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San Jose Mercury News, January 11, 2004 Sunday  

Luring tech to India’s coast;

State’s development goal hampered by expats who don’t want to return 

By KARL SCHOENBERGER, Mercury News 

COCHIN, India – The state government of Kerala wants to transform this tropical idyll of beach resorts on India’s southwestern coast into the nation’s newest high-technology hub. To catch up with more established business centers, it is building industrial parks and trying to woo an untapped source of investment: India’s prodigal sons.

It sounds like a good strategy. Legions of educated Indians have ventured abroad in recent years seeking their fortune in high tech. But Kerala faces the same problem that the rest of developing India has encountered since the central government began economic reforms in the early 1990s: Indian expatriates have not been coming home, and the wealthiest of them still invest their money abroad, not in India.

There have been a few exceptions, but the reversal of India’s brain drain is still a long way off.

The reasons are complex, influenced by cultural and societal attitudes as well as economic conditions and business opportunities. In China, the other Asian population giant, risky investment by overseas Chinese played a crucial role in spurring the economic boom. But the Indian diaspora has not yet placed its bets on India’s reforming economy.

“Coming back home is much more complex for Indians than it is for Chinese. No one wants them back,” said Arvinder Singh, a researcher at New Delhi’s Center for the Study of Developing Societies. “If a millionaire from the U.S. wanted to invest in the Punjab, he’d get chased out.”

Less fortunate people left behind in the villages harbor resentment, jealousy and mistrust, Singh explained.

Fitting back into the old country’s social structure is not attractive after being liberated from the burdens of hereditary caste and religious identity in the West, Singh and others say. Since India’s independence from the British in 1947, the number of distinct caste groups and subgroups has expanded from 700 to more than 3,700, and there is a tangle of 16 official languages.

Not everyone agrees that it’s hard to go home. Ash Lilani, South Bay regional manager for the Santa Clara-based Silicon Valley Bank, was born in Mumbai. He says such social barriers are a thing of the past, especially for high-technology entrepreneurs.

“In the technology community, we don’t see that problem,” asserted Lilani, who is the investment bank’s country head for India. “Tech is the great equalizer. Nobody asks what caste you’re from or where you went to school.”

Yet economic barriers to investing and doing business in India can deter overseas Indians as well as non-Indians.

Kerala, in its bid to attract foreign investors, is a telling example of this dilemma. The state suffers from decades of socialist bureaucracy under a succession of communist-led local governments. It has a reputation for having militant labor unions and for being hostile to global capitalism.

Kerala can be viewed as a slightly exaggerated microcosm of the rest of India, mirroring the central government’s reluctance to abandon a planned economy.

“The political leaders in Kerala demonized both the U.S. and globalization,” said James Varghese, a Cochin-area native living in Fremont. An aircraft maintenance manager, Varghese founded an e-commerce Web site, www.keral.com

In Kerala, it’s Aruna Sundararajan’s job to overcome that negative image and sell the state’s high-technology potential to investors. She is the state government’s IT secretary, a career civil servant who has served under both leftist and, more recently, centrist political masters.

“In the past years, the whole of Kerala has gone through an intense transition from inward looking to opening to the outside,” Sundararajan said in an interview after a sparsely attended investment seminar in a Cochin hotel.

Sundararajan’s skeptical seminar audience consisted of stragglers from a September conference hosted by a Hindu spiritual organization, which had invited expatriate Indian entrepreneurs from Silicon Valley and other parts of the United States. Delegates at the Global Leaders Summit debated the merits of entrepreneurial individualism vs. India’s traditional communalism.

Many of the delegates came to hear India’s ceremonial president, Abdul Kamal, unveil his “2020 Vision” plan for economic development and poverty abatement through village-based aid projects. Kamal, a Muslim and a physicist who is revered by many Indians as the father of India’s nuclear bomb, exhorted the delegates to consider themselves part of a “global Indian family” and “stakeholders in Indian economic growth.”

But overseas Indian entrepreneurs so far aren’t opening their wallets for a vague idea of global Indian identity.

One of the more optimistic Cochin delegates was Guru Parulkar, who co-founded the Silicon Valley start-up Growth Networks and now directs the network systems program at the National Science Foundation in Washington. Parulkar said he has sensed a change in attitudes over the past five years among his Indian friends, who tell him they used to go home to India on quick trips just to visit their families, but are now staying longer and exploring potential business opportunities.

To be sure, there are occasional stories of tech entrepreneurs going back to live in India, such as Dinesh Vaswani, who is posted in Mumbai for the San Francisco venture capital firm Walden International. He signed up for a three-year stint, but may stay longer.

“The quality of work here and the opportunities are much better than they were in the 1990s, and I’m seeing a few other cases of Indians coming back to work for multinationals,” Vaswani said. “This could be the beginning of something, unless things go wrong, like a blowup in Kashmir. Unfortunately, India has a long history of screwing things up.”

For the most part, though, U.S.-based Indian venture capitalists are going only part way, backing new companies that are designed to take advantage of the boom in demand for India’s back-office services, where large corporate customers contract out for accounting or payroll services. The operations take advantage of India’s low wages and overhead costs, but their management and nearly all the equity remains in the United States.

Silicon Valley Bank’s Lilani said India’s financial reforms still have a long way to go. He cited as an example the requirement that inbound as well as outbound capital must be approved by the Reserve Bank of India: “For U.S. investors to get confident, some barriers have to come down.”

Can India wait for that confidence—motivated perhaps by a dose of patriotism—to catch fire in its overseas population of so-called Non-Resident Indians?

“NRI used to mean Non-Resident Indians, then it was Not Returning Indians, and finally Not Required Indians,” said G. Bakthavathsalam, who reluctantly heeded his father’s command in the 1970s and gave up his U.S. lifestyle and returned to India after completing his medical training.

“In any case, they are not coming back to re-create India,” said Bakthavathsalam, a public health advocate who owns a teaching hospital in rural Tamil Nadu. He gave the same command to come home to his own son, Ashok, who complied after getting his electrical engineering and MBA degrees at Syracuse University and working for Hewlett-Packard.

“I was just getting into the groove of the American way. It was a splendid dream,” said Ashok, 35. “But I needed to get up and out of that groove before it was too late.”

But Ashok’s father says many more expat Indians must follow suit to make a difference: “There are one million Indians living in the U.S. If 10 percent of them came back, we could really change things.”