Aim for the Oaks but start from Acorns — An Analysis of Bihar IT Policy 2024
A full-page advertisement in newspapers hailing the new Bihar IT Policy 2024 caught my eyes and reminded me that I had promised to do an analysis of the pros and cons of this policy some time ago. I had been critical of the old IT Policy, from 2016, which was being used by the Bihar senior officers / political leaders in trying to promote Bihar as an IT destination and expressed surprise that they would do so with such an old policy document. It was a sheer waste of taxpayer funds as no one would take them seriously in the corporate world, in my opinion.
I was therefore very happy to see the new policy rolled out and rolled up my own sleeves to study the same and try to understand its soul & purpose. I had finished 60% of my review but stopped at that and gave up on further work since I did not find anything exciting in the policy and on the contrary observed that the policy seemed disconnected with the ground realities of IT capability / capacity in Bihar. However, the full-page advert woke me and up and I found some time this week to complete my analysis. Read at your risk — there is some serious criticism here.
Current IT Scenario in Bihar- Summary
Before we dive into the policy itself, let us look at the current IT ecosystem in Bihar. Frankly, Bihar currently has near ZERO IT culture or capability / capacity. There are no units of any of the IT majors (HCL Tech has opened a unit last month and Tiger Analytics announced one last year but has not really got going). While Bihar produces thousands of computer science engineers and MCA graduates, due to lack of jobs locally, nearly all of them migrate outside the state. This leaves the state in talent deficit — even if someone wanted to hire 10 qualified programmers / developers / software architects, they would have a hard time finding trained manpower. I have faced this firsthand over the last 10 months as we are struggling to hire quality and experienced talent at our small IT initiative, MithilaStack, in Darbhanga.
Policy Focus:
The policy focus and priority seem to be hinged on the thinking “attract large IT software units and offer them subsidy on land, infrastructure, interest, GST etc and they will create large number of jobs”.
The policy has ambition. I will give them that. It uses language such as “become one of leading investment destination for IT/ITES and ESDM in the country”. However, if you consider the current scenario (as summarized above), it takes a long time to grow to become a leading destination when you start at Zero. It is much better to learn to walk before one starts running. The policy makers must keep in mind that every state is competing to become an IT destination, and the IT companies have choices.
A better approach therefore should have been to help build say many small and medium sized units in the state (Acorns) and seed the talent base, create a community and grow from there (into Oaks). The over ambitious reliance on attracting large units carries the inherent high risk that the policy won’t find any takers as most large units will find that there is simply no trained manpower available locally and even its own native workers are hesitant to work permanently from Bihar given concerns about schooling, health, infrastructure etc.
Many of the IT professional diaspora and also the global diaspora from Bihar is willing and ready to setup small 10–25 man IT teams in Bihar. The policy totally ignores this latent interest and does nothing to nudge its own diaspora towards the investment and building of essential capability in the state through these units.
Eligibility Conditions under the policy:
Existing units to add 25 new head count
Some of the conditions mentioned in the policy seem counter-productive given the current situation in Bihar. For example, for existing IT units (those rare folks who have taken big risks to start something even before the policy wonks woke up to write a new policy) the new policy stipulates that to get any benefits under the new policy they must add 25 new full-time hires to the unit before any help from the policy.
This is a huge ask given current state of IT economics in the state. Given the lack of talent pool, ready-to-work graduates with relevant hands-on-experience, the first phase for next 2 years will be of small 10–15 member teams completing pilot assignments, internship work and demonstrating basic competence and capacity to work on industrial grade projects. Keeping a target of 25 is acceptable in Karnataka, Maharashtra, Andhra, Telengana, UP (Noida) but not practical in Bihar. It only betrays the “big unit” thinking of the policy makers.
Few initiatives may reach indeed 25 head count but will happen in 3+ years. This means that the benefits under the policy will not be applicable for existing units till nearly 3 years for most, defeating the purpose of creating an enabling policy. So much for risk taking.
Units must generate Rs. 20 lakhs per employee per year
Another policy constraint that does not add up to current ground situation is the stipulation that to be eligible for benefits under the policy, the IT unit must be generating Rs. 20 lakhs per annum per employee.
Given that most IT units will have nearly 25–30% bench time, this effectively means that the IT units must generate nearly Rs. 2.25 lakhs per employee per month to reach the Rs. 20 lakhs annual target. This is at the high end of manpower costs for IT work. Given the low talent base and early stage of skills, it is highly unlikely that most units will be able to meet this target.
It seems that the policy makers are either disconnected from ground realities of the IT business or that Bihar government is paying handsomely for its IT outsourcing to outside firms. If the latter is true, it would have been a great tool to incentivize creation of IT units in Bihar simply by allocating 30% of the Bihar government work to IT units based in Bihar. The policy, sadly, misses on this opportunity (I have seen a new industrial policy favoring purchase of goods and services from startups. I do hope the software, IT outsourcing is covered as well under the new scheme).
50% of total employment must be for persons having permanent domicile of Bihar
Bihar needs to build IT culture and capacity / capability from ground up. The local talent is not yet skilled. Over time that will develop. For now, Bihar needs to invite IT professionals from all over India to come and work out of Bihar. They don’t need to have permanent domicile in Bihar. This requirement will simply make it unattractive to folks from outside Bihar to setup IT units in Bihar. How can that be the objective of a policy that aspires to build the state as an “leading destination for IT investments”?
A real-life case in point is that of Muzaffarpur based Suresh Chips. They started by hiring trained folks from Andhara, Telengana, Karnataka to Muzaffarpur and build a team there. Today, they have nearly 50 employees serving semiconductor verification needs of global customers.
The policy should aim to employees being in Bihar for policy incentives such that over time, the local talent finds the skilling and work opportunities and as they grow, the domicile ratio gets balanced.
Joint Investment: A Big Miss
The Bihar Startup policy seems too conservative in its fiscal approach. It wants businessmen to invest their own funds, build and operate IT units and then chase the bureaucracy and lower-level officials for subsidy and benefits over 5 years. Most folks are aware how frustrating that can be. Most will simply turn off from this.
In my opinion, given the current conditions and the challenges, the ground was better suited for a “bootstrapping” approach where the state could have created a small fund, say Rs. 100 crore for co-investments into IT projects, on co-ownership or convertible debt basis. This would have created necessary IT Parks and talent pool at Patna, Muzaffarpur, Darbhanga and over time led to thriving IT destinations.
Imagine if Nehru had adopted a similar policy at the time of independence, would we have seen the rise of steel PSUs? The need to change the IT scenario, create jobs and upskill its youth demands that the state think creatively about disrupting the status-quo and design schemes and policies that align to its needs.
I am afraid the new policy, though better than the 2016 policy, falls short on many counts and real change may not happen with this approach. One may aim for the Oaks, but it is always wiser to start from acorns if the landscape before you is barren.
