January 08, 2004
The Little Things
Posted by Gordon Smith

I have been in Delhi for nearly a week, long enough to become accustomed the most conspicuous signs that I am in a Third World country. Over the past several days, I have started to notice the little things that indicate how far India still has to travel before it reaches First World status. The moth balls in the sink (to dissuade insects from coming back up the system), the regular electricity outages (the lights just go off without warning; fortunately, all of the computers have a backup power source), and workers constructing highways with homemade tools.

I also notice little signs that the economic tide is turning. Where are the beggars at the Hindu temple? Even our guide is surprised. Advertisements for mobile telephone line a street that otherwise looks like it was transported from National Geographic. Children and mothers walking the streets in modern, Western clothes. Some people don't like these changes, but many people here are celebrating an economic revolution. The consensus seems to be that it is still too early to tell, but by all accounts, India is making great strides.

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Is India Entrepreneurial Enough?
Posted by Gordon Smith

We often associate high tech and entrepreneurship, but the two do not necessarily have to be joined. When I look at Indian industry, I see an enormous amount of technological prowess and very little in the way of developing new firms. Outsourcing, call centers, captive software development ... India has perhaps been distracted by the lure of easy money. Soon India will need to develop its own billion-dollar ideas. Perhaps more importantly, it must learn to implement them.

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Posted by Gordon Smith

One of the core attributes of economic relationships is exit. When people form relationships, they usually create rules about exit. Sometimes, people agree that any party to a relationship can exit at will. In other circumstances, exit may be constrained by contract or regulation. Tonight, while riding the bus to another event, I spoke with an economics professor from the Management Development Institute, which is hosting our group. He told me that India does not have a bankruptcy code. Does this strike anyone else as problematic?

OK, there was some exaggeration in my lead. While efforts have been made to craft an American-style bankruptcy code, Indian companies currently have to deal with the Sick Industrial Companies Act of 1985 (SICA), which creates a government Board for Industrial and Financial Reconstruction (BIFR). Essentially, what happens here is that "sick" companies are referred to to BIFR, which then has the primary responsibility of preserving jobs. Most of the companies that get to BIFR are merged out of existence.

There is widespread agreement that SICA does not get companies into the system quickly enough. Moreover, the government's role is focused on preserving jobs. In the case of company failure, for the best of all concerned, a quick death is best. My new professor friend expressed the belief that the current law discourages company formation by those who are concerned about exit options.

Interestingly, he tells me that startup IT firms are relatively insulated from the effects of this law. For one thing, the number of employees affected by a firm closure of this type is typically very small, thus dampening the sense of catastrophe. Perhaps more importantly, most knowledge workers don't have time for a court to hear their grievance. Plus, they have a (new) job to do.

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Object Lesson in Transitional Economies
Posted by Gordon Smith

One event that has obtained symbolic importance for the participants in this faculty development seminar happened on the second day of classes. Professor Mushirul Hasan of Jamia Milia University was speaking about "Medieval and Modern History of India." Halfway through the lecture, one of my colleagues asked Professor Hasan if he could help us to understand the importance of history to India's current economic development. Before the good professor could answer, two things happened simultaneously: his mobile phone rang in his coat pocket and the lights went out in one of Delhi's regular power outages. Professor Hasan answered the phone and disposed of the call in the dark while the group of U.S. faculty looked on in amazement. He resumed the lecture and the lights came back on a few minutes later.

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