India’s USD 150-billion information & technology sector is staring at thousands of job cuts and the beginnings of employee activism as growth slows. For more than 20 years, the industry has generated enormous profits and created more than 40 million white-collar jobs. But the future could be very different and NR Narayana Murthy, the father of Indian IT industry and founder of Infosys, has a prescription for the industry in these tough times. In a conversation with Malini Bhupta of Moneycontrol, Murthy explains what leaders need to do.
India's IT industry, the engine of white-collar jobs, is seeing employee activism today and unions are being formed across campuses. What do you make of this unprecedented situation?
I don”t want to go into what is happening in specific companies, but if your philosophy of compassionate capitalism is clear and if you operate on that philosophy, then it becomes simple to lessen the pain of middle and lower-level employees.
I spent some years in Paris in the 1970s and I met with people from the Left, Centre and the Right. In fact, I met the then head of the French Communist Party - Georges Marchais. I also observed how these societies had brought in prosperity for its people. As a strong leftist person who went to France, I realised that the only way a society can solve the problem of poverty is through entrepreneurship, which will help us in creation of jobs. I realised that the only political philosophy that encourages entrepreneurship is capitalism. But, at the same time, I also realised that capitalism will only succeed if the leaders of capitalism demonstrate self-restraint in allocating a disproportionate part of wealth generated to themselves.
Right from 1975, I have internalised it and I have demonstrated self-restraint in allocating for myself the fruits of the corporation. I also realized that in a poor country like India if capitalism has to become acceptable and has to be embraced by a large section of our society, then the leaders of capitalism have to eschew vulgar display of wealth.
I also realised that when the fortunes of a company ebb, the leaders and seniors have to sacrifice more compared to the middle and junior level people. Such sacrifice will have to be borne by employees as well as investors. In other words, there will have to be salary cuts based on the disposable income of employees and there will have to be stringent cost control. If these are not just sufficient, then profits will have to be sacrificed and dividends will have to be reduced to take care of the employees with low disposable income and keep the corporation strong in tough times.
This is how we, the founders and early adopters of Infosys, conducted ourselves at Infosys during tough times. Employees should be the last to suffer. This is what compassionate capitalism is all about.
Therefore, in the interest of enhancing confidence in capitalism, we, the leaders of capitalism, must embrace compassionate capitalism. That is capitalism in the mind and socialism at heart – or, capitalism based on fairness, transparency and accountability. In every decision we, the leaders of capitalism, take, we have to ask whether our decision will enhance the respect for us in the eyes of our younger employees and whether respect for our corporations will be enhanced in the eyes of the society. If we follow these principles, I believe, we will be in a position to save capitalism from premature death in India and bring the benefit of capitalism to the vast majority of Indians.
A lot of observers and industry observers claim that the industry has collected a lot of “flab” over the years as companies benefitted by simply adding people in time and material projects, where clients paid on the number of hours clocked by the employee. But now they are finding it hard to justify so many people who are not necessarily productive. This is a key reason behind industry shedding people, claim experts. How did the industry get to this point and what is in store in future?
We have to realise that newer and newer technologies will come. Automation will become more and more ubiquitous. This has to be accepted. The challenge for our industry leaders is to create new markets and create new opportunities and jobs in the scenario of changing technologies. They have to create as many productive jobs as possible for youngsters. It is also very important for us to remember that there will be highs and lows in every industry.
The IT industry has had a high for 20-plus years, and now it looks like it is entering an ebb. This has happened in the past in various industries and will continue to happen in the future for various industries. There is no point in blaming the IT industry. An economy where some sectors of the economy are growing and some are shrinking but the overall economy is growing is a healthy economy. In such an economy, people who are not needed in one sector should retrain themselves and move to some other sector. This is what has happened all over the world.
Let me give you a simple example. When the motorcar was invented, the demand for people who tended horses went down drastically. We cannot blame the companies that produced motorcars for the plight of the people who took care of horses. So, it is necessary for the elders of society like corporate leaders, politicians, academicians, administrators and wise men and women to sit together to see how we create new opportunities for youngsters.
I would not put the entire blame on the IT industry. The market for the IT industry may shrink and that is beyond anybody. So, when the market shrinks, it is very difficult to absorb new talent at the same level as in the past. That is very unlikely. Therefore, the Indian economy has to find a solution for this problem. India has to find an answer to see how new jobs can be created in healthcare, automobile, education, retail, agriculture and construction, just to give a few examples. Simply blaming IT industry is not a fair thing.
Employees are unhappy that companies are rewarding financial investors by buying back shares from them but the same companies do not wish to give them severance packages even though their balance-sheets can afford it? What is disturbing is that people who have spent 10 years or more are in the line of fire. Why is it that financial capital is being rewarded while human capital is not?
It is very important for leaders of capitalism to be fair to their younger colleagues when the issue of retrenchment comes. We have to create a model where the pain is minimised. There is no doubt. All of us have to practice capitalism in mind and socialism in heart. We have to practice compassionate capitalism. If we can leverage people in good times, it is our responsibility to remain humane and lessen their pain when the difficult times come. There is no doubt on that.
What is your view on share buybacks?
As I said before, the pain has to be shared by both stakeholders -- employees and investors. We cannot create a zero-sum game in favour of investors. Therefore, I am not sure if this is the best time for share buybacks since it may send a wrong signal to employees that corporations are more concerned about investors than employees.