NR Narayana Murthy talks about the growth steps of Infosys, the second-largest software company in India.
In 1990, NR Narayana Murthy and other co-founders refused to sell Infosys despite buying the company for Rs 2 crore. The company continued to grow under their supervision. Today, Infosys has a market capitalization of Rs 6.5 lakh crore. NR Narayana Murthy talks about the growth steps of Infosys, the second-largest software company in India.
The determination of the founders and the economic reforms of 1991 were behind the growth of Infosys. For the 1991 economic reform to find a better market position for companies like Infosys. It was only after this major change in 1991 that companies were allowed to travel abroad and import computers without the permission of the government or the Reserve Bank.
On July 24, as India marked its 30-year liberalization policy, Infosys founder NR Narayana Murthy spoke to MoneyControl about how the 1991 economic reforms changed Infosys’ growth and the next wave of economic reforms in India. Let us examine some important parts of this interview with Chandra R Srikanth.
When economic liberalization was announced in 1991, Infosys was a 10-year-old company. This is how the company was run in the pre-liberal period
First of all, we were very young then. Our desires, dreams, hopes, and possibilities were all very small and narrow. The company was started in a small office room in Jaya Nagar, south of Bangalore though spent a lot of time travelling to Delhi at that time to get licenses to import computers, computer accessories and software.
Due to the lack of hardware in India, colleagues doing projects abroad also spend a lot of time at the Reserve Bank offices in Mumbai to earn foreign exchange. Importing computers was very difficult then. There was no one to help. Banks did not know about software. Therefore, collateral was required to obtain the loan. So, term loans and working capital loans from banks have not helped the business much.
Let me give you an example of the limitations of that time. One of our customers was willing to lease us an IBM 4341 plug-in compatible computer system called Magnuson, which cost $ 300,000, to develop a flagship package for the apparel industry. This has enabled Infosys to create at least 50 jobs and train young people on today’s most popular commercial computer architecture. That is the IBM 4341 system
Similarly, one of the main requirements of the company’s customers at that time was a telephone connection in the office, which would enable the employees’ employees to contact us daily and send them faxes. But, at that time, the first priority for providing telephone connection after official needs were for the houses of government officials. The second priority was for the homes of retired government officials. In this situation, even after 10 years of hard work and sacrifice, our co-founders and colleagues have not been able to own big houses, cars or phones.
In 1990, an offer was made to buy the company for Rs 2 crore. That is, at the rate of one million dollars. When this offer came, most of my colleagues were interested in selling the company. But today, Infosys has a market capitalization of Rs 6.5 lakh crore.
It is a good thing that Infosys has rejected its move to sell. Today, Infosys has reached such heights. With a market capitalization of Rs 6 lakh crore, it is not a trivial matter. Can you talk about the difficulties you faced before economic reform? For example, there was no current account convertibility. This means that even if you have to travel abroad for a day, you have to apply to the Reserve Bank. You have to wait up to three years to get permission to import a computer. Multiple trips may also be required. What about these things?
Let me tell you about some of the situations that my friend K.V. Ramani faced. K.V. Ramani, as you know, is a great entrepreneur. Is a good friend of mine. Nasscom was founded by Ramani and Nandan Nilekani along with some other friends. Ramani also started a university called Sai University. I am sure Sai University will be number one in the years to come.
In 1986, Ramani sent an application for foreign exchange to the Reserve Bank office in Chennai. The trip was to visit Frankfurt for two days and to explore the possibilities for a one-day software export business in Paris. After 15 days, permission was obtained from the Reserve Bank. Ramani returned to Frankfurt. The third day was a visit to Paris. The meeting time in Paris was 4 p.m. But at the last minute, the meeting was postponed to 9 a.m. the next day.
Ramani left for Paris at night to attend a meeting in Paris at 9 a.m. Ramani spent one night in Frankfurt and two nights in Paris. At that time, a report had to be submitted to the RBI after each trip on the use of currency for foreign travel.
So when Ramani returned to Chennai, he submitted the report. He also received a show-cause notice from RBI for spending an extra day in Paris.
I also served on the Board of the Reserve Bank 15 or 20 years ago. My friend was the then Governor of the Reserve Bank. I explained this to Bimal Jalan. We could not stop laughing that day about the behaviour of the officials that day.
Applying for a license to import a computer would require two to three years and 30 to 50 visits to Delhi. During this period, technology in the US was advancing every six months. By the time we got permission to import a computer, disk drive manufacturers in the US had released a new version of the disk drive that was 50 per cent cheaper and 30 per cent cheaper.
When I contacted the Department of Electronics to update the model numbers on the license, the officials advised me that there would be a delay in getting the permit. Yet I applied. Model numbers took 12 months to renew on license. In the US, the technology would progress every six to nine months. India will then be at least two generations behind.
What about the current change in the stock market? What is your opinion on raising capital and running a publicly listed company?
Ours was the second software company listed. The first to be listed in December 1992 was a company called Mastek by my friend Ashank Desai. We decided to list in 1991, 10 years after founding the company. But the delay was due to the assassination of Rajiv Gandhi, the demolition of the Babri Masjid and the Harshad Mehta scandal.
The stock market at that time was unaware of the potential of Indian software service companies in the export market, especially in the US. Yet we made very good preparations. There was no further information about the future prospects of the company and the risks that the company would face. There was no such thing as a US-style roadshow. There were very few institutional investors in India.
Two people I should mention here are Mr. Vallabh Bhansali and Mr. Nemish Shah, the founders of Inom. It is their commitment and support that has brought Infosys to where it is today. I will always be indebted to these two individuals. With the establishment of SEBI in 1992, the country began to adopt good global practices from developed countries.
What has fundamentally changed for you as an entrepreneur since the economic reforms of 1991? What was the biggest change in the way Infosys operated since the historic budget on July 24, 1991?
Entrepreneurship combines the idea of turning an idea into value for the consumer, jobs for the employees, wealth for the investors, benefits for the entrepreneurs and finally taxes for the government. Enterprises can only thrive if they are encouraged, encouraged and supported by the government.
In July 1991, prior to the reforms by Chidambaram and others, every little thing needed the approval of the government. Most of these barriers were removed after liberalization. Infosys has become more independent in its market position. To open sales and delivery offices, hire staff from abroad, hire quality, legal and brand consultants and hire investment bankers from abroad. It began to implement a number of factors required for the growth of the company, including quality, productivity, technology, and world-class campuses.
There was a big change in the attitude of everyone associated with the company, including confidence, determination, hope and enthusiasm. With this, the company has come a long way in terms of productivity, quality, finance, human resources, physical and technological infrastructure and branding. Today, Infosys is at the forefront of customer service, employee welfare and investor transparency. Of course, Infosys is the best example of the early beneficiaries of liberalization.
Given the impact of reforms on wealth creation and middle-class development in India, many stories have emerged of ordinary people, drivers and employees becoming millionaires. Thousands of people later became millionaires because of Infosys. Could the ordinary middle class have created wealth without liberalization?
In any country, wealth is created by two factions. Government and Corporate. The government should remove all restrictions and become a neutral regulator. The Government of India has reached this level through the 1991 reforms. Subsequent governments have continued that path.
Corporates, on the other hand, need to innovate, create a competitive difference, gain greater market share, increase revenue and profit, pay employees better, reward investors and pay more and more taxes. As you know, this is what happens in most developed countries.
In 1994, Infosys launched a two-component employee stock option plan. From Peon to the best non-foundation executive director, the best performing employees were rewarded. The founders did not deserve any of these. Another scheme that rewards loyalty also benefits those who have worked in the organization for a long time.
Accordingly, Infosys has a number of peons that have made savings of Rs 10 to 15 crore. My colleague Chris Gopalakrishnan, during his tenure as CEO until 2008, ensured that deserving people had at least 10 shares in the company. To date, Infosys has given 19 per cent stake, or assets worth Rs 1.3 lakh crore, to non-corporate employees.
Today, employees pay capital gains taxes to the government, build houses, buy cars, send their children abroad for higher education, and lead comfortable family lives. In other words, such policies have been a great success for the employees, the corporation and the government. The government was willing to cooperate for this change.
What are the reforms or policies towards India’s goal of becoming a $ 5 trillion economy? Will there be reforms based on technology and the Internet economy?
There are several areas that need reform and let me tell you about some of them.
First, although the country has a large population, the number of skilled people, such as programmers, engineers, scientists, doctors, factory workers, or artisans, is very small. This is because our classroom education system is not focused on solving real problems. The best universities, secondary schools, skills-based schools like nursing schools and vocational institutes from developed countries should start their operations in India. Teachers in these areas should be given better training. These are the things we need to do first.
Secondly, proficiency in English is very high. English is the only official language for college-educated people in India. I know many young people in Bangalore who have graduated in the local language. But they are working at a much lower level than they deserve. The main reason for this is that they cannot speak English well.
Higher-level jobs are available only if we focus on improving our English. Leaving this precious language of English, our exports and software exports will suffer greatly. It is time to recognize English as an Indian language and promote it like any other Indian language.
Third, good growth requires the flexibility to hire and lay off employees. This theory has often been proven. All we need to do is create a security fund for the employees who will be laid off. That way they will receive an acceptable allowance for a reasonable period of time until they look for the next job.
The fourth and most important thing is to encourage the states to perform better.
What advice can you give to novice entrepreneurs leading India? Maybe in the next 10 years, some of the current smaller companies will dominate you. So what are some tips to help new entrepreneurs?
The first two of the most important things an entrepreneur needs are ability and the second are values. That’s why I gave Infosys the tagline ‘Powered in Intellect, Driven by Values’. Therefore, if these two things are taken into consideration, good corporate governance can lead to vision and contribute to society in a meaningful way.
The new generation knows more than I do. I am old today and my days were the 80s and 90s. So, I think I can tell them more. I pray for their success and I wish them success. They are the makers of modern India. The hopes and dreams of the country are on their shoulders. I am sure they will take this country to a higher level than us.
This is a very good message. Have you started travelling again? Or are you still at home?
I received two doses of Covid vaccination. It is now almost three months after the second dose. Although I did not see anyone in person, I started going to the office. Even, my secretary interacts with me wearing social distances and masks. So, in a sense, I am in quarantine. These situations are causing a lot of unrest. But, as citizens of this country, the instructions of the country must be strictly followed at this time.