Unusual remedies for the current economic crisis

Rather than discuss more on the problems of the current economic crisis and what caused it, I have attempted here to explore some solutions. These might not be the only alternatives. But the current crisis may just force the movement in such a direction of change. What was once a wise choice might now become the only choice in many instances.

Not Consumption but Capacity Creation----------------------
Unfortunately, the economist are mostly thinking in terms of consumption i.e. by bailing out financial institutions and kick starting credit flow, they reason, people will be back in the markets buying things as before and all would be fine soon. A slightly longer term thinking revolve around creating a more integrated financial system in the market so as to enable a more transparent and faster flow of money across the world markets. These measures they argue would restore confidence in the financial markets and bring back the global economy onto the growth path. 

One thing that is not given enough attention is that unprecedented levels of consumption had stretched the material supply beyond sustainability. That's why all commodities and assets were at an absurdly high level before the world economy crashed. One wonders if the government released inflation figures truly reflected the stress on peoples income as a result. That this stress was sought to be compensated by access to cheap and easy credit only compounded the problem. 

Increasing money supply by way of increasing credit supply is only a demand side intervention that does not address the real issue of a supply side constraints. In a country like India for example with nearly 400 million working age people, if the salaries rise rapidly (especially for only a few segments like professional services, financial services and IT), it is more so because there is lack of supply of trained people, which in turn is a result of the lack of capacity of our education system. So what we need is not more credit supply to these businesses that are rapidly eroding their profitability, but a greater supply of trained manpower.

What is true about the Indian education system is also true about the manufacturing world wide. For example manufacturing must discover more efficient uses of material (maybe using Nano technologies), substitutions for material use (using software) and new designs that are more efficient, durable, reusable and sustainable. Or else high commodity prices will threaten its very existence.

Not Repair Work but Restructuring---------------------
Over the last many decades humans have become too accustomed to quick fix solutions and that is why the debate doesn't go beyond, interest rate cuts and bailout packages. These are all lazy approaches. 

An economy driven by consumption (more) itself is the problem. The financial crisis is just a symptom. And while we must realise that there are material limits to consumption that can only be stretched through improving material efficiency and reuse in things we make, the more important things is to realise that there are limits to our consumption imposed by time and attention. And that we just wouldn't have enough time or attention to consume all that we can buy with our money.

It won't be enough if this restructuring only goes to the extent of reworking the use of things material. Perhaps we need to move from where the society values owning and enjoyment of the goods that the world has to offer, towards pursuit of learning, creating, leisure, contemplation and common good. Only then can we hope to spread material benefits more widely. The true long term solution therefore lies in building new capabilities and in redesigning the values on which our society is based.

There has to be compression of a lot of activities that are doing no good to our life and to life on earth. So also there is much work to be done. The economy can go on for years around regenerating our forests and bringing back to life our rivers and lakes, bringing up children to each realise there special talents, building bridges amongst communities, nursing the world back to health, making our planet safer, inventing new ways to use material more optimally, in learning better ways to live together.

If only we are willing to expand our vision.

Not More but Excellence-----------------------
A life time spend in pursuit of excellence is far richer than one that is spent on keeping up with the Jonneses, where every time you catch-up with one there is another one to catch-up with. It is time we realise that we have to wake-up and move forward on our journey to take life forward, in pursuit of individual and collective excellence - measured, not in terms of our possessions but in terms of our capacities and capabilities, measured by the quality of our action and thinking and not the quantity of our acquisitions. 

We need to move to a future in which parents pride themselves on the goodness of the deeds of their children and the contribution they make to the society than on the size of the multinational businesses their children work for or the salaries they get.

Not Systemic Problems but Greed(is the problem)---------------------------- 
I was watching a discussion on the BBC on the current financial crisis where the audience was quizzing board members and executives of very large financial institutions accusing them of being lax and self serving in the discharge of their duties as board members and executives. Unfortunately the panelists defended themselves by citing it as a systemic failure of the financial markets arising out of inherent complexities, one in which they were helpless and of which they were clueless. The truth is that while financial systems around the world are in need of a restructuring (because of the sheer size they have assumed), it really is greed, irresponsibility, lack of vision and plain stupidity that have got the better of these capitalists.

Not China but Independent Thinking----------------------- 
The failure of American financial institutions doesnt automatically qualify the Chinese model. The current regime in China is demonic. Their aggressive pursuit of economic success is doing little good to the world. I believe we (Indians and the world at large) have very little to learn from them. What is needed is independent thinking rather than getting caught up in the illusions(Maya) that is spun by the world's financial institutions or the Chinese government.

Not Financial Markets but Culture--------------------
Not rejuvenation of financial markets but a cultural renaissance is required. Clearly the lifestyle of the west cannot be lived by all on the planet without threatening our very existence. The breakdown of the financial system is only one in the series of warning that follows the phenomena of global warming, terrorism etc. hinting at the possibility of much worse to come if we don't change our ways. I believe that changes by way of redefining of lifestyles can contribute the most to correcting this imbalance. One in which, nourishment of the soul is more sought than the pleasure of the senses.  

For a person living in the Dark Ages, nothing must have seemed wrong till the 'rebirth' of classical values. Perhaps the world is about to see such a change. We will in all probability look back in time from a future standpoint and wonder how we allowed ourselves to be carried so far out in our material pursuit. I imagine a new economy that is built around a dynamic culture not a decaying one. Here is where India can take leadership position. Not for the sake of leadership but leadership with the purpose to recreate the world for the better.

Not Individualism but Community living---------------------------
The high ideals of liberty and individual freedom have been flogged to dead end where it has manifested itself in greater and greater separation amongst individuals. The communities themselves decaying for lack of dynamism have been easy targets for anything that promised freedom from it. So individualism became fashionable and then a marketable commodity driving consumerism to ever higher levels. 

Communism has failed. Consumerism is failing too. Perhaps the answer lies somewhere in between where voluntary Communities drive the economy forward, creating shared resources for the common good. 

Voluntary communities are coming together to pursue common good while at the same time allowing individual freedom. When Tarun Bharat Sangh works to re-hydrate hundreds of villages in Rajasthan through voluntary community service you are seeing investment in collective generative capacity. When citizens in Europe volunteer to bring in cycles to create cleaner cities, what you are witnessing is purposeful community action. When people at SSY get together to build an Ashram for learning and meditation, you are witnessing Community Economics. When people at AOL resolve to plant millions of trees you are seeing community action in pursuit of a common good. Perhaps the best example of community living is India itself which sustains a large population using much less resource - much of which is owed to the existence of various different communities that act as support systems for the individual. There is economics involved in all this.
This change is not going to come in a hurry there are too many people hopeless stuck in the current systems. And it is not going to be easy to bring about the new order without working out many many conflicting interests and ideas. But that the change in happening in this direction is clearly visible.

Though, it might be a while before these communities that exist as islands today proliferate more rapidly to cover most of the landscape of our societies.

Not Financial Freedom but Freedom from Fear-----------------------
Much of the western and westernised world, suffer from the desire to be free from having to work for a living, hoping to put enough money away into a retirement fund that gives then a guaranteed return so they don't have to work any more. They call it financial freedom. The financial crash has highlighted the limits of this idea. It is time we recognise that - Wealth without Work is only an illusion. Many years ago a Mahatama (Gandhi) had warned us of the seven things that can destroy us - Wealth Without Work, Pleasure Without Conscience, Knowledge Without Character, Commerce (Business) Without Morality (Ethics), Science Without Humanity; Religion Without Sacrifice; Politics Without Principle - we must urgently pay heed to it if we are to truly free ourselves.

Not Economits but Leaders------------- 
Perhaps leaders like Obama (or perhaps like Nitish Kumar et. al.) and not economists can make a difference. What the world needs now is clear thinking and honest leadership to lead the change the world needs. That kind of leadership is needed not just at the head of governments but at all levels of all human enterprises. Perhaps the time for the Economists to define the course of the economy has reached its end (at least for the moment).

Not Politicians but Teachers------------
Only a teacher, a seer can show the way. Only a sadguru can build in us the capacity to change. Only a sadguru can instill in us the correct purpose. For, it is the Guru who symbolises the living, dynamic knowledge of a society. In fact any one who speaks of this knowledge is a Guru. Only a Guru (or the chosen one) can tell us that we are caught in yesterdays decaying ideas. 

Perhaps the ideas on which our economy and society rests has been overused. Maybe it has outlived its use. Maybe in our pursuit of growth we have gone too far away from the seed, from the universal principals, from the truths and therefore we suffer. Who else other than a Guru can bring us back to the center.

With much gratitude to all my teachers and Gurus

One Election can change the nation and the world

Sadly a lot of the reaction to the Mumbai terror attack has been emotional (and at times simply naive). That is understandable. But it serves little purpose to condemn all politicians. That only ends up undermining democracy.

My belief is that democracy offers the best mechanism to make meaningful change. And it is quite simple. One, we must resolve to vote. Two, we must find the best candidate to vote for in our constituency.

The idea seems too simple & simplistic to work. But, it isn’t so. 

Firstly it is not simple - voting for the cleanest candidate means voting across party lines, across regional, cast and religious divide. That would mean a leap for most people. Also, it would require some work to figure out who the honest, diligent candidates are. 

The idea is not simplistic either - no matter how cleverly the candidates have worked out the electoral math, a one percentage point votes added or taken away from a candidate can make all the difference (actually even single vote can do it). More importantly since we are dealing with not just a case of security lapse but a rotten system, we must start by fixing it from the top. And there are many more things to fix in India than just the security apparatus.

If you find this idea sensible please send this mail to as many people as you can. If you are enthused by the idea spread the word further. And if you are charged up to really make a difference gather the information on the best candidate in your constituency and spread the information around (emails, blogs and networking sites are simple ways to do this).

The more honest people we can get into the parliament the sooner we might see the change we so desperately need.

One election may just change the course of history for our nation and the world.

Engineering is applied science. Marketing is applied engineering.

Engineering is applied science. The questions that should concern engineers are - How do you reach the benefit of science to more people? How do you make things more accessible and affordable? How do we use technology to do more things that are beneficial to people?
Marketing is applied engineering. The questions that should concern them are - How can we get this stuff that we’ve engineered into the hands of more people? Are the desired benefits being realized by those who are using it? How can we make it better?

Contibuting to developing human capital

Many young people starting out on their work lives see us as a training ground from where they can graduate to (what they think are) bigger things in life (like a say a job in an MNC). We don’t see a problem in this. We're happy to train people and happy if they pursue learning inside or outside of the organisation we believe that the human resource in our country has to become substantially more capable to compete in the world markets for products and services and we are happy to contribute to it’s development in whatever way we can.

A honest day’s work

A few day back I was reading what Rahul Bajaj had to say in the Indian Express column on ‘India Empowered’ on what would truly empower India. He said India can be truly empowered if all of us push the limits of our achievement in our own sphere of work. I couldn’t agree more it was as if words were pulled out of my mouth and appeared on the paper before me. But, I think, before we reach out to excel in our field of work, we have to learn to do ‘a honest days work’. The person who idles away his time at work or is not putting his time to good use at work, is as much guilty of dishonesty as the person who takes bribe to dole out favors.

Return on Investment V/s Total Cost of Ownership

You can’t invest large amounts of capital on the promise of productivity gains, because productivity gains can be only measured in retrospect. It makes more sense to buy the more cost effective stuff that does the work well. What you can only be sure of (at least to some extent) is that the stuff you have bought will help you do things faster, with less errors or at lower cost but that it will result in more sales or profit is much harder to predict. Therefore it makes more sense to invest using the Total cost of ownership (TCO) computation rather than on a prediction of a certain Return on Investment (ROI).
The TCO as opposed to the purchase/transaction price (which can be deceptive), covers the upfront capital cost, set-up cost, running cost, cost of renewal etc. All the costs you’ll incur through the lifecycle of its use.
In fact a lower TCO makes a higher, faster ROI more possible. That’s all one can be sure of.
Of course new technology that completely alters the economics (creating structural changes) is an altogether different matter and may well be worth the risk.

India and the meaning of work

India is not the political territory but an idea. An empire, of ideas and ideals for life. It's influence is currently limited and it’s values lost on many (even in this country). But I think that India will have a profound influence in shaping the 21st century not so much by the growth in power of it's economy or the might of it's military (those things are needed more to preserve India (the idea)) but by rediscovering the ideas that created this spiritual empire. And I don't mean just reciting the teachings of the past but starting off where Buddha, the Sufi saints, Nanak, Vivekananda and Mahatma Gandhi left.
In the pyramid of human capability and performance, India's most significant impact will be in showing the way towards building greater spiritual and emotional capacity.
The contribution of the western world to scientific thinking, was added to by the Japanese in brining mental focus and pursuit of quality at work. India has the potential to bring greater emotional and spiritual understanding to work and human endeavors. India, I think, can make substantial contribution to shaping the context and meaning of work.

The need for a quality bias

In India everything seems to happen four years later than you expect it to happen. I'm trying to figure out if there is a way to speed things up. The all too often discussed reasons of red-tapism, inefficiencies of our legal system and ineffectiveness of our governmental agencies are becoming a rather boring and fruitless part of social conversations in our country. I don't want to be part of such conversations.
I think it's this bias towards cheaper products and services that seems to slow down the economy, making it poorer. It's a cycle that feeds low quality and perpetuates poverty. Now I'm not suggesting that the guy asking for a higher price for his services is necessarily a better vendor but the guy who made a lower offer had probably overlooked contingencies or factored in an excess amount of luck in drafting his offer. Cash flow problems that result from unaccounted contingencies lead to delays in implementing projects and sometimes into projects that never end. I can hardly think of a project in India that finished anywhere close to the scheduled date and within budget. I have no objections to buying products cheaply but excessive focus on costs can make us victims of low quality. Everybody is for quality but provided it is also at the cheapest possible price. Businesses ending up buying low quality products because of their excessive focus on the purchase price may end up with a) Lesser number of customers b) Cost overruns due to frequent maintenance or replacements and c) A higher cost in supporting and selling it's products and services. Gary Hamel and C K Prahalad in their book 'Competing for the Future' warn businesses of lower profitability from- 'A downward spiral of customer expectation where, ever poorer service begets ever lower expectations and ever more price sensitivity.' Most people trying to reduce cost by focusing on the purchase price, end up with contrary results. Excessive focus on purchase price has kept higher quality vendors away from the Indian market and resulted in a drain of high quality professionals to markets where quality is better appreciated. So the Indian market now has abundance of low quality products and service vendors willing to work at lower margins. Lower margins in turn leads to – a) Poor investments in product improvements b) Use of capital equipment for longer than their recommended life span c) Under budgeting for planned and capital expenditures, leading to higher unplanned and unexpected expenditures in maintenance and emergency replacements. So these vendors who start out as low cost alternatives eventually pad up their price to cover for all the unexpected maintenance and repairs. That's a double whammy - low quality at high costs. True sometimes what starts out as poor quality, in time improves as has been the case for Japanese and Korean products that started at the lower end of the product sophistication and moved up to occupy the top slots. But that happens only when there is overriding quality vision driving businesses. In the absence of such a vision, external market conditions play an important role in determining the fate of a business. Right now the Indian market place breeds low quality at high cost. That's bad news for Indian businesses in a rapidly integrating global marketplace. Unless we as businesses and consumers change our buying habits, Indian products and services are likely to fall into a mediocrity trap. Quality doesn't necessarily mean high costs; in fact many times it means lower costs. The paradox is that the lower cost may be hidden beneath a higher initial purchase price.

Linux software needs a friendly face

Microsoft has switched it's battle tactics from the not so successful one of calling Linux a cancer that spreads to anything it touches to one that focuses on the cost factor - the total cost of ownership. A little while ago, a Microsoft sponsored study by IDC compared the total cost of ownership (TCO) of Linux and Windows software. IDC used a five-year timeframe, which is a typical lifecycle for many IT implementations of server operating systems, and interviewed IT executives and managers at 104 North American companies in multiple industries who have used both operating systems. The study has added some weight to Microsoft's argument that Linux is not as cost effective as popularly perceived. So while the study acknowledges Linux as offering advantage over Windows in workload/hardware utilization and lower up front costs of licensing. In the areas of network infrastructure, print serving, file serving and security, participants reported between 11 to 22 percent savings over a five-year period -- primarily as a result of Windows' significantly lower IT-staffing costs. The findings show that investment in resources to engineer products that are comprehensive, easy-to-use, and deliver value 'out of the box'' for key IT scenarios is paying off for customers in the form of lower TCO. The study shows that lower cost of learning and managing, deployment and repair all add up to a lot of saving. IDC's findings show that factors such IT-staff-skill requirements and long-term supportability, have a far greater impact on the overall cost of IT solution ownership. So the challenge for the people developing solution on the Linux platform is to create well-engineered and user-friendly products like those that exist in the Windows world. For example, there is no dearth of Systems integrators who can configure an email solution from freely available open source components for a small fee. Though well-designed open source components to create an email network exist, it is not enough to put together the available open source components. The email network is a complex systems and a critical communication infrastructure for an enterprise. The form in which most solutions are being offered on Linux today, is not doing much to put users at ease. A typical refrain at most organizations is ' we don't have Linux expertise around here so we'll keep away from it' Systems integrators who configure solutions based on open source components manage only to create system that could be missing on elements that are important to the customer. Making life difficult and expensive for the user and negating the initial advantage that Linux has to offer by way of low start-up costs and hardware resource requirement. That's much like buying a car that works efficiently but would need ‘expert’ help even for things like replacing a flat tyre or refueling the car.

The cost of software piracy and why free software won't work

The fall of the dotcoms has substantially illustrated the point that you can't build a business by giving away things free or below cost. But one another fact that has received lesser attention is that as a business you can't do much good if you are always scraping the bottom to find resources. Because you priced your products and services too low you couldn't make enough profit to adequately resource yourself to serve your customers well. One of the stated objectives of our company's is to promote the use of IT in India. The objective is not purely philanthropic. The intention is to work out a business model for a low cost economy. The idea is to bring the cost of software to levels that is affordable for the average Indian customer & enterprise
Consider the difference between what an average American bloke earns in a year - $32000 to what an average Indian manages in a year - $500 and you can understand why a software that costs $3000 is very expensive to an Indian - roughly the equivalent of six years of income for an average Indian. Compare that to how it turns out for an average American - less than 1/10th of his year’s income.Now you could argue with the whole premise of being able to make money selling software in India, when (a lot of people believe) software in general is free in India, given the high level of piracy. So you'd say that going after the pirates would probably improve the prospects of software business in India. In fact a recent study by IDC recommends just that, purposeful action against piracy.
But experiences from elsewhere point to the contrary, for instances tax evasion are higher when the level of taxation is high. When the cost of being on the right side of law is higher than dodging the law, many choose to dodge it. In the end you have a situation that is rife with corruption. The long-term impact of all this is terrible.
Right now software users in India have to pay a very high price for being on the right side of law (own legal software) especially when you compare it against their earnings. So many resort to pirating software. Does it help? Not so. There is no support for such software and while it might be easy to manage consumer software, things aren't quite that simple when it comes to enterprise software. In fact acquiring and running pirated enterprise software is difficult. So most enterprises either delay buying software (in turn delaying productivity improvements) or experiment with downloadable versions of free open source software (that their IT departments are ill equipped to handle, besides the IT departments at the enterprises should be looking into the application of IT and not working at writing code to configure the basic IT infrastructure).
Software solutions at roughly 1/3rd the cost of what currently users pay for legal software with an assurance of quality and support can enable more people to use legal software. The important driver is the match between the costs and the ability of the customer to pay for it. The software companies must find a ways to do this profitably. Because if software companies don't make money they will loose interest in the customers and both would end up as losers.

Innovation often takes a long to becomes economically viable

Innovation often takes a long while before it becomes popular or economically viable. The immensely popular email first came into being more than 20 years ago. For most of the 20 years or so of its existence, the email was popular mostly amongst the educational institutions and research centers. Its popularity in the recent years has grown not just on the back of improvements in technology but also as a result of faster geographical spreading of businesses and the resulting increase in mobility of people. The need to stay connected at low costs was as much responsible for the growth of the email as was the need to exchange information speedily. Look at the solar power; decades after it was identified as a limitless and nearly free source of energy it has gotten nowhere. It's strange that sun's energy, responsible for fueling almost all of life on earth, does not even contribute to a percent of the worlds energy needs.

For Innovation to succeed, a lot of things have to fall in place before an innovation becomes a big business. Improvements in technology, change in demography and needs of the people, the service infrastructure, the cost of the product service, change in perception etc. Sometimes an innovation is pushed into the mainstream by force of regulation and circumstances. E.g. the resolve of the United States after 9/11 to accelerate the research and adoption of alternative sources of energy will push alternative energy sources faster into the main stream. The world finally seems keen on reducing its dependency on hydrocarbons for it's energy needs. Or e.g. the Indian supreme courts directive on clean fuel has suddenly pushed up the demand of CNG kits in Delhi. But these are rare and lucky events for the involved businesses and an innovation may have to wait for a longtime for such events to come by. Even after 20 years of work artificial intelligence is still of interest mostly to in academic circles.
The years 2000 and 2001 were littered with the deaths of on-line business ideas and technologies. The WAP has come and perhaps gone. E-publishing, banner ads and a hundred things in between that were slated to rake in billion of dollars have all but faded away. People found the WebTV and the Network Computer too elementary for their needs. Perhaps it was that Mobile phones and hand held devices that caught their fancy (what with the falling airtime charges). Now those few that bought the WebTV are probably looking at replacing it with the more exciting Playstations or an Xboxs. Needs and desires have been shifting. And e-books will probably take-off once the PC-Pad becomes popular.
With the accelerating pace of change, most entrepreneurs find themselves becoming victims of the race to be first to the market. In recent times that logic has driven most new businesses too far forward. Sometimes putting in place a supply capacity way in excess of the demand. Most innovators and entrepreneurs wish for a fast adoption from the market. Unfortunately in most cases the adoption happen over a long, slow and often painful period. 'People usually overestimate the change that will happen in two years time and underestimate the change that will happen in over period of 5 years' - Says Bill Gates the richest entrepreneur of them all. Entrepreneurs usually find themselves caught between the need to scale down their expectations (to survive) and being the first to the market (to avoid being run-over).

Irrespective of the end result, the innovator-entrepreneur takes a huge personal and professional risk and must be respected for that. The progress of technology and indeed the resilience of the economy is greatly dependent on the enterprise of these people. For proof look at the rising use of the mobile phones and SMS and the growing number of people visiting the newly open coffee shops. Entrepreneurs will need to learn to live through changes impacted by slowdowns, shakeouts, disruptions, demographics and god-knows-what to see their innovation through to success.

India and Capital Efficiency

A recent study shows that Indians do about 4% points better than the Chinese as a return on investment. The scarcity of capital in the country has forced businesses to be more efficient. The return on investment for Indian companies is likely to improve further as we move up in providing higher value-add products and services and as the current inefficiencies in the system are worked out. Over the long term such a trend could translate into much higher levels of wealth creation.
However, the study has in all probability covered only public (and well established companies). Young and potentially next generation of public companies starved of capital would have to pay in terms of time to achieve scale/ breakeven/ profitability/ sustainability. Which could have a negative impact on the growth of the economy.

Need for a scalable training model

Without off-shoring (i.e. doing work for international clients from India as against doing work at the customers location) it would have been very difficult to achieve the scale. Given VISA restrictions, higher cost of onsite service and high attrition amongst people sent on overseas assignments (further escalating operational costs). Off-shoring was rarely considered as an option for large and complex projects, till people at Infosys and elsewhere started working on what they call a ‘Global Delivery Model (GDM)’. Bulk of the work for international clients of these companies are now done in India. The GDM blasted the key bottlenecks for growth for the IT services industry.
The next level of growth in the industry cannot be achieved without investing in building a model for rapid (and low cost) selection and training. Today despite a large workforce in India, it is hard to find enough well trained people to support the growth. The situation is similar in almost all fast growing sectors like retail, textile, media, airlines, infrastructure and so on. Without enough well trained people there is likely to be a rapid deterioration in performance standards, which would seriously damage the prospects of growth.
It’s incorrect to assume that universities and colleges in India are producing a substantial number of qualified people to support the growth. And it is stupid to expect that they will be able to rapidly improve the quality of training to match the needs of a fast globalising economy. More importantly with the current framework of education it is unlikely that the gap between what is taught at these schools and what is really needed at work can be narrowed any time soon.
Interestingly hidden in this lies a large opportunity for entrepreneurs to build systems, tools and businesses for rapid (and low cost) selection and training.

Entrepreneurial India

India ranks relatively high in entrepreneurial capacity, according to the Global Entrepreneurship Monitor (GEM) project's India Report. The findings say that India, with more than 85 million businesses, is the most entrepreneurial country by volume.
But lack of physical infrastructure, educational support, and R&D investments and transfers has resulted in most businesses remaining extremely small.
Most businesses in India remain local businesses fighting with other local businesses for a share of the small local market. Businesses of all sizes find it difficult to scale in India mostly because of a highly fragmented market resulting from artificial barriers, imposed by a poor transport infrastructure and a complex web of local taxes, against free movement of goods and services in the country.
It's the lack of job opportunities that forces people to start these very small businesses in search of livelihood. The biggest employer in India today are hawking, rickshaw pulling and corner grocery stores. All of which would qualify as businesses but are unlikely to scale and create substantial wealth.
However there is a big positive resulting from this high volume of entrepreneurship. It has helped keep some terrible social and political problems from happening.

Our hope

When we started our company to create high technology products in India, we were driven by the belief that some of us would have to go outside the popular trend in India of providing cheaper labor to the world, to creating useful and affordable technology and products for use in India and across the world market. Our hope is that we would some day become a model for change in the industry and business in the country and inspire entrepreneurs everywhere. Our hope is that we as a company will play our part in laying the foundation for the next level of prosperity for the world.

Bet on people's enterprise

I think the Finance Minister is right in pushing for a higher level of lending and lower interest to the Small and Medium Enterprises (SMEs). While many may disagree with the mechanism for implementing it, the principle idea behind it cannot be faulted. The chances are that a SMEs of today will become the billion dollar corporation of tomorrow.
The popular argument is, that the reasons banks are not lending to this sector and charging high interest rates for whatever little they lend, is because of the high incidents of Non Performing Assets (NPAs) amongst SME borrowers. The real reasons for the NPAs lies in high interest rates charged by the banks to the SMEs in the first place.
And the popular suggestion is, to lend credit to those SMEs that have linkages with larger units. Wrong again. A lot of large corporations in India exploit SMEs by delaying payments to them for as long as they can. In effect getting themselves financed by SMEs who borrow at high interest rates from banks. The SME is likely to succumb to cash flow shortage than lack of sales.
One has to treat lending to the SMEs and the small scale as seed capital(venture fund). The Finance minister is absolutely right in pushing for more credit to this segment even at risk of some of it becoming NPAs. The payback for India can be huge. Nearly 50% of the US GDP is contributed by SMEs. For India the ratio is 30%. Quite large considering all the problems they have to face up to in doing business here. Also an indication of how much growth potential there is in this segment. Even if the government has to write-off some NPAs that are created in the process of pushing for greater financial assistance to SMEs, it will be shortchange when compared to the colossal waste that government enterprises (the original choice as growth engines for for the economy) have inflicted on the nation. The Finance Minister is acting as a venture capitalist and as a long term investors, attempting to create some very high yield assets. This of course does not mean that one is proposing a soft stand towards willful defaulters.

Software companies serving local markets are at a disadvantage

Interestingly while there are deep tax concessions to Indian IT services companies serving international clients, for the product companies selling software products (or providing services) to Indian customers, there are no such benefits. This goes against both the stated objectives of the government and industry associations to build a world class IT industry in India. Which in turn requires a faster growth in use of IT in India and a move up towards offering IT products.
Product companies need local markets to be able to build deep understanding of their customer’s needs and perfect their offerings. A tax concession to these companies should be seen as an investment into the future growth of the industry.

Eroding competitiveness of the IT services industry

The appreciation of the Rupee, the rapid rise in salaries (by as much as 36% y-o-y), inflation, increasing tax burden(all tax concessions to the Indian IT services companies to go in the next 7 years or so) and increasing competition form other low cost destinations countries are likely to seriously erode the margins for the software services companies in India. The remedy lies in growing the volumes, investing in training to compensate for skill scarcity (which in turns pushes salaries rapidly) and moving to deliver higher value services and products.

Unsustainable trends

Most young people in India today (especially in IT) are jumping jobs too frequently in search for bigger paychecks. I believe this to be both a self-destructive tendency for the individual and a serious long term damaging trend for the performance of the industry. The rising cost of salaries without a corresponding capability and productivity improvements is likely to erode the key advantage of lower cost that the Indian IT industry has been enjoying for all this while. Individuals moving from job to job are likely to accumulate less and less depth in capability even as they add years to their experience. Such people are likely to run into a dead end soon. In their desperation they are likely to try new tricks such as taking up courses to upgrade their qualifications in their bid to make it for the next higher paying jobs (a popular choice these days is management courses). What is really needed is not more qualification but building up of ones capability and performance. Capability and performance result in economic value add which can form a more sensible and sustainable basis for improving ones earning.

Build capacity

MNCs have responded to the lower cost challenge from India by putting up their development centers here and offering much higher salaries to pull away people from the Indian companies. It helps them in two ways 1. It somewhat destabilizes the challengers (Indian companies) and 2. It gives them a lower cost base for serving their customers and compete with Indian companies. Indian companies have responded by quickly upping their own salary levels (foolish but somewhat difficult to avoid for now) and pushing out towards cheaper destinations (not altogether a bad choice).
The right long-term choice however lies in training, improved processes and investment in brand building.
Currently a large part of India's potential workforce is poorly trained or unemployable (thanks to the dysfunctional education system in India). The resulting scarcity of qualified people is driving up the salary levels, quickly eroding much of the low cost advantage. If Indian businesses instead actively choose to invest in training the larger set of the not so well trained people to enable them to become more capable and employable, they will continue to have a good supply of low cost workforce. Extending their low cost advantage over a longer period of time. More importantly it can enable a huge number of people to enter the job market, lifting their earning potential. It will also force the ‘better trained’ people towards improving their performance and capability. Which would in turn benefit the industry and economy as a whole. What comes to ones mind is the excellent work done by Telco (in Pune) and Reliance (in Jamnagar) in transforming essentially agrarian local people into a very capable industrial workforce
Secondly Indian businesses must improve their processes to be able to take work form relatively junior/inexperienced staff and ride over disruptions that may be caused due to attrition. The Pioneering work done by Infosys on this stands out as an example for all to replicate.
Thirdly Indian companies must invest in building their own alternatives products and brands over a longer term to take the war to the enemy camp.