New Indian government a threat to offshoring?

What do the results of the recent Indian election mean to companies looking to offshore IT services there? Author Paul Davies explains.

In mid-May, I was in India promoting my book, What's This India Business?, when the Indian general election announcement was made - and completely swamped all media coverage.

The result was such a shock. Out went the old coalition of about 28 parties, headed by the BJP and Prime Minister Atul Vajpayee, generally considered a business-friendly government, and in came a new coalition of more left-wing parties, headed by Congress, which had led the independence movement.

I immediately started to consider the effects of the result on Western business but the shock was so intense that most commentators concentrated only on the reasons for the result. Yet it doesn't really matter whether the vote was anti-incumbency, anti-Hindu fundamentalist, anti-BJP for not being fundamentalist enough or just anti-India Shining (the BJP's election slogan).

What matters is how the economy will develop and how the West will be able to work best with India in the future, especially as a source of IT services.

There are two important strands of information that all businesses considering the risks and opportunities of offshoring to the country ought to consider.

The first is the new coalition's published statement of its intent: the Common Minimum Programme (CMP) of the United Progressive Alliance, which can be downloaded from the PM's website.

The second is the quality of the man catapulted into parliament and then into the cabinet as Minister of Communications and Information Technology, Dayanidhi Maran. This position is extraordinarily important to all aspects of Western business involvement in India.

The CMP, though quite an opaque document when taken on its own, reveals much about policy for agriculture, women and children, education and water. Its opening statement, about the decisive vote for parties wedded to the welfare of farmers, weavers, workers and weaker sections of society, is not reassuring to Western business. On the other hand, one theme is continuing to grow the economy at 7 to 8 per cent each year and it specifically mentions unleashing the creative energies of the entrepreneurs, businessmen [sic], scientists and engineers and all other professionals and productive forces of society.

Two significant points are that support will be given to the services industry, including IT-enabled services, the Indian term for business-process outsourcing, and that foreign direct investment (FDI) is to be encouraged to grow by two or three times. For any of us who have been frustrated by the FDI processes in setting up companies and operations in India, this is a major positive commitment.

The man behind this document is the new Prime Minister, Dr Manmohan Singh, an Oxford-trained economist. For five years, between 1991 and 1996, he was India's Finance Minister, and it was he who developed the new approach to the economy that has been so successful under each government since. He was also in that time period Governor for India on the Board of Governors of the I.M.F. and the International Bank for Reconstruction and Development. He is a world-class economist – and a man to be trusted. No one doubts his social credentials, but he is also aware of the need for India to grow as part of the world economy.

Dayanidhi Maran, the new Minister for Communications and IT, comes from a political dynasty but he was, until the election, a businessman in Chennai. Having been a management student at Harvard Business School, he was the director of the Sun Network and was the managing multi-system operator (MSO) of Sumangali Cable Vision (SCV) in Chennai. Under his leadership, SCV was the first MSO in the country to embrace the much-discussed conditional access system and SCV has almost eliminated other cable TV operators in Chennai. He understands business.

Incidentally, his party, Dravida Munnetra Kazhagam, was part of the previous coalition government until December 2003.

The backgrounds of Maran and Singh suggest continuity and, more than that, opportunity. Anybody who has struggled with Indian bureaucracy and regulations will not imagine that such things will improve overnight, but any change in government will cause new, positive initiatives.

My considered view is that the threat to Western business aspirations is minimal, and that there will be new opportunities for those who move quickly – if only because the shock of the result was shared by the Indian Administrative Service, which will want to show itself as responsive to the new government.

If you had seen firsthand the range of emotions that the election result generated amongst Indian business people, ranging from anxiety to expectation, from bewilderment to wondering whether there would be any new opportunities, you too might have felt concern. Yet there was also another typically Indian reaction amongst these same business people – glee. There was real pleasure at the idea of throwing out the scallywags, even if the particular scallywags were their own scallywags.

In just this way India has shown what a strong democracy it is – and that is perhaps the best reason for continuing to consider the country for offshoring and investment.

Articles and commentary on IT offshoring and BPO in India and elsewhere will be appearing on silicon.com over the coming weeks. You can find them all here.