“The IITs became islands of excellence by not allowing the general debasement of the Indian system to lower their exacting standards,” noted The Wall Street Journal (April 16, 2003). “You couldn't bribe your way to get into an IIT... Candidates are accepted only if they pass a grueling entrance exam. The government does not interfere with the curriculum, and the workload is demanding... Arguably, it is harder to get into an IIT than into Harvard or the Massachusetts Institute of Technology... IIT alumnus Vinod Khosla, who co-founded Sun Microsystems, said: 'When I finished IIT Delhi and went to Carnegie Mellon for my Masters, I thought I was cruising all the way because it was so easy relative to the education I got at IIT.'”
For most of their first fifty years, these IITs were one of the greatest bargains America ever had. It was as if someone installed a brain drain that filled up in New Delhi and emptied in Palo Alto.
And then along came Netscape, the 1996 telecom deregulation, and Global Crossing and its fiber-optic friends. The world got flattened and that whole deal got turned on its head. “India had no resources and no infrastructure,” said Dinakar Singh, one of the most respected young hedge fund managers on Wall Street, whose parents graduated from an IIT and then immigrated to America, where he was born. “It produced people with quality and by quantity. But many of them rotted on the docks of India like vegetables. Only a relative few could get on ships and get out. Not anymore, because we built this ocean crosser, called fiberoptic cable... For decades you had to leave India to be a professional... Now you can plug into the world from India. You don't have to go to Yale and go to work for Goldman Sachs [as I did.]”
India could never have afforded to pay for the bandwidth to connect brainy India with high-tech America, so American shareholders paid for it. Sure, overinvestment can be good. The overinvestment in railroads turned out to be a great boon for the American economy. “But the railroad overinvestment was confined to your own country and so too were the benefits,” said Singh. In the case of the digital railroads, “it was the foreigners who benefited.” India got to ride for free.
It is fun to talk to Indians who were around at precisely the moment when American companies started to discover they could draw on India's brainpower in India. One of them is Vivek Paul, now the president of Wipro, the Indian software giant. “In many ways the Indian information technology [outsourcing] revolution began with General Electric coming over. We're talking the late 1980s and early '90s. At the time, Texas Instruments was doing some chip design in India. Some of their key designers [in America] were Indians, and they basically let them go back home and work from there [using the rather crude communications networks that existed then to stay in touch.] At that time, I was heading up the operations for GE Medical Systems in Bangalore. [GE's chairman] Jack Welch came to India in 1989 and was completely taken by India as a source of intellectual advantage for GE. Jack would say, 'India is a developing country with a developed intellectual capability.' He saw a talent pool that could be leveraged. So he said, 'We spend a lot of money doing software. Couldn't we do some work for our IT department here?'” Because India had closed its market to foreign technology companies, like IBM, Indian companies had started their own factories to make PCs and servers, and Welch felt that if they could do it for themselves, they could do it for GE.
To pursue the project, Welch sent a team headed by GE's chief information officer over to India to check out the possibilities. Paul was also filling in as GE's business development manager for India at the time. “So it was my job to escort the corporate CIO, in early 1990, on his first trip,” he recalled. “They had come with some pilot projects to get the ball rolling. I remember in the middle of the night going to pick them up at the Delhi airport with a caravan of Indian cars, Ambassadors, based on a very dated 1950s Morris Minor design. Everyone in the government drove one. So we had a five-car caravan and we were driving back from the airport to town. I was in the back car, and at one point we heard this loud bang, and I thought, What happened? I shot to the front, and the lead car's hood had flown off and smashed the windshield-with these GE people inside! So this whole caravan of GE execs pulls over to the side of the road, and I could just hear them saying to themselves, 'This is the place we're going to get software from?'”