There is no substitute for hard work, at least two shifts in the manufacturing sector. There is need for political consensus over basic policies and enterprise must be free and practice compassionate capitalism, where you look after the lowest paid in your company, and your society. Says Narayan Murthy, founder of Infosys, the IT services provider, in a conversation with Nikhil Kamath, the young founder of Zerodha, a new age start-up. Read on for an interesting take, on how India can outgrow competition.
On capitalism and compassion! Not just profit, but contribution to society in all respects.
Nikhil Kamath If I were to talk about economies overall, what would be your thoughts about socialism, capitalism, what works or which part of what works and how you’ve seen the world around you change over your illustrious 50 plus year career. And what do you think are the nuances required in today’s form of capitalism to continue to work?
Narayana Murthy You know, I had the fortune of working in France in early seventies, and as a student, I was a strong leftist because my father was a high school teacher. We were eight children, and he was a great admirer of Jawaharlal Nehru. Nehru believed in socialism. And every day we were fed a very staple diet of socialism. So, we’d all become strong socialist leftist, not communist, but strong leftist. But when I went to France, my whole edifice phase of socialism and leftism crumbled because I saw clean roads, I saw prosperity, I saw most advanced trains running on time. Therefore, I was transformed from a confused leftist to a determined, compassionate capitalist. Now, what do I mean by a determined, compassionate capitalist? I believe that capitalism based on the twin pillars of free market and entrepreneurship, is the only solution to any country to solve its problem of poverty. There is no other reason, let me assure you. So, what you need is free markets where government doesn’t interfere, and second entrepreneurship where government goes out of its way to encourage the entrepreneurs to run their enterprises legally and ethically. The government becomes a fair and transparent regulator. Now, that’s on the government side. On the other hand, on the side of the entrepreneurs, they have to realize that they are the evangelists for capitalism, because by and large capitalism is still new in India. It’s not been fully accepted, particularly in politics. So therefore, the entrepreneurs of today have to realize that it’s not just sufficient for them to seek free market and encouragement for entrepreneurship, but they have to bring fairness, transparency, and accountability to running their enterprises.
They have to ensure that when they take their decisions, they have to look at whether the poorest or the lowest level employee in the company is made better by the decisions they take. They have to pay their taxes, honestly. They have to contribute a certain percentage of their profits to the betterment of the society. In other words, not only should they seek to grow their revenues and their profits, which is very legitimate, but at the same time, they have to become an integral part of society to lift the society to a higher level. That’s what I term compassionate capitalism.
Nikhil Kamath When you are talking about benevolence in capitalism, are you saying that the anomalies of capitalism or people who have done exceedingly well, they need to be benevolent in particular? Or are you talking about society at large?
Narayana Murthy While self-interest will drive every one of us to do what is best for ourselves, there are rules and regulations laid down by the government, which ensure that I do not tread on your feet. I do not compromise the interest of the society. I pay my taxes properly. I follow every rule of the land. The moment I follow every rule of the land, the moment I am a good citizen, then I am absolutely free to maximize my profit. So that is the kind of economic equilibrium that you and I would want.
On levels of taxation, on paying our taxes honestly!
Nikhil Kamath Do you have an opinion in particular about taxation, sir? I think many governments and we have precedent in the western economies where someone like Richard Nixon maybe tweaked the tax rates multiple times. He realized that 20% is probably the kinder number, where most likely will there be honest taxation, where people are willing to pay that 20% and the incentive to circumvent that goes down. Do you think in the capitalistic society of today, India included, there is an appropriate level of taxation?
Narayana Murthy Well, you know, we have to realize that India is a poor country. A per capita GDP of $2,300 puts us about twice the per capita GDP of what is called low income countries by the United Nations and other bodies. We are still far away from being called a middle-income country, where the per capita GDP is somewhere between $6,000 to about $12-15,000. You know it very well. Now, in a country like India where there’s a large mass of poor people, I think we, the evangelists of capitalism must accept that we have to pay a higher level of taxation because there are so many public services that our government will have to provide for the poor people. You know, the other day the Prime Minister said that his government will provide free ration to 800 million people for the next five years.
So, what that really means is we have at least 800 million people who do not have the capacity to earn two meals a day. Now, it’s partly their problem, but partly the problem of the society. They would’ve tried hard, but they may not have been able to get jobs. So, in order to create efficient, corruption free, and effective public goods in our country, the taxation will have to be obviously higher than what you see in developed countries. So, I personally would not at all grudge if I have to pay a higher level of taxation.
However, when you provide those services, when you provide those subsidies, there must be something in return that they’re willing to do. For example, if you say, I will give you free electricity, then it would have been a very nice thing for the government to have said, but we want to see the percentage attendance in schools in a primary schools and middle schools to go by 20%. Then only we’ll give you that. In other words, nothing should be given free, but there should be a contribution of the citizen also towards making our society a better society.
We should expect something in return from those people who receive those free subsidies to take a slightly bigger responsibility towards making their future generation, their own children, their own grandchildren, better in terms of going to school, performing better, et cetera. That’s what I mean.
Suggestions on Change in today’s eco-system to ensure higher GDP growth
Nikhil Kamath Just extrapolating on that same thought a bit further, if, like you said, let’s say that GDP per capita number where things start to change drastically in today’s ecosystem, let’s assume it’s $5,000 per person. If you had to give three very definitive suggestions that could easily be implemented by the government that you think will go a long way towards helping this outcome, what would they be?
Narayana Murthy We have a neighbour in our north – China. China has reached a GDP of 19 plus trillion dollars. We are at 3.1 or 3.2, 3.4, I don’t know, whatever, maybe four. Some people are saying four, I don’t know. In other words, a neighbour of ours up in the north, which had all the same problems as us, which you know, has reached a GDP five times India’s, or six times India’s. So, all that I would humbly request our political leaders is to study China very, very carefully and then see what are the good things that we can learn from China and implement it here so that India too advances at the same pace as China.
Nikhil Kamath One answer to that could be China of the eighties and nineties and two thousands, early two thousands was really open in nature. You yourself have worked in an industry which is outsourcing services for a long time now. India is still not truly both capital account and current account convertible, which makes it hard for businesses like this to truly thrive. Do you think we are at risk of over regulation? Do you think overregulation is curtailing the animal spirits of entrepreneurs in India today?
Narayana Murthy Well, you know, there is a difference between China and India. We were a colonized country for 1000 plus years. Our destiny was under the control of foreigners who did not identify themselves with our country. So, it is very difficult for us to compare with China, which did not go through this. And second thing is that we have a different model of governance. We are a democracy, at least in voting, and therefore it’s not that easy. It’s not that easy for the government to push through what it believes is the best methods of increasing the prosperity. So this is a very complex issue, but what we need to do is, in some way, all the political parties come together and each political party contributes a couple of intellectuals from their party and they form a committee, and then they all sit together and then invite a few successful, well experienced academicians and corporate leaders and all, and then say, what are the practical solutions that we can come out with so that we move up to one in five when attracting foreign direct investment, not foreign portfolio investment.
Foreign portfolio investment comes today and it goes tomorrow at a profit. On the other hand, foreign direct investment is where people come here to stay long. They put in a lot of money in building infrastructure, they make the company stronger. So, I think if we can come out with a report wherein we can say these are the hundred things that have made various other nations a fast progressing and prosperous country, therefore let’s try and see if we can implement it. Now, it is very, very important, whether it is a BJP government or a Congress government or any other, they all have to say, our country comes first and then our party. And, and in order to do that, we may have to make certain minor adjustments in our own, in the aspirations of our own party.
Improving India’s education system, the importance of formal degree, and the new national education policy!
Nikhil Kamath If I were to move on to education, a lot of companies in the west – Facebook, Meta now, X, lot of them are not insisting upon traditional college degrees to the extent that there might be some companies claiming that you don’t need to mention where you graduated from on your job application to these companies. We spoke about income inequality earlier. If one were to assume that the biggest barrier or the biggest solution to the problem of income inequality is education, what do you think is broken with the education system in India broadly, and do you feel a use case, can be made for the education system or the process of education in itself to become more fragmented in nature? I mean, where you don’t go to one particular college to get all your educational needs, but you get it from five or 10 different places and you go to experts at different things for different things?
Narayana Murthy Well, first of all, I must congratulate Shri Modi’s government on forming NEP, the new, the National Education Policy. It’s a step in the right direction. And given that Dr. Kasturirangan was the chairman of that, given that people like Manjul Bhargava are part of that, I have tremendous hope that it will show us a path towards becoming better.
The need of the day is to seed in the minds of our children, the primary and the secondary school children, independent thinking, active listening, critical thinking, Socratic questioning, relating what is learned in the classroom to the problems around us, and thinking of solutions to our problems. The moment our education gets transformed to this model, my belief is that then your college degree they start battering less, but even there you would need for certain kinds of stuff, you do need college degrees. You need undergraduate and postgraduate degrees, you need PhDs. They’re all required, but it would not be as important as we see now. I am very positive that the NEP will show a path towards making our children more competent in this kind of education. And then the demand for these degrees will reduce.
Nikhil Kamath For companies like Infosys, which are exporting services to the western world, amongst many other things that Infosys is doing. How big of a threat do you think language models, artificial intelligence? I’ve spent the last couple of days trying to get my head around QStar, AI’s new product. I’m still trying to figure out how it actually works, but on the face of it, for somebody who is not an expert at this it could system systemically affect how companies like Infosys work. How do you think they will transition into the world of tomorrow?
Narayana Murthy Well the reality is that the human mind is the most flexible and the most powerful instrument that ever existed. We have seen, starting from the invention of the wheel to GPT-4 today, it has been as a journey of asking questions as to how can we use technology to make our lives better? How can we use technology for us to become more productive? How can we reduce the cost of the technology? How can we make this technology become all pervasive? And all of that has happened due to either invention that happens once in a while, or to innovation that happens on a continuous basis. So, the only insurance that any company, in any field that you can think of, the only insurance that it has for its survival, growth and success is the ability to create a mindset in the organization that constantly innovates and that constantly says, how can we improve our productivity? How can we improve our you know, the quality? How can we reduce the cost of what we do? As long as the CEOs of companies encourage such thinking amongst the employees of the company, then you don’t have to worry about Chat GPT, machine learning, deep learning, whatever may come and go, they will all be able to leverage those technologies for the betterment of the companies, the individuals, and the country.
Big Learnings from his journey, both professional and personal.
Nikhil Kamath Can you talk about some of the big learnings that you have had through your journey? Doesn’t have to be very professional in nature, but just as an individual, as a person.
Narayana Murthy Well I was very fortunate that I was brought up in a home where the father, he was in a petty job, what you would call, and mother was busy in the kitchen from 6:00am to probably 8:00am because those days she had to use wood to burn the stove. So, the result was both the parents were busy with their own chores. And the only time when we all sat together was at dinner.
Father would talk about all the wonderful things that were happening during Nehru’s time. And he would tell us, the only escape you have from poverty is a little bit of smartness, a lot of hard work and an enduring value system. He said, those are the only three things that will take you from where you are today to betterment. So, we were brought up with tremendous independence in our mind. When I left France, I said I want to actually collect more data on my belief of compassionate capitalism. And I said, I want to go and spend, I spent about 11 months on the road in not just Western highly developed nations in Western Europe, but I also want to go and spend time in Eastern Europe, which was primarily under the communist regime those days in Russia, in Israel, in Iraq, in Iran, in Afghanistan, et cetera.
Because I was trying to obtain more and more data for my belief that compassionate capitalism is the only method for India to remove its poverty and free market and entrepreneurship are the only tools that compassionate capitals have. And that is how I spent my time going through so many of those countries, and I got confirmed by the time I reached Afghanistan. I was certain that that’s the only thing that will work. And I’m very glad that I have been proved right.
On the city of Bengaluru, its work culture and its future growth
Nikhil Kamath You are a big aspiration to young entrepreneurs such as myself. Bangalore has created that unique nuance culture, a combination of people that in, in combination make the city what it is. If you were to chart out Bangalore’s trajectory over the next five years, or the next 10 years, what do you think Bangalore is doing? Right? What do you think Bangalore is doing wrong and how does it thrive over the next decade?
Narayana Murthy Well Bangalore I believe contributes about 35 to 37% of the total software exports from India. So, what that means is you are looking at about $75 billion US from just Bangalore, because if you looked at $200 billion as the total export from India, 75 would be the thing. Now, I’m not even getting into other areas expertise like you have in other areas, but what is it that we can do to make Bangalore even more attractive? One, I found during my 30 years as the CEO and the executive chairman, that the maximum percentage of local people that you can employ in an industrial like software services is about 60%. It means that the rest, 50% of the talent will inevitably come from, come from other states in India, maybe a small percentage from the developed countries, et cetera. So, the first task of a good public governance system for Bangalore to become even stronger is we have to provide total freedom to start English medium schools, whether we like it or not.
Second, I think we have to improve our infrastructure with a sense of alacrity. It may not be very palatable to say it here, but I will say in 2004, the Chinese government came to know that we were looking for starting a development centre in China. So, the Mayor of Shanghai invited me to his place. And he asked me what he want. I said, look, I want land, right in the centre. I want about 25 acres. And he said, of course they do their work before meeting. Said, we’ve identified three pieces of land. You kindly go and see, and by tomorrow evening, 5:00pm we will give you the letter of allotment and possession. And that happened. Now, the reality is that yes, China may not be our friend today. I accept all of that. That is for our political leaders who will handle China the way it should be handled. I am only talking about it from the dimension of taking quick decisions.
So, I think we have, for example, completing the electronic city metro, completing these metros to other parts where there are a lot of companies, all these have to be taken up on a priority. The people in that infrastructure industry must work three shifts. They should not work just one shift, come at 11:00am, 10 fellows sitting there and then go at 5:00pm. At least on the electronic city road that’s what I see. I may be completely wrong. But elsewhere, in the nations that have high aspiration, people work, I have seen two shifts, definitely two shifts, because I would return around midnight, and I’ve seen people working, as if they were going to disappear tomorrow morning. While I cannot vouch for three shifts there, but definitely I can vouch for two shifts. Now we want to be better than all those countries. Why don’t we say we, our people will work three shifts? Ask them what are the requirements for them to complete that thing by their workers working three shifts, provide them that.
So, I think there is a little bit of these things that can be done by our leaders. And if we did that, then I have no doubt why India cannot grow even faster than China. Not just the growth alone, because our base is only about 3.5, whereas China’s is 19 trillion. But we will catch up with China and hopefully one day we can overtake. But that requires taking quick decisions, making sure that all hurdles for entrepreneurs like you and others are removed.
ABOUT
The above conversation was a Fireside Chat at the recently held Bengaluru Tech Summit – as featured on CNBC TV18.
