Why IT Happened in Southern India

Monday, July 27th, 2009

A recent story about a school for poor-but-gifted students in India prompted Zoho‘s Sridhar to repost his explanation for why IT happened in southern India:

Many commentators in the West, including Tom Friedman, make an implicit assumption that somehow there was or is some kind of an institutional grand plan in all this. Somehow “India” (as a collective entity) focused on education, particularly in science and engineering, and there was a planned take-off. The IITs are mentioned often (I went to IIT Madras myself) as part of that master plan. I would say there is about as much foresight and plan on the part of institutional India in the IT boom as there was foresight and plan in the emergence of the internet industry in silicon valley — both are happy accidents of a lot of not-very-related phenomena.

The origins of IT boom in India could be traced to an accidental decision of mega-star actor/politician turned Chief Minister M.G.Ramachandran, affectionately known as MGR — he was the Arnold Schwarzenegger of that time and place — in my native state of Tamil Nadu. In the late 70’s and 80’s the state was convulsed with caste politics (“identity politics” to Americans), and reservation in educational institutions and jobs (“affirmative action” to Americans) was the hot item on the agenda. By early 80’s, the socialist system that Indira Gandhi foisted on India was visibly starting to fail, and the whole political debate was how to divvy up a stagnant or shrinking economic pie — reservation was just one mechanism the political class came up with, and it mixed well with “vote bank” politics. Since government controlled all higher education, and the number of seats in professional colleges like engineering and medicine — which offered better prospects of a job in a high-unemployment economy — was woefully inadequate compared to the number of kids graduating from high school, reserving seats was the rationing mechanism the political class came up with.

MGR, due to his very successful movie career in a variety of super-hero roles — like most Tamil boys of my generation, I was a huge fan, and remember campaigning for his party in my village when I was a 9 year old! — had built-up a wide support base that cut across caste, religious and class lines in the state. He instinctively grasped that a reservation system that apportioned seats in educational institutions and public sector jobs was going to divide society permanently. After he came to power, he started musing about moving away from caste-based reservation, and instead reserve seats based on economic criteria. This was the “third rail” of Indian politics and still remains to this day. He got himself into political hot water quickly. In a dramatic U-turn that would make Arnold proud today, he ordered a massive increase in the reservation quota — it used to be about 30% when he came to power, and he increased it to 67%, and for good measure, he made the vast majority of the population eligible for those reserved seats by expanding the definition of socially backward communities.

But to assuage his guilt, he decided to allow various private groups, primarily belonging to caste or minority religious organizations, to set up engineering colleges. That was about 1983–84, the time I was in high school, so I was paying close attention to this particular issue. Until that point, the state of Tamil Nadu, with about 60 million people, graduated only about 2,000 engineers a year — and it was considered one of the more educationally advanced states. His government liberally handed out licenses to start colleges, and more important, they could charge whatever fees they wanted. It became very, very profitable to start an engineering college — due to the massive pent-up demand for education.

Within a few years, the number of engineering students had crossed 10,000 a year, and today it stands close to 70,000 a year. The state now has over 250 private engineering colleges, compared to 7 government-operated ones in 1983. All this is in just one state in India, with a population of about 65 million people. Other states, particularly in the South, including Karnataka (Bangalore is the capital city), and Andhra Pradesh (Hyderabad is the capital city) got in on the act. Together, these 3 states alone graduate over 200,000 engineers a year now, by my estimation, and together, they account for only about 20% of Indian population. Northern States were slow to get their act together, and what that has meant is that the IT boom is concentrated primarily in the South.

The quality of the education, as can be imagined, was and still is all over the place. But that is not important as I have argued elsewhere, see my post Placebo Effect in College Education. What these colleges produced is a generation of people, who at least have an exposure to technical ideas and a desperate need for a job, particularly because their parents had spent a fortune on their education. Most of us in India got into engineering not because we had grand visions of invention, but because it had better prospects of a job than the alternatives.

This educational liberalization in my state happened coincidentally at around the same time that Rajiv Gandhi became Prime Minister of India, succeeding his authoritarian mother. Luckily for India, he was a very different person from his mother. He had liberal (the true classical sense of “liberal”, not the totally distorted American sense, where it is almost codeword for “socialist”) inclinations. He was fascinated with technology, and thought it held potential for India. So he liberalized computer imports (which until then attracted duties in the range of 200%, to conserve precious “foreign exchange”). As an unintended and certainly unplanned consequence, companies like TCS and Infosys imported mainframes and started to provide services to western companies, in almost exactly the fashion of EDS a generation before in America.

It all started small. In 1989, when I graduated from IIT Madras, I do remember hearing about this small software company called Infosys that came for campus interviews. But the IITs didn’t graduate anywhere near the engineers (IIT Madras graduated 250 a year, including all branches of engineering) to satisfy the demand from these companies. So companies like Infosys went to the emerging private engineering colleges. I remember that in late 80’s, the dominant public sector companies of the era (now mostly dead or dying!) would not hire private engineering college graduates. So privatization in higher education in one state of India accidentally provided the fuel for the emerging private sector companies.

There was absolutely no coordination between the policies at the state level where MGR was backed into a political corner, so private sector education was an innovation he came up with on the spur of the moment, and those at the central level, where Rajiv Gandhi, fascinated by technology, liberalized computer imports. For those of you mercantalists, that trade liberalization, which first led to imports, eventually led to the emergence of the export industry.

So really government policy played only a “getting the hell out of the way” role. There really was no pro-active government role in the emergence of IT.

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