March 24, 2004

Can India Plug Its Brain Drain?

IIT Bombay is using its technology incubator to counter the exodus of its brightest graduates to the West

By Venkatesh Hariharan

For years, it was talked about as India's "Brain Drain." Smart young students would take one of the most competitive entrance examinations in the world, get a bachelor's degree in engineering-and promptly go West.

Every year, out of the 250,000 students who appear for the entrance exams conducted by the seven Indian Institutes of Technology (located in Mumbai, Delhi, Kharagpur, Kanpur, Chennai, Guwahati, and Roorke), only 3,000 or so get selected. IIT professors estimate that about 25 to 30 percent graduates leave India right after the graduation. Many others gain some work experience before going abroad for a master's degree in either business or science, or on an H1B visa that enables them to work in the United States.

The result: IIT graduates are scattered across the high-tech world and can be seen aplenty in Silicon Valley and in organizations such as NASA, Microsoft, and IBM. The roster includes ace venture capitalist Vinod Khosla of Kleiner Perkins; Arun Netravali, former president of Lucent Technologies' Bell Labs; Rajat Gupta, former managing director of McKinsey; Gururaj Deshpande, founder of Sycamore Networks; Arun Sarin, CEO of Vodafone; Victor Menezes, senior vice chairman of Citigroup; and Raghuram Rajan, chief economist of the International Monetary Fund. Even the comic strip character Asok, from Dilbert, comes from IIT. No wonder Businessweek called IIT graduates one of the "hottest exports India has ever produced."

That wasn't the plan, exactly. Established by India's first Prime Minister, Jawaharlal Nehru, and initially modeled on MIT, the IITs were supposed to lead India into the modern age. Instead, however, there has been an outflow of students to greener pastures (read: dollar salaries).

Three years ago, in an effort to slow this exodus, IIT Bombay (it retains the name Bombay even though the city is now called Mumbai) set up an information technology incubator at the Kanwal Rekhi School of Information Technology, or KReSIT. The incubator is slowly building a culture of entrepreneurship by encouraging IIT's best and brightest to stay in India. The IIT connection ensures that these startups concentrate on high-value areas such as building intellectual property and products. This stands in contrast to the many Indian companies that focus on software services and business process outsourcing-the activities that are causing a U.S. backlash against India. The startups at the incubator work in a variety of technical fields, including routing technology, information security, robotics, business activity monitoring, electronic design automation, and decision support systems for financial institutions.

D. B. Phatak, the IIT Bombay professor who started KReSIT, says that the incubator was a fundamental part of the vision for KReSIT. "Capable people will move from low-opportunity areas to high-opportunity areas. Therefore we have to create opportunities in India and promote people who are young and ambitious." As part of KReSIT's charter of pursuing applied research, the incubator was set up to commercialize technologies and create a challenging environment that would encourage the IITians to stay in India.

The IIT Bombay incubator is the first one to be set up at the IITs and the seeds of entrepreneurship, are slowly taking root. The incubator takes a stake of three percent of the equity of the incubated companies. Of the 13 companies spawned at KReSIT, four have moved out of the incubator. Three of these companies have raised their first round of funding, and one is already self-sustaining.

Several government departments have stepped forward to support the initiative. As a result, the incubator is expanding from its tiny 28-square-meter area into a separate building with 900 square meters of space, and has raised approximately $1 million to fund its activities. Following IIT Bombay's example, IIT Delhi and IIT Kanpur have set up their own business incubators and IIT Madras (located in Chennai) is in the process of setting one up. Despite the downturn that followed the dotcom bust, interest remains high, and many students vie for each place in the incubator.