Financial Express, July 1, 2013

A reform success story for India

 We are used to highlighting the shortcomings of economic reform in India, both in process and outcomes. These shortcomings are particularly apparent now, when the economy is struggling on several fronts: growth, inflation, and the external balance. In this context, it is good to revisit an ongoing success story of Indian economic reform: its tax system. In the last two decades, India has made tremendous strides in terms of reforming income taxes and consumption taxes. These reforms have included improvements in tax policy as well as in administration. The former has helped the latter: rationalising tax policy has made tax administration easier to conduct effectively, but there have been direct improvements as well in the technology of tax administration.

Better tax policy has meant cutting inefficiently high rates, whether in the income tax structure, or in areas such as import tariffs. In the case of consumption taxes, it has meant replacing a complicated tangle of sales taxes and duties, often piled on each other, with a simpler, more transparent value added tax (VAT). As the VAT nomenclature implies, this avoids the problem of taxes being applied to quantities that already include other taxes—a cascading effect that can create unintentionally high rates, and multiple inefficiencies. Better tax administration has been built on the foundation of new information technology systems, which support mechanisms such as deducting income taxes at source for those who pay them, and tracking of purchases and sales required for VAT credits along the value chain. 

The goods and services tax (GST), which is inching toward implementation, represents an important new step in the process of Indian tax reform. The sooner it is put in place, the better for the economy. In particular, there is some reason for thinking that the GST will give the central as well as state governments a firmer, broader revenue base, which is less subject to political distortions than is the income tax: the GST is a VAT, better coordinated than the present system, and applied more broadly and consistently. A key institution in the process of introducing the GST, as it was earlier for introducing the VAT and for managing state sales tax incentives, is the Empowered Committee of State Finance Ministers (EC). This EC met in May, and then, on June 7, its chairmen met with representatives of industry associations and consulting firms, where an EC paper formed the basis for discussion. This discussion paper is a model of clarity, and illustrates how this complicated process of introducing a major overhaul of the tax system is proceeding. There are several facets of the process worth noting.

Technical policy formulation: There is a clear understanding of the technical issues involved in introducing the GST, including changes in revenue receipts at different levels of government, trade-offs involved in specifying tax bases in different ways (based on turnover levels), and mechanisms for administration (especially across different levels of government). One might expect this clarity, given the time it has taken to get where we are, but time has not been a guarantee of quality in other cases of policy formulation. There is also a clear use of technical inputs from the main national source of such expertise, the National Institute for Public Finance and Policy.

Political management: There is a clear understanding of the constitutional issues involved in introducing the GST, of course, but also a polite and pragmatic statement of the needs of the states in terms of some protection against revenue uncertainties that might come with the reform. In this context, the national government appears to have been somewhat lax in its political management of a complex Centre-state issue—the compensation being requested by the states seems to be quite small relative to central tax receipts, or even as a percentage of the fiscal deficit.

Institutional innovation: The creation of a GST Network (GSTN), which will be a non-profit company with ownership shares of the Centre, states, National Securities Depository Limited, and three selected financial institutions. The GSTN will provide a common IT infrastructure to support the introduction and implementation of the GST. As the EC discussion paper elucidates, issues of monitoring and control versus costs of compliance, can all be dealt with effectively with a combination of the right policy framework and a solid information infrastructure.

One hopes that the EC discussion paper, which distils many years of discussion and analysis, marks the end of the process of agreeing on the details of the GST, and the beginning of efforts to make it happen. The GST will be a major milestone in Indian economic reform. Tax reform has not been perfect. There is much left to do. For example, the GST, in coordinating taxes on the same bases (in this case, business sales) may provide a model for reform of the income tax system, allowing States along with the Centre to tax personal incomes. The GST use of information infrastructure might point the way to methods for strengthening property tax systems across India’s creaking, bursting cities, as well as other aspects of local tax systems. Tax reform is important, and it is very much alive in India.

Financial Express, May 31, 2013

India’s China puzzle

 The recent visit to India by China’s new Premier, Li Keqiang, led to a statement of cooperation covering a wide array of topics, and was followed by much sceptical analysis in the Indian media. Aside from history (the harkening back to the 1954 Panchsheel Treaty seems particularly ironic), the recent Chinese actions in Ladakh made the Chinese premier’s goal of trust-building somewhat more difficult to accept on the Indian side. An extreme pessimistic position is that China is engaging in diplomacy that will allow it to pursue its long-term strategic goals, by making promises to India of good things to come from cooperation. The Chinese leader’s visit certainly did seem to come across as a charm offensive, with one Indian academic describing him as “exuding warmth.” The rhetoric of the two population giants cooperating for peace and stability and for economic development is certainly appealing. On the other hand, strategic analyst Brahma Chellaney has termed China’s approach as coercive diplomacy, strengthening its hand on border issues with its incursion, while appearing to be magnanimous in its official diplomacy.

India has no choice but to talk with China. Their geographic proximity and the range of issues where their interests intersect make that imperative. The problem is that the deck is stacked against India in many dimensions: whether it is China’s economic advantage, its military prowess, or its geographic position (particularly with respect to trans-boundary rivers). Cooperation may lead to mutual gains, but how those gains are divided depends on the relative bargaining strengths of the two parties. On almost every dimension, India is in a weak bargaining position. In some cases, as in the boundary dispute, China can almost completely call the shots. India has to change the game it plays.

In analyses of the Chinese premier’s visit, it was certainly well-recognised that China wishes to counter India’s attempts at economic or strategic closeness to the United States, and also, to some extent, to Japan. But it is precisely ties such as these that will give India some leverage in its dealings with China. Indeed, there is a long list of Asian countries with which India should be pursuing closer economic or strategic relations. In dealings with these countries, India has an advantage over China, which has a trust deficit with many of its neighbours, not only with India.

I outlined a strategy for India in two columns last year (August 14 and 22, 2012) that emphasised broader engagement with other countries as alternatives to China, as well as a concerted effort on the domestic front, in areas such as infrastructure. In the joint communiqué this time around, the Indian side encouraged Chinese investment for infrastructure development. But relying too much on the Chinese for India’s critical needs in this sector will be a mistake, precisely because it fails to reduce the asymmetries in bargaining power between the two nations, even if there are mutual gains from cooperation. Increasing India’s economic strength will take time, and physical infrastructure is not the only area in which India is weak relative to China: health and education also stand out as sectors where India lags more than it should. Fixing all of these areas will take time.

One area where the financial resources needed are relatively small (although there may be other, non-financial hurdles) is that of India’s foreign policy institutions, in particular the Indian Foreign Service. If India is to pursue a strategy of global engagement, in which China is just one of many partners—its influence counterbalanced by networks of foreign ties—the size of the IFS and its quality will need to increase. It is well-recognised that the IFS is small relative to India’s size, even allowing for the country’s relative poverty. Brazil and China have larger numbers of diplomatic personnel, and even tiny Singapore has almost as many professional diplomatic personnel (as opposed to support staff) as India.

There are many areas of improvement needed, besides adequate numbers: a 2009 article by Daniel Markey in Asia Policy makes a telling and unfavourable comparison of India’s training of its diplomats with the case of China. Markey also highlights the relative strength of China’s foreign policy think tanks. And the comparison of universities across the two countries only emphasises India’s weakness.

The puzzle for India is that it cannot avoid China, but it is currently ill-equipped to engage with its neighbour in a manner that protects and enhances its own interests. To deal with China, India needs a strategy of broader economic and strategic engagement, but it also needs the means to design and implement that global engagement. To accomplish that, India needs to invest very specifically in the human and organisational capital required for that task. This is not a trivial task, but it does not require the scale of resources directly needed for domestic economic growth. The challenge will be to overcome institutional inertia, but raising the size and status of, and support for, India’s diplomatic corps should be easier than the broader reform of the bureaucracy that is also needed.

Financial Express, May 27, 2013

Managing India’s manufacturing

  In my last column, I suggested that the quality of management may be a critical stumbling block to increasing the size of India’s manufacturing sector. The clues I gave last time came from studies supported by the National Manufacturing Competitiveness Council. But there is still more evidence, from different academic studies. For example, Nicholas Bloom and John van Reenen, in a study published in 2010, found that Indian firms with strong management practices are comparable to the best US firms on this dimension. However, there is a thick tail of badly-run (by their measure of management practices) Indian firms, which often neglect basic tasks such as collecting and analysing data, setting clear performance targets, and linking pay to performance. 

In another study, Bloom and different set of co-authors performed a controlled experiment with a sample of Indian textile firms, and found that the treatment firms improved productivity by 17% over the control group, by implementing specific improvements in operations. The focus was mostly on the basics of operations, such as the organisation of the factory floor, how parts were stored or moved around, how inventories were logged and stored, how machinery was maintained, and so on. In the experiment, the advice came from high-priced consultants (whose services were paid for by the researchers), but the improvements were not rocket science, and did not seem to require expertise at the level of a modern business school graduate. Finally, in a study I did last year with Shruti Sharma, looking at the productivity effects of investments in information technology in Indian manufacturing plants, we found results consistent with the hypothesis that the quality of management mattered for determining these impacts. 

Ultimately, the pressure to remove inefficiencies in manufacturing has to come from competition: last week I noted that inefficient firms still made high profits, and that also seemed to be the case with the sample of textile firms studied by Bloom and his co-authors. But this does not foreclose the possibility that removing constraints on management quality will make things better. Certainly, if and when regulatory and business environment constraints on Indian manufacturing get relaxed, the availability of appropriately skilled management will be critical. 

How is this availability to be achieved? India has certainly expanded graduate management education very rapidly. However, there are problems of quality in many of the new institutions. Even in the best management schools in India, the focus is very much on fast tracks to success, typically through focusing on finance or marketing or general management. Just as in the United States, classic roll-up-your-sleeves, shop-floor management is quite neglected in India. However, for the US, the issues are different: focusing on finance and marketing has taken away from high-end innovation. This is why many Silicon Valley firms still shy away from hiring MBAs, and prefer to train their managers with customized in-house courses. Such courses are difficult for smaller firms to afford, though, and will not provide the large-scale solution that India needs. 

Indian manufacturing, if my reading of the evidence is right, needs basic managerial training, and lots of it – not just for fast-track executives, but for every level from factory supervisors on up. The implication is that not all of this training has to be in the form of MBA degrees or equivalents. Indeed, short certificate courses are probably best suited for many of the skill gaps that lead to basic inefficiencies on the shop floor. Given the shortage of faculty, the solution is going to have to include development of online materials that can be accessed by large numbers. 

One can envisage this effort originating at the level of individual industries, since manufacturing processes can be quite specific to the nature of the product. Of course, there are many management techniques that are more generic, such as basic accounting or inventory tracking. The Indian information technology industry is well known for training its workers, most of whom are skilled professionals, and for using global standards of certification. In their case, they were able to generate the cash flow needed for internally supporting such efforts, but some kind of tax credits may be a good idea for manufacturing. 

One hopeful example is the Munjal Global Manufacturing Institute, at the Indian School of Business’s Mohali (Punjab) campus. This is being developed in collaboration with the Massachusetts Institute of Technology, and will probably be aimed at the high end of the market, but it may provide a role model for mid-market offerings. The key is for industry to be involved in shaping the curriculum and working with faculty (preferably including ex-managers), so that the connection to shop floor challenges remains strong. 

Programs that pull in experienced manufacturing managers from around the world to share their knowledge will also be more valuable. Of course, creating and delivering such programs has its own management challenges and constraints, but a start has to be made, otherwise national policy goals will remain pipe dreams.

Indian Manufacturing: Getting to 25 Percent

Financial Express, May 16, 2013

Indian Manufacturing: Getting to 25 Percent


India’s manufacturing sector has played an unusual role in the national growth experience, compared to many other developing countries. In 1950-51, manufacturing was about 9% of GDP. By 1979-80, this ratio came very close to 15%, but thereafter has barely increased. In this context, the National Manufacturing Policy’s (NMP) goal of increasing manufacturing’s share to 25% by 2022 is ambitious indeed. 

One of the motivations for focusing on manufacturing growth is, of course, its potential to generate employment for the unskilled or semi-skilled. South Korea provides a striking example, having increased the manufacturing sector’s share of employment from 1.5% in 1960 to 26.9% in 1990. The NMP states, in fact, that “over the next decade, India has to create gainful employment opportunities for a large section of its population, with varying degrees of skills and qualifications. This will entail creation of 220 million jobs by 2025 in order to reap the demographic dividend.” 

Recent assessments about achieving this goal are pessimistic. The Economist magazine titles its article on the subject with “What a waste: How India is throwing away the world’s biggest economic opportunity.” This article goes on to list the well-known case for reforms in labour markets, infrastructure, education and governance, and there is no need to go over them here. With respect to manufacturing, it is also helpful to understand the state of play at the ground level. 

In 2002, Pankaj Chandra and Trilochan Sastry summarised the findings of the previous year’s National Manufacturing Survey (NMS), which focused on the organised manufacturing sector, representing less than 1% of the country’s firms at the time, but employing 19% of its industrial workers and contributing almost 75% of gross value added. They concluded, “Manufacturing strategy of most firms is still not addressing certain fundamental issues of competition: need to change product mix rapidly, need to introduce new products based on indigenous R&D, need to use process innovation and quality improvement process to reduce cost of operations and consequently price of product.” They also noted the lack of spending on R&D, and the relatively small numbers of employees with advanced degrees, as well as pervasive supply chain weaknesses. 

In 2009, Pankaj Chandra analysed the next NMS, which was conducted in 2007. Supply chain management remained a key weakness in the later survey, and investments in R&D remained low, despite perceptible benefits to innovation. The firms surveyed indicated a focus on quality, and of trying to achieve that through process improvement, but large scale and low cost were not major goals of the surveyed managers. Chandra’s report also argued that management weaknesses contributed to lack of innovation, as well as to inefficiencies in plant location and supply chains. 

My own reading of the evidence presented suggested that there was under-investment in both physical and human capital, reflecting high financial costs as well as an unfriendly policy environment. At the same time, Indian manufacturing firms were able to make strong profits in this period, despite their inefficiencies, suggesting a lack of adequate competition in manufacturing. In other words, a lack of competitiveness was partly traceable to a lack of competition. 

A 2010 joint study by the National Manufacturing Competitiveness Council (NMCC) and the National Association of Software and Services Companies (NASSCOM) focused more specifically on information technology use, but it made several similar points as the two NMS studies, with newer survey data to back them up. It concluded, “ICT adoption levels in manufacturing firms were primarily influenced by their management team. More than three-fourth of the companies especially in the micro and small firms category are strongly influenced by the owner/management team for their ICT investments.” 

All of these analyses point to a somewhat neglected aspect of the deficiencies of Indian manufacturing, namely the lack of adequate specific human capital in management. The NMCC-NASSCOM report focuses on increasing IT adoption in Indian manufacturing, but its general recommendations for a systemic approach are more generally applicable. The key is broad participation from many parts of the business ecosystem. The report emphasizes the potential role that can be played by national and local industry associations in developing best-practice business process re-engineering guidelines to cope with the organisational changes that are often needed to benefit from investment in innovations. Human capital development to overcome lack of appropriate skills can be addressed through improving the quality of government provided training programs, and tax incentives for firms to spend on this training. In fact, the latter approach of incentivising the private sector might be the most efficient. 

The bottom line is that creating employment requires having enough people with the skills to manage employees in situations of competition and innovation. There are many larger issues of economic reform, across the board, which affect productivity and employment. Indian managers operate in a difficult environment. It is a long haul to change that environment, but a more immediate impact may come from promoting managerial skill development.

India's Security: Food, Water and Energy

Financial Express, May 14, 2013

India's Security: Food, Water and Energy

The conventional notion of national security refers to a country’s capability to defend itself against, or to deter, military aggression. The central idea of security, though, is protection against downside risk, and that concept applies to a range of variables, though all of them ultimately feed into material well-being. In the modern world, risks come not just from deliberate attacks, but also from withdrawal of access (e.g., to goods, resources or technology) and simply from the forces of nature. 


What is the state of India’s security in this broader perspective? This is the right question to ask, rather than the more headline-grabbing one of India’s superpower status. A report from the London School of Economics a year ago asked the question “India: The Next Superpower?” seemingly as a straw man to criticise all that is wrong with India internally. Recently, The Economist magazine cautioned that India is about to become the world’s fourth military power, but lacks a plan to live up to this status. These are useful but fragmentary inputs into the question of India’s security. 

A better starting point is the perspective provided by Professor Upmanu Lall of Columbia University. For several years now, he has been explaining the water-energy-food nexus, and its implications for material security. Essentially, without an integrated and focused approach to water, energy and food security, India will face severe challenges in the near future. While the links between these three things are common across the globe, India’s situation is especially dangerous, for two reasons—one beyond the country’s control, the other very much a function of policy failures. 

The first reason for India’s exceptional security challenge in water, energy and food is a relative lack of natural endowments in water and energy resources. Per capita water availability in India is much lower than in other large, populous countries. Its ability to generate energy from domestic fossil fuels is also relatively poor. On the other hand, India has addressed its past food security problems by relying on water and energy-intensive agricultural techniques to increase yields. In regions such as Punjab, these techniques are leading to ecological disaster, which will destroy food security. 

The problem is not so much with the techniques, as with completely irrational and destructive pricing of water and electricity: an enormous and avoidable policy failure. Free electricity to farmers has led to excessive groundwater depletion, bringing underground aquifers close to irreversible collapse. The water that is pumped is also not priced, being treated as a free good by farmers. The problem is not just in Punjab. Professor Lall has been describing similar problems in states such as Gujarat and Andhra Pradesh, with different cropping patterns and different participation in the central government’s food procurement system. Hence, while foodgrain procurement policy is partly to blame, and is particularly a problem in Punjab, the deeper problem is an almost complete lack of attention to the provision of sensible incentives for the use of water and electricity. Areas in Gujarat are depleting groundwater unsustainably to grow vegetables and dairy fodder, for example. 

Of course, there is more to India’s energy security than the wasting of scarce electricity for excessive groundwater pumping. Development of renewable energy sources, as a way of cutting down on problematic fossil fuels, is an area where India is lagging, relative to where it needs to be. And the management and development of fossil fuel resources for energy production in India is also well known to be inefficient. Food security policy, too, has other dimensions, including deficiencies in pricing, infrastructure, and marketing. 

Still, there is something particularly striking about policies that threaten to simultaneously destroy food and water security, while making a significant dent in energy security. I have not been able to find a clear discussion of these security issues at the national policy level, where it belongs. Professor Lall’s voice comes from a base in American academia, and he is well positioned to discuss, as he has in public forums, the potential technological and institutional solutions that might emerge from the US or other developed countries, for more efficient agricultural water use, in particular. But there has to be a receptive situation in India for such solutions to be evaluated, adapted and implemented. 

India’s policymakers are certainly right to worry about its global status, military security, macroeconomic stability, and so on. A country the size of India is going to matter more as it continues on its economic growth path. But it is easy to lose sight of problems that are accumulating in multiple locations, mostly in barely visible ways, as a result of decades of poorly chosen policies. The biggest threat to India’s security may be the looming problems in water availability and food production, and the associated drain on energy resources, from current policies. Ignoring this threat will not just risk India’s possible superpower status, but its very being.

Financial Express, April 11, 2013

Rebuilding Punjab

 The state of Punjab in India represents an important case study of development gone awry. Partition in 1947, which wreaked havoc on the region, was followed by surprisingly rapid recovery and progress. An infrastructure of roads and market towns was created in the 1950s, followed by the Green Revolution of the 1960s, which saw Punjab become the breadbasket of India. Punjab became the richest state in India, measured by per capita income.

More recently, Punjab’s growth has lagged the rest of India, and it has slipped down the league table of states. This is not worrisome in itself, since the state’s growth has not stopped, and it remains one of India’s better-off states. The bigger worry is looming ecological disaster that will harm Punjab irretrievably, and with it, the whole nation of India.

Last month, Inderjit N Kaur and I organised a conference on rebuilding Punjab at UC Santa Cruz. Participants such as Rajinder Sidhu of Punjab Agricultural University emphasised the criticality of the groundwater situation in Punjab, with rapidly falling water tables, and the distortionary policies, such as free power for farmers, that have accelerated the problem. Upmanu Lall of Columbia University noted that drinking water pollution has also become alarming, so a health disaster will accompany the desertification that comes with groundwater depletion. Lakhwinder Singh of Punjabi University discussed a range of issues, including poor governance, falling investment, monopolistic middlemen, poor educational outcomes, and lack of adequate modern infrastructure, with many of these points coming out in presentations by Dr Sidhu as well.

Pritam Singh of Oxford-Brookes University and Jugdep Chima of Hiram College brought out the complexities of interactions among economics, politics and society, and there was often agreement that state-level politicians have been failing on the job. Poor revenue effort, high fiscal deficits and corruption have been taking their toll on the economy. There were mixed views on the legacy of the militancy and repression of the 1980s and 1990s, which still looms large in many lives. In a separate analysis, Swaminathan Aiyar has dismissed this history as an excuse or explanation for the current crisis of Punjab, preferring to focus on the more recent failings of state governance, but perhaps the two are connected. At the conference, Pritam Singh argued that the lack of an effective opposition party in Punjab has hampered the workings of normal politics as a mechanism for responding to constituent needs and wants.

It is certainly plausible to argue that the political economy of the Green Revolution model has trapped Punjab in an unsustainable and undesirable equilibrium of depleting its natural resources and neglecting its human resources, to keep growing grain for the country’s public distribution system. The seeds of the Punjab crisis, which included issues of water needs amplified by adoption of new varieties and cropping patterns of wheat and rice, perhaps were sown along with the technological innovations of the 1960s.

Swaminathan Aiyar, in his work that emphasises economic freedom and a reform agenda firmly rooted in allowing more room for markets to flourish, pushes for fiscal consolidation and a better environment for doing business. On the other hand, some of the perspectives at the conference emphasised the role of the government in providing the infrastructure and complementary inputs for private sector success. Aiyar notes the distortions of markets in the current Punjab economic system, but perhaps not enough the crisis of drug use and similar problems of societal values. One only has to look at the US to see that economic growth does not automatically translate into a society with greater general well-being.

One of the goals of the conference was to examine the larger, more global, cultural, societal and historical factors that feed into the current state of Punjab’s economy and polity. Pashaura Singh of UC Riverside, Gurinder Mann of UC Santa Barbara, Harpreet Singh of Harvard, Van Dusenbery of Hamline, Supreet Kaur of Columbia, and Inderjit Kaur of UC Santa Cruz discussed various aspects of these factors, and the role of the Sikh diaspora, in particular received some attention. How one creates a social vision, aligns the interests of the leaders and the led, and creates space and momentum for change were all questions that were raised, if not fully answered.

Answers are urgently needed, though. The sense of the conference discussions was that there is no more scope for muddling through—Punjab has to go up or else it will go way down. This is a small state in India, one that often gets lost in the shuffle of national policymaking, but the repercussions of a collapse of Punjab’s economy will have huge implications for India. Already, it is clear that the national food policy is inefficient and even destructive. It should be clear that changing that policy will benefit energy and water security as well. The national government should be making the Punjab economy a national priority.

Financial Express, March 21, 2013

A view from Silicon Valley

 Silicon Valley, a short distance from where I teach, is aptly viewed as one of the most important symbols of India’s success. This is paradoxical, of course, because the success of Indians in the Valley (as it is often known locally, with an implicit sense of uniqueness) has come at a cost to India—the talent that thrives here has been lost, in some sense, to India. On the other hand, the success of Indians here in the Valley has served as a powerful signal to those who did not migrate, of what knowledge, talent and hard work can achieve. Just as importantly, it has signaled to non-Indians what might be possible in India, in the right circumstances. 

Every year, for several years now, I have participated in a panel in the Valley that discusses India’s Budget in the context of the country’s economic prospects. My fellow panelists and the entire audience are representative of the area’s ecosystem—smart, well-educated, experienced entrepreneurs and financiers, with global perspectives. Their views on India are worth noting. Here is what I took away from their remarks earlier this month. 

It was unsurprising that the businesspeople expressed dissatisfaction with the current state of the laws governing the use of land and of labour. These are well-known, long-standing issues that successive Indian governments have not managed to come to grips with. What struck me, though, was a sentiment that, even worse than inefficient or overbearing regulation, uncertainty about policy has been a major recent problem. The prime example of this, of course, is the General Anti-Avoidance Rule (GAAR), proposed in last year’s Budget to general consternation. The postponement of GAAR, and a promise to rethink provisions that have been criticised as poorly drafted, have created a period of prolonged uncertainty, which can act as a major deterrent to investment. There was appreciation of the current finance minister’s outreach to foreign investors, but a clear sense that ultimately, it is the certainty of the rules in place that matter, not just wooing through words. 

A closely-related concern that I heard expressed was that India’s rules for business also lack clarity. This, too, is an old problem, but one that has been growing worse in a more complex economic world. Transfer pricing was raised as a major issue in this context. There is a connection to GAAR here too, and national government concerns about tax avoidance through transfer price manipulation are common across many countries. The point here, though, was that poorly written rules unnecessarily increase litigation and other administrative costs: businesses have to pre-emptively spend on trying to get clarification in advance, or they have to bear risks of lawsuits, or both. 

On the positive side, panelists and audience members emphasised that Indian-Americans in senior positions in high tech companies have made a difference in those companies’ strategies towards India. The importance of personal knowledge and networks has been recognised of course, and the Indian Consul General in San Francisco plays an important and visible role in nurturing some dimensions of these, but my outsider (and possibly not fully informed) view is that India’s government could do more to deepen and systematise these networks of Indian-born leaders of high tech companies, to benefit India’s economy. 

As it is, I got the sense from other remarks that India’s political leaders often still do not understand how business at its best can work, and the importance of innovation in its many dimensions, including technology transfer and adaptation, as well as indigenous research and development. One venture capitalist in the discussion remarked that greenfield foreign direct investment (FDI) remains relatively low. Another noted the lack of coordination across ministries. Another observation was on the arbitrariness of some kinds of FDI restrictions, such as those governing e-commerce. One senior investor and entrepreneur suggested that the push for a semi-conductor manufacturing plant did not make sense, either in generating employment or being a fruitful avenue for spurring innovation. 

One can debate these kinds of specific issues, which have to do with the innovation and employment potential of various technologies or combinations of technologies. What is perhaps missing for India is a systematic dialogue with Silicon Valley. The US-India Business Council, which co-sponsored the panel at which I spoke, is certainly systematic in its efforts to build business ties across the two nations. But it represents the interests of its members. There are other institutional linkages as well, such as a sister city initiative between San Francisco and Bangalore. But my sense is that there is room to create a richer interaction that is more balanced in representing various interests, and does more to integrate academic and business knowledge, to further investment and innovation in India by leveraging the tremendous human capital of Silicon Valley. What institutional form that interaction takes would have to be thought through, but the need and potential are both present.