Interview: Mr. NR Narayana Murthy, Founder of Infosys on the show 30th Anniversary of reforms on CNBC-TV18

Q: Infosys was a 10-year old company when economic liberalisation was announced in 1991. What was it like running a company in the pre-liberalization era?

A: First of all, we were very small. Our aspirations, dreams, hopes, our horizon and our possibilities were all small. They were completely circumscribed by our context. We were in a small office in Jayanagar, a southern suburb of Bangalore. Lot of our time was spent in traveling to Delhi to obtain import license for our computer, computer accessories and software.

We spent much of our time at RBI offices in Mumbai, for obtaining foreign exchange for my younger colleagues doing projects abroad, since we did not have the required hardware in India. Importing computers those days was very tortuous. Banks did not understand software and wanted physical collaterals. We had none, as you know, so term loans and working capital loans from banks just did not exist for our industry.

Let me tell you a story of how the context can limit your possibilities. One of our customers was ready to lend us an IBM 4341 plug-compatible computer system, called Magnuson, costing about $300,000, for us to develop a major package for the apparel industry. This would have enable Infosys to create at least 50 jobs and train our youngsters on the most popular commercial computer architecture of the day, that is the IBM 4341 system.

All that our customer wanted was a telephone connection in our office, so that his officers could contact us daily, and we could send them faxes everyday on the progress of the project. But at that time, the first priority for telephone connection after the official needs of course, was for the homes of these government officers. Do you know what the second priority was? It was for the homes of the retired government officers.

Let me now tell you how our context limits our aspirations. Even after 10 years of hard work and sacrifice, none of my younger co-founder colleagues had graduated to own any visible signs of economic progress, like houses, cars and phones at home.

During 1990, as you perhaps know, there was an offer to buy us out for a small sum of Rs 2 crore — that is $1 million at that exchange rate. When this offer came most of my colleagues were quite enthusiastic about selling the company. Today, Infosys has a market capitalisation of over Rs 6.5 lakh crore. That is why I said our context limits our aspirations.

Q: Can you share some anecdotes on the pain points that existed pre-reforms that went away post reforms? For example, you had to apply to RBI if you had to travel abroad even for a day, you had to take forex from them.

A: Let me tell you an unbelievably bureaucratic story about my friend KV Ramani. KV Ramani is a successful entrepreneur, a friend of mine, who along with Nandan Nilekani and others founded NASSCOM. Ramani has also started a university called Sai University. Knowing how passionate he is about whatever he does, I am confident that Sai University will reach the top in the coming years.

Now Ramani applied to the RBI office in Chennai, in 1986, for foreign exchange to visit Frankfurt for two days, and Paris for a day to meet his prospects for a software export business. He obtained permission from the RBI after 15 days. When Ramani went to Frankfurt, the prospect he was to meet in Paris on the third day, changed the time of the meeting from 4 pm to 9 am.

Ramani went to Paris the second night itself to attend the third day meeting in Paris at 9 am. Ramani, ended up spending one night in Frankfurt, and two nights in Paris. Those days, we had to submit a tour report to RBI after every trip aboard about our utilisation of the hard currency released by the RBI.

When Ramani returned to Chennai, he submitted the tour report; he promptly got a show cause notice from the RBI Chennai, why Ramani had spent two nights in Paris and one night in Frankfurt, as against the RBI approval of one night in Paris and two nights in Frankfurt.

I served on the RBI Board 15 or 20 years ago. When I recounted this to my friend, Dr. Bimal Jalan, the then RBI Governor, he just could not stop laughing at this ludicrous behaviour of his officers.

When we applied for license to import a computer, the process took two to three years and anywhere between 30 and 50 visits to Delhi. However, during this period, technology in the US advanced every six months, by the time we got our approval to import a computer, the disk drive manufacturers in the US had released a new version of disk drives with 50 percent more capacity at 30 percent lower price.

When I went to DoE (Department of Electronics) to update the model numbers in the license, I was advised by the officers against it due to the possible inordinate delay in obtaining the approval, I was adamant and of course I applied. It took us another 12 months to get the model numbers revised in the license. Those days technology progressed every six to nine months in the US, thanks to the Indian bureaucracy, India remained at least two generations behind and paid 30-40 percent more for an inferior product.

Q: What was it like to raise capital and run a publicly listed company back then?

A: We were the second software company to go public. My friend Ashank Desai’s Mastek, was the first one to go public in December 1992. We originally wanted to go public in 1991, 10 years after we founded the company. But we faced delays due to the assassination of Shri Rajiv Gandhi, the Babri Masjid fiasco and the Harshad Mehta scam.

The stock market did not know those days anything about the prospects for Indian software services companies in the export market, particularly in the US. However, we were prepared very well. Thanks to Nandan Nilekani, V. Balakrishnan and GR Naik, we had full projections for the first three years after the IPO for both the top line and the bottom line.

However, the quality of the red herring in India those days was very, very low. Most information in the red herring document was junk. There was not much information about future prospects of the company and the risks that the company face. There was no mechanism like the US-style roadshow, there were very few institutional investors in India. We did not have one-on-one meetings with knowledgeable institutional investors. We could not collect data for demand from investors. And we could not decide on the price at which we would go public on the last day of a 15-day period roadshow, like it happens in the US.

I must record here, but for the kindness, commitment and support Infosys received from ENAM founders Shri Vallabh Bhansali and Shri Nemish Shah, Infosys would not have reached where it has today. I remain ever grateful to these two kind people.

I am also glad that SEBI came into existence in 1992, and good global practices have been adopted from the developed world and several new practices have been created by the extraordinary officers of SEBI in cooperation with corporate India.