Planet Web: High-Tech Passage to India

You could argue that the developed world owes India something like the MIT Media Lab. The West has been siphoning off Indian brainpower for a decade and has profited handsomely in the process. So, too, have many smart young Indians. Witness the vibrantly successful Indian communities in Silicon Valley or in Boston's high-tech corridor or at MIT itself.

But despite the software-development miracle that is Bangalore, India, and the success of India's myriad ex-patriots, the nation's IT corporate base remains relatively shallow and its consumer market tiny. Its chances of breaking out have not been helped by India's political instability or by a governmental approach to IT that too often has been heavy on regulation and light on the kind of investment and incentives that would unlock the sector's potential.

The news that MIT is looking at India as the site for its next Media Lab, a 16-year-old tech incubator funded largely by corporations which then have unlimited access to the lab's research, suggests this is changing. Indeed, it is one of a number of positive signs during recent months that India's high-tech future might be a little less dependent than its past. Private-sector money has been flooding into India of late, most obviously from blue-chip U.S. and European companies, including Nortel, Deutsche Bank and Cisco , investing in software development, either through outsourcing or building their own facilities. India's IT diaspora also is feeding money and ideas back to the old country, and the supply of venture capital funding for Indian IT companies is showing strong year-on-year growth. India's coalition government also has become more proactive.

In part, this stems from an awareness of the opportunity on its doorstep and a determination not to let it slip. But it also might reflect a fear that its window might soon begin to close as low-cost rivals – led by China, which is investing heavily in educating a new IT-savvy generation – hone in on the software development market India still owns.Whatever the reasons, change is on the way. The government's recent budget bent over backward not to discourage the IT sector, proposing a new tax on services but granting IT companies a retroactive exemption and putting forward a raft of proposals to encourage foreign investment. The nascent deal for the new Indian Media Lab also follows a strong lobbying effort from the government that helped beat out competition from China, among others.