Disclaimer: The analogies made to present a case for neo-colonialism may be selective and diluted, as there are many other factors at play in history and in modern times that have not been taken into account including the fact that colonial times were truly repressive in the absence of self-rule. Having said that, it should be a thought we should entertain so that it is possible for us to envision a sustainable future for the services sector of the Indian economy.
Envisioning the future
India got its independence 70 years ago in 1947, post World War II, after multiple decades of a freedom struggle, with Mahatma Gandhi being at its helm. The freedom struggle was important because it helped envision an India free from the influence of British colonial forces and set the foundation for the same.
Although, the India of the 21st century is free from colonization, it still is under influence from foreign powers such as the United States and European countries in terms of the output of our services economy. This influence of developed countries over developing countries due to globalization is a form of neo-colonialism.
Is India ready to envision a future with a service sector heavy economy, if the outsourcing opportunities were to dissipate? If not, then aren’t we skewed in terms of our infrastructure, education, systems and output towards the needs of the developed economies? What if we were to have a shock to this system that could potentially leave us depleted? What if that shock was not decades in the future, but within a few years?
With the advent of Artificial Intelligence and Elon Musk warning us of its immense potential, our outsourcing systems could be the victim of automation and lead us into a systemic shock. Unless a ‘freedom struggle’ is around to help us envision a sustainable India and set a foundation for it, it is hard to set things in motion and prevent disruption to our economy with such a shock. Perhaps, there is one, a “free-dot.com struggle” being led by the new age entrepreneurs who are envisioning and helping create an India where we don’t depend primarily on firms based in the US or Europe for business and free ourselves from an implicit need to cater to the West.
Will history repeat itself?
As a comparison, let’s look at a rough trajectory of British colonialism and look for similarities in the neo-colonialism that is influencing our services sector economy in modern times.
- Entry for trade: Britishers came to India for trade and established the East India Company in 1600. The main purpose of the Britishers to come to India was to establish trade relations with the country. The East India Company was primarily a commercial enterprise.
- Redefining the economy: During 1780–1860, India changed from being an exporter of processed goods for which it received payment in bullion, to being an exporter of raw materials and a buyer of manufactured goods. By the second quarter of the 19th century, raw materials consisting of raw cotton, opium, and indigo, accounted for most of India’s exports.
- Building infrastructure & systems: The Britishers invested in developing the infrastructure of India which included railways, roads, canals, mines, sewers, plantations and building cities including Bombay, Calcutta and Madras along with universities and museums. They also established key systems including a judiciary, army, civil services, democratic ideals and succeeded in social reforms such as the banning of Sati.
- Creating a dependence: In the 1880s, about 20% of Britain’s total exports went to India. By 1910 these exports were worth £137 million. India also exported large quantities of goods to Britain, especially tea, which was drunk or exported from Britain to other countries. The Indian army was probably Britain’s single largest human resource which was used by Britain all over the world, including the wars in South Africa and the World Wars.
- Systemic shock (World War II): Britain was bankrupt after World War II and amid a changing landscape of the world economy, with the US rising to power, it entered a wave of de-colonisation. This shock, along with a Labour government that advocated for de-colonisation led to the British leaving India.
- India left depleted: Once the British left, due to a dependence built earlier, India was suddenly left depleted with only a few industries thriving which were erstwhile catering to the British empire.
- Freedom fighters led the way ahead: Mahatma Gandhi’s ‘Hind Swaraj’, his ideals of Satyagraha and Ahimsa, along with Nehru’s socialist influence helped envision a new India post-independence. Needless to say, all freedom fighters had to battle for decades to set the foundation for a roaring India.
- Entry for trade: The Indian IT industry has existed since the early 1980s, but it was the 1990s which saw globalization and liberalisation at play, leading to the emergence of outsourcing as a way for US and European companies to get access to cheaper labour. Some of the earliest players in the Indian outsourcing market were Texas Instruments, American Express, Swissair, British Airways and GE, who started captive units in India.
- Redefining the economy: The services sector is not only the dominant sector in India’s GDP, with a 58% contribution, but has also attracted significant foreign investment flows, contributed significantly to exports as well as provided large-scale employment. Indian IT exports are projected to grow at 7-8 per cent in 2017-18 to US $126 billion, in addition to adding 130,000-150,000 new jobs during the same period. Indian IT has been supporting India’s economic ascent for the last few decades, with TCS being crowned as the company with the largest market capitalisation of US $100 billion.
- Building infrastructure & systems: The outsourcing boom has led to large scale employment, setting up of commercial infrastructure needed for office space as well as creating a demand for a particular skill set in the workforce. This demand in turn led to creation of education systems that cater to it and therefore a majority of Indians are inclined to obtain degrees in Information Technology/Engineering/Computer Science in order to compete in the market.
- Creating a dependence: India is the biggest avenue for outsourced IT work, taking up 65% of the US outsourced IT market in 2008, executed by educated young people for 30-40% of the cost of an insourced worker. By 2018, India is expected to have 5.2 million developers to the US’s 4.5 million. Offshoring from the US is expected to slow, and possibly dissipate a decade from now.
- Systemic shock (Artificial Intelligence): Research firm Gartner found that by 2018, 40% of outsourced services will leverage smart machines, “rendering the offshore model obsolete for competitive advantage.” This trend is likely to grow over the coming decade. After all, it was a cost advantage that lured US firms into outsourcing to India, and a bigger cost advantage by using automation could lure them away from this model.
If history were to be mirrored, in case of a systemic shock like the advent of Artificial Intelligence, India would be depleted of its human resources and would have to start afresh to tackle the shift in the economy. The infrastructure and systems already built would either have to be dismantled or re-channeled into another productive industry. Unless, we have a “free-dot.com struggle” – a movement that builds such a productive industry and helps envision a sustainable India.
“Free-dot.com fighters” leading the way ahead?
The factors of production are that of land, labour, capital and entrepreneurship. If India’s advantage till now has been cheaper labour, a future possibly exists where the advantage turns to entrepreneurship.
India’s buzzing entrepreneurship culture is surely making a mark in the economic landscape. Indian unicorns such as Flipkart, Ola Cabs and PayTM are utilising not just IT systems, but also digital payments, IoT and other 21st century systems to set the foundation for the future. The budding entrepreneurs are fighting to stay relevant, generate value and help the Indian consumer get more sophisticated. Is it therefore hard to envision an India where the current IT industry caters inwards?