July 05, 2010

Catalysing Strategic Entrepreneurship - Article by Sanjay Anandaram

This article appeared originally in The Wall Street Journal May 2010 Issue. Reproduced with permission from the author.

A recent news report (http://bit.ly/cjChhM) indicates that the Government is keen on allowing 74% Foreign Direct Investment (FDI) in defence production to enable technology transfer and the bringing in of funds. Let us take a look at some data. India’s defence budget for 2010-11 is over $30billion; India is currently the 2nd largest arms importer (2005-09) behind China. However, according to the SIPRI report, China is well on its way to becoming self-reliant and saw its imports decline to $0.6billion in 2009 from $3.5billion in 2005. During the same period, India increased its defence imports from $1.04billion to $2.1billion. India’s defence imports are currently estimated to be over $8billion. The role of the Indian entrepreneur, thus far, in catering to this huge market is less than negligible. Isn’t there therefore a terrific case for catalyzing entrepreneurship and providing opportunities to homegrown entrepreneurs in this strategic sector? Does the proposed FDI policy take this issue into consideration or will powerful lobbies favouring defence imports not allow local entrepreneurs and locally developed technology to flourish?

A recent article by Gen Shankar Roychowdhury, former Member of Parliament and Chief of Army Staff (http://bit.ly/blDIix) on the development of the indigenous Arjun Main Battle Tank (MBT) fortunately offers a ray of hope. Quote “However, the sunny side is that the development processes has already stimulated growth in small but very high technology manufacturing agencies even if production lines for prototype models have been quite limited. These agencies are of course capital intensive, but have mainly come up in the medium and small scale private sector which is surely encouraging’ He also makes a case for involving the private sector in improving quality and project execution capabilities.

The situation in telecom is tragic as well. There’s only one, yes just one, Indian telecom equipment “startup” company that designs (owns intellectual property), develops, manufactures, sells and supports active equipment that sits in a telecom network. That company, Tejas Networks, started by 1st generation entrepreneurs is about 10 years old and is about $150m in size. Contrast this to the $24 billion market for telecom equipment that is supplied, directly or indirectly, by foreign players including Chinese companies like Huawei and ZTE which do over $3billion in sales from India alone. The current concerns about security of Indian networks should hopefully nudge policy making in the right direction.

The government can and should be a huge catalyst for the creation of industries that require large capital outlays, have long gestation periods and need highly trained and qualified manpower required to create very valuable intellectual property, manufacturing and project management expertise. Sectors like defence, space, and telecom also provide great opportunities for the government to create appropriate funding mechanisms, regulatory frameworks and business models that enable Indian entrepreneurs to set up great businesses. It is high time that the government realizes that one doesn’t become a superpower by just having 8+% growth rates and by being a market for others, especially in strategic areas. Ownership of of key assets – intellectual property, markets, financial and socio-cultural – and deployment of those assets around the world is crucial. Else, there’s a real danger that India will remain not just an aspiring superpower but also a perspiring one as it struggles anxiously to make it!

Sanjay Anandaram is a passionate advocate of entrepreneurship in India; He brings close to two decades of experience as an entrepreneur, corporate executive, venture investor, faculty member, advisor and mentor. He’s involved with Nasscom, TiE, IIM-Bangalore, and INSEAD business school in driving entrepreneurship. He can be reached at sanjay@jumpstartup.net. The views expressed here are his own.