(Copyright 2001 The Economist Newspaper Ltd. All rights reserved.) WHY does India not have more innovative home-grown companies? After all, Indian engineers and scientists form the backbone of Silicon Valley's workforce, and they continue to pour into companies across the world whenever visas can be wheedled out of governments. And Indian firms such as Wipro and Infosys have made billions of dollars in the past few years by getting their highly skilled programmers to do the IT drudgery of the world's top companies. But will India's own companies ever venture out of the back office and start developing intellectual property of their own? To do this, they need to reverse the brain drain into foreign outfits or offshore- services firms.
To some degree, that now seems possible. When Kumar Sivarajan, an expert in optical networking, returned to India from IBM's prestigious Thomas J. Watson research centre, he was courted by many international companies. But he opted instead to join a local software start-up called Tejas Networks. The firm has been able to poach engineers not only from the Indian labs of Cisco and Lucent, but from as far away as Bell Labs in New Jersey. Project managers at foreign firms' research labs are now frequently lured by local ventures. Even Texas Instruments, which has had facilities in Bangalore since 1985, has felt the pinch of this start-up bug: some half a dozen of its top Indian engineers recently left to strike out on their own.
In the life sciences, too, Indian investors hope to turn local R&D into commercial success. Last December, Purnendu Chatterjee, head of an investment fund backed by George Soros, set up a company called Chembiotek to conduct life-sciences research near Calcutta. While paying its bills by doing contract research for Bayer and Procter & Gamble, Chembiotek is moving forward with its own R&D activities. For instance, its 30 scientists are investigating gene therapy with a view to developing a cure for diabetes. The facility plans to hire 80 more senior chemists and biochemists within the next two years.
In the long term, the hope is that Indian firms and individuals who have made their fortunes abroad, or by doing contract work for foreigners, will plough money back in the form of venture capital. This is already happening. For example, e4e, an American technology company founded last autumn by Somshankar Das, a Silicon Valley- based venture capitalist, along with Wipro's former head of R&D, plans to spend $300m incubating Indian start-ups over the next three years. Rafiq Dossani, a Stanford economist, estimates that $5 billion in venture capital has been raised for investments in India over the past year.
Once that money is put to work, Indian businesses may see another first: a shortage of manpower. According to a recent survey by India's National Association of Software and Service Companies, demand for IT professionals is expected to rise from 340,000 last year to 800,000 by 2005. Big companies are throwing money at the problem: Cisco, for instance, has pledged the Indian government $10m to set up 30-odd "networking academies" across India. If the present venture-capital boom continues, many of their graduates will have a shot at setting up their own home-grown firms. The rest will no doubt find something to do at Cisco.