GCC revolution needs infra, policy stability, and skilled human capital

Union Finance Minister Nirmala Sitharaman recently said that the government viewed global capability centres (GCCs) as a “great opportunity”. This follows up on her statement in the Union Budget earlier this year that a national framework would be produced to incentivise the movement of GCCs to smaller towns. It is certain that GCCs are an exciting development for what had become a moribund industry. It is vital for India that its strength in the export of services is not overtaken by technological advances but progresses in lockstep with them. The shift in business processes and the creation of in-house capacity that is associated with the growth of GCCs is one that India must certainly take advantage of. Ms Sitharaman shared some optimistic projections about the global roles that might be associated with the growth of such centres: They would grow from merely 6,500 today to 30,000 in 2030 if correct steps were taken to find and establish home-grown talent.

 

The minister also noted that the government would back GCCs through taxation and legislative support, among other things. While it is always important to add clarity and transparency to tax requirements, including the use of advance-pricing agreements, tax laws are not the primary constraint for GCCs. Broader administrative, judicial, and governance reforms are necessary. Indeed, GCCs face a subset of the same constraints that bedevil many enterprises across the country, including in manufacturing. Certainty about taxes is one aspect, but clarity on regulatory requirements and infrastructure availability is perhaps even more important. Fundamentally, as with any new and emerging sector, the government must understand that its role is to fix what is holding back growth and then get out of the way. It must invest in basic infrastructure and ensure that building permissions are available in a timely fashion and that power supply is accessible and uninterrupted. What is good for manufacturing and retail will also be good for GCCs. The broader business climate must improve so that India can take advantage of GCCs — there is little point, as history has demonstrated, in trying to focus on a single sector or a single constraint on that sector when the broader environment remains inimical. 

 

The deeper question, however, is whether India’s human capital is prepared for a shift up the value chain. Past variants of information technology-enabled services exports did not necessarily depend upon hiring or developing the highest-skill stratum of the workforce. If global roles within GCCs, however, are the endgame, then it is a different matter. Investment in human capital has always been a problem for India, and skilling initiatives have either focused too much on pre-qualifications or have not aligned the skills they are imparting closely enough with the needs of potential employers in the private sector. This has to change if GCCs are to pick up the high-productivity employees they need. Finally, some deeper thought must be given to the overall ecosystem effect of GCCs. While greater value addition within India is a goal that is in and of itself worth chasing, what will be the broader impact on innovation and entrepreneurship of the GCC ecosystem? Traditional research networks are often able to benefit from positive spillovers in such a way that domestic companies, old and new, find new technologies and opportunities. The gated research programmes in GCCs might not have the same effect.