Re-Imagining India's 'Silicon Valley' in the Context of a $5 Trillion Economy

The Centre's well-intentioned responses over the last five years have been addressing the wrong challenges.

Every now and then, the talk of Bangalore being ‘India’s Silicon Valley’ becomes topical and trendy. Governments, policy makers and intelligentsia see in this a proof of our pre-eminent position in the world’s tech happening spaces. In reality, barring their salubrious climates, they don’t resemble each other very much.

The 2019 Global Startup Ecosystem Report has ranked the city at #18 as compared to Silicon Valley at #1, New York at #2, and London and Beijing sharing the #3 spot. 

If India wants to be a $5 trillion economy by 2025, we have to cast off  this ‘Silicon Valley’ myth-making and urgently herald a paradigm shift in the way we nurture our start-up ecosystem.

How the ‘US  Silicon Valley’ happened 

The San Francisco Bay – together with Oakland and the San Jose regions, with a population of about 4 million people – is a $3 trillion economy with a median tech worker salary of $125,000/year .

Silicon Valley is home to technology titans like Apple, Facebook, Google, Twitter, Oracle, Intel, Cisco, and Netflix etc. It is also the nerve centre of the global venture capital industry and the world’s topmost wealth creating engine, with the market value of its top five companies exceeding India’s current GDP. 

Also read: China Is Taking Over India’s Tech Space. Should We Worry?

Was there a secret brew or recipe that made Silicon Valley happen?

Not in the least. It’s an ecosystem that evolved over six decades with the chance coming together of many drivers and enablers. US military spending during World War 2 led to the growth of new companies producing electronics and electrical equipment to successfully compete with established East Coast business giants like IBM , Westinghouse, RCA and others.

The USSR’s launch of Sputnik came as a rude shock and led to the creation of Defense Advanced Research Projects Agency (DARPA), National Aeronautics and Space Administration (NASA) and the arms race. Spurred by US Cold War era defense spending, companies like Shockley, Fairchild and Intel pioneered the semiconductor and microprocessor industries. 

Stanford University played a key role in attracting tech companies (Hewlett Packard, Varian and others) to its campus and encouraging its top tier faculty and scientists to engage deeply and collaborate with them. This led to the development of minicomputers, workstations, the UNIX OS, the C and Java programming languages, the personal computer and the applications software industry.

The coming to age of the internet catalysed further advances in newer technology, heralding the information age which we now live in.

The wealth of successful startup founders led to the growth of the venture capital industry and spawned the “angel investing” phenomenon as a major trickle-down effect. Favourable capital raising regulations combined with a strong intellectual property and patent protection framework created a virtuous cycle.

These entrepreneurs, many from Ivy League campuses, shunned the East Coast hierarchical corporate culture, and instead created a meritocratic and democratic culture in their firms. Challenging work, employee friendly policies and employee stock options acted as a giant sponge, attracting highly-qualified talented persons from around the globe.

Our very own ‘Silicon Valley’ 

The Bengaluru metro area, with 12 million people, of which about 1.6 million work in the IT sector, contributes around 37% of the $180 billion Indian IT sector. Its estimated median tech worker salary of $12,500/year has enabled it, over the past three decades, to build a formidable outsourced software services model catering to Fortune Global 500 companies.

The Indian policy regime until the mid 1980s drove a command and control economy that effectively shut the country out from the technological advances that were happening in the West, especially in the US.

However, the creation of premier educational institutes with English medium instruction created a skilled technology workforce that lacked opportunities in the state-led public sector at home. This led to a massive decades-long brain drain from India to the Western countries mainly US. Domestic IT industry formation was stymied by harsh tariff barriers on computer hardware imports which was somewhat relaxed in the mid 1980s. It’s not surprising that our then IT sector consisted mainly of bureau service (data centres) selling mainframe computer machine hours.

Also read: Techies Are Ruining Our Democracies. It Is High Time We Held Them Accountable.

The policy reforms and  economic liberalisation in the early nineties, the globalisation of supply chains, the PC revolution and the Y2K problem – all came together to give a fillip to the Indian  IT outsourcing growth.

Aided by the rapid development of global internet infrastructure and the government’s STPI policy, the industry registered a solid annual growth rate of 30% until the financial crisis of 2008.

The last decade has witnessed the growth tapering to single digits due to the productivity surge caused by software tools and automation technologies.

In response, the Indian software product industry is attempting a take-off deploying the SaaS model (software as a service) which uses global loud infrastructure combined with local workforce to compete in the global software product market place. Fortunately, the initial startup capital requirements have dramatically shrunk over the last 15 years and all one needs is a PC with net connection. The web has all the tools, knowledge bases and software frameworks necessary to get going almost instantly. 

But the competition is the best of breed in the world – in Silicon Valley, New York, London, Tel Aviv and Beijing.

Silicon Valley is not just a place with tech giants, buts also the nerve centre of the global venture capital industry. Photo: Noah Berger/Reuters

Demand, demand, demand

Thus, it is clear that lack of user demand and not funding is the elephant in the room. 

The NDA government’s well-intentioned responses over the last five years – like starting accelerators, incubators, providing startup seed capital and so on – are addressing the wrong challenges. It is imperative that the government and the corporate sector become the largest user and consumer of services and technologies. India’s massive domestic market has the inherent potential to benefit from harnessing higher-en technologies like drones, machine learning, big data analytics and blockchain.

What is required is strong demand generation from both the government and private sector and the creation of open data highways that will drive innovation. 

Nothing short of a paradigm shift in thinking is required here. Data is either the new oil or gold. There is an urgent need to fast track the laying out of the “data superhighways” and opening it to tech industry and the public. The mindset of treating all data as super classified is obsolete and counterproductive and mountains of data held by government entities must be thrown open but with effective and intelligent regulation. The US defence department de-classified ARPANET and GPS and grand scope of what was unleashed is there for all to see.

We need a governmental and business ethos that encourages innovation and fosters a vibrant ethos. This, in turn, will trigger a virtuous economic cycle.

Also read: Beijing’s Trajectory in Science and Technology Shows India Is Far Behind in the Game

The fact that this is possible is clearly borne out by China’s success using this approach and it has already produced global giants like Alibaba, Tencent and Baidu etc. But what we need is a balancing act between the untrammelled greed of hedge fund oligopolies and the terrors of surveillance state capitalism. 

History has once again conspired to configure and present us with all the conditions required to reinvent our very own technological ‘Indus Valley’ within a decade. The costs of missing the bus now will condemn us to being zombies lost in a “brave new world” led by the FANG – Facebook Amazon, Netflix and Google.

Asvini Kumar was the co-founder and and managing director of NSE-listed Thinksoft Global Services Ltd, which in 2014 was acquired by Germany-based SQS Software Quality System AG.