The Trickle-Down Theory of Economic Empowerment

Glass towers in Pondicherry
Glass towers in Pondicherry

Wednesday, May 12, 2004— The first results are in, and things don’t look good for the BJP. Chandrababu Naidu, the chief minister of the southern state of Andhra Pradesh, has received a drubbing in regional polls for the state assembly: Out of 294 seats, Naidu’s party won only 47, down from 180 last time. The significance of this is not just that Naidu is a major BJP ally and that his loss of popularity reduced the party’s chances of forming a government in New Delhi. Naidu’s defeat is also telling because in recent years he has emerged as the leading political cheerleader of the nation’s software and IT industries. His rout at the polls is a damning verdict on the government’s “India Shining” campaign.

When Naidu took over as chief minister nine years ago, Andhra Pradesh was something of an economic backwater, mired in political corruption and infighting. Naidu brought a new, more accountable style of governance, and he emphasized economic development through modern industries like IT and biotech. Often called the “CEO of Andhra Pradesh,” he instituted a number of economic reforms and hobnobbed with global corporate jetsetters at Davos.

An Internet cafe
An Internet cafe

The results have been impressive. Naidu charmed the World Bank into giving his state one of the largest loans ever made to India, and Andhra Pradesh is today a global poster child for economic reforms. The capital, Hyderabad (dubbed Cyberabad), is home to global giants like Google, Microsoft, and Motorola. All along, though, there have been rumblings about Naidu’s neglect of the countryside—in the press, he was sometimes referred to as the chief minister of Hyderabad. Now the countryside has spoken—and, like the farmers I visited yesterday, rural voters have made it clear that their concerns aren’t being addressed by the Indian New Economy.

It’s important (and not just for political calculations) to take into account those concerns. But it’s also important to acknowledge the dramatic improvements ushered in by political leaders like Naidu. The software and IT industries have widened the arc of possibility for Indians throughout the country; they’ve raised living standards and opened up new, well-paying jobs for thousands of young people.

Cellphone towers
Cellphone towers

All this is true not just of techies living in Bangalore or Hyderabad. A little-noticed but increasingly clear trend is the trickling down of the IT revolution to what Indians call “second-tier” cities—the hundreds of smaller population centers that are being transformed from dusty market towns to more prosperous and self-confident engines of economic growth. Slowly but definitely, the totems of a new India—the glass paneled buildings, the Internet cafes, the cellphone towers—are coming up in towns and cities that until recently had been bypassed by the software boom.

Pondicherry, near which I’ve been based this week, is one such town. It has a population of a little over 200,000 and an economy that revolves around small-scale industry, handicrafts, and tourism. It’s hardly on the map of the global software industry, and you’re not going to see Microsoft or Google set up shop here anytime soon. But even here, seven hours by road from Bangalore and an overnight journey from Hyderabad, the rumblings of India’s transformation are being felt. And over the past few months, I’ve had something of a ringside seat.

A friend in New York wrote to me a few weeks ago saying his company was looking to outsource some programming work; he asked if I could help. It’s not the first time I’ve been in this position. While the IBMs and HPs and other corporate giants know how to play the offshoring game, small and medium-sized companies in the West have had a harder time figuring out how to outsource. Several businessmen I’ve met in America over the last year or so have told me they’d like to move some of their work to India, but they don’t know where to begin.

So I set my New York friend up with a local person, a young entrepreneur named Arnab who has a small tech consulting company and with whom I’ve worked in the past. Over the past few weeks, I’ve been doing what in the industry is known as “project management” (basically, keeping an eye on things to make sure deadlines are met and the communication channels stay open). Today, shortly after reading about Naidu’s defeat in the morning papers, I get together with Arnab to discuss our progress.

We meet in a coffee shop in an air-conditioned shopping mall that is itself a symbol of this town’s new prosperity and consumerism. We go over some logistical issues: the challenges of replicating his client’s development environment, the difficulties of getting the American code to work on Arnab’s local server, and the need for better communication. We draw up a timeline and commit to regular instant-messenger meetings.

Then, after our business is over, I ask Arnab why he’s here in Pondicherry, rather than in a larger city. He says he was working in Bangalore but had to return to Pondicherry because his parents got sick. I ask him if he feels he gave up a lot by moving here, and he tells me that initially work was hard to come by. No one was interested in outsourcing to a small town, and no one really had faith in the ability of small-town programmers to get the job done.

But now things have picked up. Companies in Bangalore can’t handle all the work they’re being offered, and companies in the West are increasingly looking for new (and cheaper) options. There’s a dearth of affordable programming talent, and it’s entrepreneurs like Arnab—and towns like Pondicherry—that are the beneficiaries. Arnab tells me he’s been working on several offshoring projects, mostly for U.S. companies. He’s ambitious and determined to build his company, and he’s optimistic that it’ll happen. “Recently,” he says, “things have been really good.”

It’s that optimism—that sense of possibility about which I’ve been writing all week—that’s in many ways the most important legacy of political leaders like Naidu. Gurcharan Das, who wrote a fascinating book, India Unbound, on the new India, has a phrase he likes to use: Politically, he says, India achieved its independence in 1947, but it wasn’t until the ‘90s, with the advent of the software boom and the accompanying rise in national self-confidence, that Indian “minds became decolonized.”

It’s clear from the election that the benefits of this decolonization have yet to be felt in the countryside. But the wave of transformation unleashed by India’s knowledge industries is starting to flow outside the metropolises. It’s sweeping into the smaller towns, and it’s only a matter of time before it floods the countryside, changing the lives of farmers and fishermen and illiterate laborers. And when that happens, Indian voters will know who to thank. I wouldn’t count Chandrababu Naidu out just yet.