Bill Gates recently visited India and made the comment that India needs to move away from low-cost labor toward high-end research and development work. I believe Bill is partially correct. The Indian IT sector has been built upon a value proposition of high scale, low cost labor which has allowed large companies to drastically reduce IT development and management costs. Surely Bill does not believe India should move away from the dominant position she holds on this market.

Where Bill is absolutely right is the future for the India IT sector lies in expanding its capability to handle high-end R&D work. The type of work that drives innovation and products. In this segment India lags the US and China.

Such a major shift will require some significant changes in India. Lets start with the educational system. The entire IT educational system in India today is geared towards producing large quantities of engineers that can serve in the IT outsourcing business. Hence, the educational institutes focus on the basic skills required - communication and specific technology skills. When these graduates enter their first jobs they are taken through meticulously designed induction programs that continue to build on this foundation.

Research and development requires a totally different approach. Scientists carry out R&D. This requires a thorough understanding of the underlying science of information technology. Great scientists are lateral thinkers, creative yet practical. They possess deep knowledge and challenge conventional thinking. The Indian educational system today is not geared towards producing large quantities of scientists.

The US produces the largest numbers of PhD’s in the world allowing it to be the center of technology R&D. When you examine the US university system one rapidly realizes this is made possible through tremendous cooperation and funding from the federal government and large private companies. As an example, when I studied at MIT as an undergraduate I had the opportunity to work in the Laboratory for Artificial Intelligence - a multi-million dollar facility funded by IBM. I had access to the latest computers and technology. Why did IBM provide this level of funding? They got access to some of the research (though all research is public) but also because companies in the US know this type of fundamental research produces the scientists they want to hire down the line.

If India is to make a significant shift in producing scientists who can drive a new wave of R&D expansion, the large IT companies in India need to sponsor fundamental research at the university level. The government needs to create incentives by providing tax breaks for this type of research funding and for the creation of R&D centers.

Finally, since Mr. Gates brought up this idea maybe Microsoft can start with leading the way.