Modi in the Valley

There are lessons and reflections for Narendra Modi in Silicon Valley

This is the original English version of an op-ed published in Hindi, in Nai Dunia, Indore, today.

If California were an independent country, it would be one of India’s important trading partners: last year we imported more than $5.3 billion worth of goods from that state. While IT services exports catch most of the limelight, India also exports items like cashew nuts, coffee, tea, engine parts, metal screws, rice and vegetable extracts. California hosts more than 4,75,000 Indian-Americans and is deeply connected to our technology industry. Silicon Valley companies have invested heavily in India over the last twenty years, and their presence contributes to the livelihoods of several lakhs of people in India — from IT & BPO employees to the taxi drivers who drive them to work. So much is Bangalore’s technology sector connected to America’s that we like to joke that the traffic in the city is lighter during public holidays in the United States.

So there are very good reasons for Prime Minister Narendra Modi to visit California, instead of limiting himself to the usual New York-Washington circuit that India’s political leaders usually do. Reaching out personally to top investors and business leaders helps promote India as a destination for investments, where we are in competition with China, East Asia and Eastern Europe. Whatever may be the domestic criticisms of the “Digital India” initiative, it is a good calling card for the Indian prime minister as he engages the some of the world’s most influential technology leaders. His personal charisma and public speaking skills make him a fantastic salesman and marketer of the India story.

Also, unlike our own businesspeople, it is likely that foreign business leaders will be more straightforward in telling him why they find it hard to do business in India. The country will benefit from such candid feedback, especially if Mr Modi diligently follows up on it once he is back in New Delhi.

That, essentially, is the real problem. Even without Mr Modi visiting Silicon Valley, it is a well-known fact that India has the talent, the resources and the market to make it a potentially exciting destination for investment. Yet, much of this potential cannot be realised because of the government gets in the way. Complicated tax laws, for instance, raise costs of doing business, increase corruption and invite political rent-seeking. Poor contract enforcement is merely the tip of the iceberg of a pervasive lack of trust in society, which deters investors. Lack of attention to basic public services, like water, electricity, education, health and transportation shifts the costs onto the private sector. This not only raises costs for investors (and makes India more expensive a place to operate from than it should be) but also creates social divisions, because others do not have them. We all know the problems with land acquisition and labour reform.

Mr Modi can’t be unaware of these issues. In his interactions with investors, he would probably have reassured them that his government will address these challenges. While he might get away with these responses as this is his first visit, he might not receive a patient hearing the next time. In other words, he has staked his personal credibility on addressing the challenges faced by investors and he will now have to deliver on them. This is not easy because it is unclear if his government realises that the entire Delhi Straitjacket has to be removed from our economic lives, not mere tweaking at the margins. We have not seen any sign of that since the Modi government came to power. Worse, even as Mr Modi promotes Digital India, his government scores such shocking self-goals like the recent one concerning a very poorly drafted National Encryption Policy that it was forced to withdraw after strong public criticism. The Modi government has done nothing to repeal the horrible IT Rules (including the infamous Section 66A) that were introduced by the UPA government.

After the success of the visit, Mr Modi will have to pay attention to the essential task of economic reform. Whether to satisfy the aspirations of the domestic population or demands of foreign investors, the answer is the same: economic liberalisation on a much bigger scale than Prime Minister Narasimha Rao’s in 1991.

While no one might have told him this, but Mr Modi would do well to reflect on why Silicon Valley creates companies like Google, Tesla or Facebook that have a global mindset. Most startups there begin with a plan to capture the global market. Their dreams are big. Of course, the ecosystem enables them to fulfil those dreams, but the big dream is the starting point. Most of our entrepreneurs in contrast, limit their dreams to the borders of our own country. The Delhi Straitjacket is partially responsible for this, but there is also a mindset problem, in that we are content to think within our “narrow domestic walls”. Elon Musk wants to transform the way the whole world travels. He wants to even transform the way humans travel to space. If there is something Mr Modi should learn from Silicon Valley is the need to unshackle our richest, most capable and most talented people to open their minds and push the envelope of human achievement.

Those who criticise Mr Modi for going on too many foreign trips miss the point, for his trips help raise India’s profile abroad. What we should discuss is whether his government delivers on the reforms necessary to meet the additional expectations he has created at home and abroad.