When sky is the limit
By Arun Shourie

The problems that have bedevilled Japanese banks are well known - the quicksand of ''directed lending'', NPAs, and the rest - as is the way these problems have been at the heart of Japan's inability to pull itself out of the trough for over a decade. The Long Term Credit Bank of Japan, the giant LTCB, followed the same trajectory as other banks, except that it has suddenly, in just two years, shot out of the pack.

LTCB was established in 1952. It was one of the principal financiers of Japan's phenomenal industrialisation after World War II. As the 1990s rolled on, its troubles became deeper and deeper. It went bankrupt. To prevent the collapse from bringing down other parts of the banking sector, the Government had no alternative but to nationalise the bank. That was in 1998.

The bank continued to haemorrhage. Soon, in June 2000, it had to be sold to a consortium of international investors. That was a thunderclap for Japan - this was the largest organisation that had to be sold to foreigners. The bank was renamed the Shinsei Bank.

In just two years, it has turned around, even as others are still in the morass of old problems. It turns out that Indian professionals - a thousand of them from Nucleus Software Exports, Mphasis, Polaris, i-Flex Solutions and Wipro - have played a crucial role in transforming the bank: they are the ones who have completely re-engineered the bank's processes, they are the ones who have reorganised the bank's operations around a completely new, modern business model.

And they have done it all in record time, and with record economy: the new, transformed retail bank has been launched within one year instead of the anticipated three; implementation costs have been 90 per cent less than estimated; a range of new financial products has been launched that are better than what competitors are giving; hardware too has been drastically downsized. When I was in Tokyo a few weeks ago to open an Indian IT fair, the success of these professionals in rehabilitating the Shinsei Bank was the talk of the banking and IT community in Japan.

What is it that Indians could bring to this task that, say, Chinese software firms could not? The Indians could not just write software for different functions and transactions that the staff of the bank had to perform - the Chinese too could have done this: China also has a very large software industry that today caters to its domestic IT market, a market which is many times that in India.

The Indians could bring to bear on the task expertise in a host of other domains - for instance, knowledge of financial markets, of modern commercial banking, of accountancy - and thereby provide not just software but complete solutions, from software to hardware to completely new business models.

Similarly, high-end Indian garment industry can avail of not just cheaper labour. In addition it can tap into our fashion designers. Is it any surprise then that Wal-Mart sources $1 billion worth of goods - that is, half of its apparel - from India? That GAP sources $500-600 million from India? That Hilfiger sources $100 million?

The point is the successes we have encountered above are not fortuitous. India has a score of strengths that others do not.

Cost is one of them. Nor is it a marginal advantage. Indeed, the difference between the cost at which we can provide services and many commodities of comparable quality and what those cost in the developed world is so vast that, should those firms and economies shut themselves out from our supplies, they are the ones who will be severely disadvantaged, they are the ones who will be making themselves un-competitive.

Sourcing already accounts for about half of Hindustan Lever's exports of Rs 1,500 crore a year. But Banga surmised, by being just the hub from which Levers' units worldwide would source their requirements of such goods, Hindustan Lever could build up a business of $1 billion a year - that is Rs 5,000 thousand crore a year. Moreover, as it would be marketing directly to these companies, it would save on the costs of reaching, winning, retaining the individual customer.

Brains are another strength - far, far more important than material resources in several sunrise activities. Most would have been surprised to read recent accounts in magazines such as Business World of India being looked upon as a research hub by company after choosy company. FICCI's list includes:

The Indian centre devotes 20 per cent of its resources to fundamental research having a five to 10 year horizon in areas like nanotechnology, hydrogen energy, photonics and advanced propulsion. With 17 clinical trials (10 of them global), the Eli Lilly research facility at Gurgaon is its largest in Asia and the third largest in the world.

You can extend the list many times over by just following our business newspapers and magazines for a week. Moreover, while youthful professionals and entrepreneurs have been adding these sinews, the most far-reaching structural change has taken place:

Indeed, not a week passes and there is yet another advance in economic management. One reason these changes do not get adequate notice is that, many of the structures having been set up, the improvements are now in the details. Those who are acquainted with economic policy and administration know that each of these improvements will have far-reaching consequences as the years go by. But as the improvements are in the details, most of us miss their significance. As a result of such steps, many of the handicaps that hobbled our entrepreneurs have been eased in the past few years. Initiatives in different, seemingly distant fields have reached fruition. And the effect is not additive, it is multiplicative:

Other handicaps too have been eased. Interest rates have come down drastically, foreign exchange restrictions for business purposes are as good as non-existent ...

On the other side is the fact that the developed world will increasingly require services and personnel from a country such as India. We are the ones who have to be swift enough to prepare for and grab the opportunities:

Such developments provide excellent opportunities for India - for services that have to be provided in situ such as nursing and care for the elderly, for services such as surgery that can be provided to residents of those countries upon their coming here. In fact, there are opportunities in a host of new services of an even higher order, and ones that exist not in the future but right now:

Thus, on the one side the opportunities are unlimited; on the other we have incomparable advantages for grasping them. But as has been said, ''When opportunity knocks, some complain about the noise.''

Software engineers or cyber coolies? runs the headline of a newspaper feature. In the US a software engineer earns $21 an hour, in India even the leading companies pay him only $2, runs the text. Is this not exploitation? it asks.

Now a salary of Rs 100 an hour is excellent for someone living and working in India. Why throw away the advantage? Look at it the other way. China has accumulated its huge pile of foreign exchange reserves - over $280 billion - not by high-technology exports. It has accumulated them by flooding the world with low-technology items - leather, leather products, garments, toys ... And it has used the advantage of lower cost - and perfectly disciplined labour - to the hilt.

China's achievement we gape at: ''How have they become the manufacturing hub of the world?'' we ask. But our advantage - in some senses the very same advantage China has put to such good use - we want to throw away.

Keep these foreign accounting firms out, proclaim our accountants at a high-profile function. They have been involved in frauds abroad. On that reasoning, shouldn't we bar our own accounting firms also? After all, frauds in our banks, in our stock markets, the way so many of our firms that have run up NPAs are then able to extract bail-out packages from financial institutions, could such things have happened if our accounting firms had been doing their job?
And there is the other point: we want their accountants and lawyers to be kept out, but they must open their doors to our IT professionals! As the title of one of Jairam Ramesh's monographs ran, Yankee Go Home - But Take Me with You!

Why not look upon the opportunities positively? Why not institute courses in our law colleges on Germany's legal system, in the accounting systems of the US and thereby capture the markets there? Why not multiply the number of nurses we train, and have them learn Japanese? Why not enable private firms to open world-class universities in India, and thereby become educators to the world?