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IITians didn’t exactly do what Nehru wanted, but Raghuram Rajan thinks it was for the best

By Madhura Karnik

Reserve Bank of India governor Raghuram Rajan has a message for the government: Encouraging something is the “surest way of killing it.”

In a speech on March 12, the central banker said that the state should simply focus on enabling business activities in the country, instead of trying to control their end results. Once an ideal environment has been created, “then let our myriad entrepreneurs figure out what new and interesting businesses they will create,” he added.

To illustrate his point, Rajan talked about the Indian government’s unwitting role in the creation of the country’s booming software industry.

The Indian Institutes of Technology (IITs) were set up by India’s first prime minister Jawaharlal Nehru. In those days, the objective of these institutes was “to provide scientists and technologists of the highest calibre who would engage in research, design and development to help building the nation towards self-reliance in her technological needs,” according to Nehru.

But, instead of living up to these lofty aims, IITs, in the 1990s, “supplied managers and programmers to body shops focused on dealing with the Y2K bug,” said Rajan at the Ramnath Goenka Memorial lecture in Delhi.

These “body shops” later “evolved into our world-beating software giants,” he added. Rajan, an IIT Delhi alumnus himself, was seemingly referring to companies such as Infosys and Tata Consultancy Services, among others, which have become stars in the global IT services sector.

Here is an unedited excerpt from his speech:

I am often asked, “What industries should we focus on, what should we encourage?” Learning from our past, I would say let us not encourage anything; that might be the surest way of killing it. Instead, let us make sure we create a good business environment that can support any kind of activity, and then let our myriad entrepreneurs figure out what new and interesting businesses they will create. In the 1990s, the IITs that Pandit Jawaharlal Nehru created to supply engineers to the commanding public sector heights of the economy instead supplied managers and programmers to body shops focused on dealing with the Y2K bug. These in turn evolved into our world-beating software giants. While the government did not create the software industry, it was not inconsequential by any means to its emergence and development.

Similarly, let us enable business activity but not try and impose too much design on it.