India is more than an emerging economy. Mumbai and Bangalore, together, may be the world's next alternative to Silicon Valley.
Not just a richer class, a smarter class
The data is striking. A survey by Tata Consultancy Services, which says that 71% of students in India's urban areas already use PCs, and 66% of those in Bangalore actively blog and use social media. These are the up-and-comers Bill Gates was referring to in a speech at the annual NASSCOM conference in New Delhi in July.
"At first, some of the IT boom was built on low-cost labor. And, of course, as time goes on, you don't want to have that as the only differentiator and it's not a sustainable thing, because others can come along with that as well," Gates told the CEOs in attendance.
Gates said instead that Indian officials hoping to see India become the Next Great Tech Market should emphasize research and development and encourage students to pursue doctorate degrees.
He's right. Silicon Valley isn't just home to successful college dropouts such as Steve Jobs. Atheros Communications (Nasdaq: ATHR ) Chairman and co-founder Dr. John Hennessy earned his Ph.D. in computer science from the State University of New York, Stony Brook. He's also been a member of Stanford University's faculty since 1977.
Advanced education has long played a role in the development of the tech industry on our shores. Why not in India, too?
The ABCs of a great tech market
That's what one well-known Indian entrepreneur appears to be asking. Shiv Nadar, founder and Chairman of HCL Technologies, is spearheading an effort to help poor, rural Indian children receive a free education via a program called VidyaGyan.
"We wanted to build leadership skills in students who come from rural areas, the lower income groups, those disadvantaged because of medium of instruction ... We feel intelligence is not privy to the people who speak a particular language," Nadar said in an interview with UTVi.
Notice the language Nadar uses. "Leadership skills," coming from the founder of a company that produced 102 billion rupees in revenue over the trailing 12 months, sounds a lot like "entrepreneurial skills." At the very least, Nadar seems intent on raising up a new intelligentsia in India, one capable of expanding the nation's industry and influence.
Connectivity should help the cause. According to reporting by Telecom Tiger, India's rural areas are adding wireless lines at close to an 80% growth rate as of June. That bodes well for education and is good news for the nation's top carriers, such as Bharti Airtel and Vodafone (NYSE: VOD ) .
Demographics also favor Nadar's efforts. Among the world's emerging nations, India is one of the most youthful; 32% of the population is under 15 years of age. Contrast that with the U.S., where 20% of the population is under 15. China is even worse off: The sub-15 crowd makes up just 19% of the people.
India is where youth and innovation are converging. Tata Consultancy employs 48,000 people, 95% of whom are 25 years or younger. These are the subcontinent's future tech leaders.
An immigration opportunity
In years past, they might have followed their predecessors to the U.S. Dr. Ajoy Bose founded Atrenta in 2001. Today, his company's clients include LG Electronics, Mentor Graphics (Nasdaq: MENT ) , and STmicroelectronics. Faraz Syed founded privately held DeviceAnywhere in 2003, and has since attracted funding from the venture arms of Motorola (NYSE: MOT ) and France Telecom (NYSE: FTE ) .
Now, two forces are combining to keep them home: First is the greater interest and influence of trade groups such as NASSCOM and grassroots organizations such as Nadar's VidyaGyan. Second is the political climate here.
There's wide debate over the H-1B visa program that allows skilled workers -- many from India -- to work at U.S. companies for years at a time. Cisco is among those known to have recruited and hired H-1B immigrants.
Prominent members of President Obama's transition team have argued in support of easing H-1B restrictions. They have a point; Indians have long played key roles in America's technology industry.
Actually, that's understating it. A 2007 study conducted jointly by researchers at Duke University and UC Berkeley found that, from 1995 to 2005, Indians founded more engineering and technology companies in the U.S. than immigrants from the U.K., China, Taiwan, and Japan combined. That's a lot of technical talent, and it may help to explain why salesforce.com (NYSE: CRM ) and Texas Instruments (NYSE: TXN ) are members of the U.S.-India Business Council today.
Candidate Obama had also expressed support for the H-1B program, but only in lieu of comprehensive immigration reform. Today, the president's stated goal is to see Americans earn more advanced degrees and fill positions that would otherwise go to foreign talent.
He may get his wish. For as technically engaged as India's youth are, they also aren't relying on us; 49% of respondents to Tata's survey said they would prefer to work in India. And why not? For a smart, well-educated young person, India is still what techies like to call a "green field" opportunity -- one where barriers have yet to be built up.
How to profit from this tech boom
For now, the best way to invest in a rising tech class in India is through IBM, already one of the region's largest consultants and employers. But that should change as privately-held software companies make headway. Pune-based Persistent Systems is a 19-year-old contract software developer that has attracted venture capital investors, such as Norwest Venture Partners and Intel Capital.
These companies and their peers will create an IPO pipeline from India -- and opportunities to invest. For this reason and more, our Motley Fool Global Gains investment team is keeping a close watch on India's business climate.
Co-advisors Tim Hanson and Nathan Parmelee recently returned from a scouting trip to the subcontinent. To see their reports and full list of recommendations, click here. A 30-day guest pass to the service is free.
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This article was first published on Aug. 25, 2009. It has been updated.
Fool contributor Tim Beyers owned shares of IBM at the time of publication. Atheros Communications is a Motley Fool Hidden Gems pick and Fool holding. salesforce.com is a Rule Breakers recommendation. France Telecom is an Income Investor pick. The Motley Fool has a disclosure policy.