand is that if India starts consuming like the US, if China starts consuming like the US, we are finished. We just don’t have enough natural resources to sustain that. It is possible that in 20 or 30 years some smart scientist may come up with a method of regenerating natural resources. But short of that, it’s going to be very difficult. I think that is where there is a need for a very balanced approach, in terms of looking at the international trading system, looking at the global warming situation, environmental situation, etc. I think the leaders of the g-7 countries have a lot more responsibility, because they’re consuming a lot more of the natural resources than countries like China, India or Brazil. But as long as you and I sit down and discuss the issue, with me having confidence in you that, this guy is much richer than me, but he’s not going to hurt me, and you having confidence that, look, this guy has a set of problems and the best way for me is to understand those problems and to ensure that whatever way I can solve those problems, by making some accommodation, I think that’s the best. I don’t see any other way.

NPQ | You have many tales to tell about just how much more difficult it was to operate in the Indian business environment just 10 years ago. Could you talk about that as an example of how India has evolved into a place where it could be more globally competitive?

Murty | Prior to 1991 it would take us about two years and about 20 visits to Delhi to obtain a license for a $20,000 computer. If you assume it cost about $1,000 per visit, including hotel, going and coming back, you would have spent $20,000—a 100 percent tariff—even before you would have decided to buy the computer. Then, of course, we had a 100 to 130 percent duty. In other words, it was completely unviable. Second, when we came to Bangalore, it took us almost two years to get a telephone line. One telephone line. Number three, prior to 1991, if I wanted to travel abroad for business purposes, I had to make an application to the Reserve Bank of India, and they would take five to six days, and I had to justify to them why I should travel abroad. I can go on and on and on. But I must say that the reforms of 1991 have brought in tremendous changes. In my industry, it is by-and-large, 95 percent, the government is no longer a bottleneck. So we have moved quite a lot. And all of this has happened because of a few enlightened political leaders, and a few enlightened bureaucrats, who understood that the old way of doing things is not the right way.

NPQ | What did you do for two years without a telephone line?

Murty | India had a policy that said a retired civil servant had a higher priority for telephone allotment than a company which was exporting. What happened was we were creating artificial scarcity, which the bureaucracy used to control the population. One of the benefits to them, obviously, was corruption. So it suited the bureaucrats to keep the situation as it was. But as I said, thanks to a few enlightened people, politicians and bureaucrats, all of that is a thing of the past. But—the important thing is to realize the power of those changes and embrace them even more warmly, even more vigorously. I think that is our challenge.

NPQ | One more question. Obviously, in the past couple of weeks, there have been some fairly major moves toward improving relations between Pakistan and India. What do you think of that, especially as it affects your industry and the stability of the business environment here in general?

Murty | I’m a great admirer of our prime minister. He has been a middle-of-the-road person. He is probably the most accessible prime minister we’ve ever had. He understands the common man a lot better than any prime minister we’ve ever had. So he’s made repeated attempts to offer the hand of friendship to Pakistan, because he realizes that in some sense India has a lot more to lose if there is no peace than, perhaps, Pakistan. If you look at the economic situation, he also obviously understands that in a war there is no winner. The winners are losers, and the loser dies. So I am very excited about his efforts. And let’s remember, if there is a war with Pakistan it is going to create tremendous instability for all Indian businesses, particularly for those involved in export and the knowledge area, because our customers have to travel.

On any given day, we have 30-odd customers visiting Infosys. And if there is some uncertainty nobody would want to come. We understand, and more than anything, I think our prime minister understands this. So I hope this time, the other party will reciprocate on a sustainable, durable basis. I can tell you one thing, that India will always walk 60 percent of the path, as long as the other side is willing to walk at least 40 percent of the way. Knowing various leaders, these are people who really mean business when it comes to peace. So I’m much more hopeful, as long as Gen. Musharraf and his people recognize the power of peace in economic prosperity. I think India has recognized it. Because until now there was not that momentum in terms of appreciation for peace in economic growth. Now, you talk to any politician, you talk to any bureaucrat, you talk to any corporate leader, and they understand it. But the question is how much Pakistan appreciates it. The day Pakistan appreciates it, I can tell you, these things will all be sorted out very quickly.