Companies from GE Medical Systems to Cummins to Microsoft to enterprise-software firm PeopleSoft that are hiring in India say they aren't laying off any U.S. engineers. Instead, by augmenting their U.S. R&D teams with the 260,000 engineers pumped out by Indian schools each year, they can afford to throw many more brains at a task and speed up product launches, develop more prototypes, and upgrade quality.

Whether you regard the trend as disruptive or benefical, one thing is clear. Corporate America no longer feels it can afford to ignore India. "There's just no place left to squeeze" costs in the U.S., says Chris Disher, a Booz Allen Hamilton Inc. outsourcing specialist. "That's why every CEO is looking at India, and every board is asking about it." neoIT, a consultant advising U.S. clients on how to set up shop in India, says it has been deluged by big companies that have been slow to move offshore.

As a result of this shift, few aspects of U.S. business remain untouched. The hidden hands of skilled Indians are present in the interactive Web sites of companies such as Lehman Brothers and Boeing, display ads in your Yellow Pages, and the electronic circuitry powering your Apple Computer iPod. While Wall Street sleeps, Indian analysts digest the latest financial disclosures of U.S. companies and file reports in time for the next trading day. Indian staff troll the private medical and financial records of U.S. consumers to help determine if they are good risks for insurance policies, mortgages, or credit cards from American Express Co. and J.P. Morgan Chase & Co.

By 2008, forecasts McKinsey, IT services and back-office work in India will swell fivefold, to a $57 billion annual export industry employing 4 million people and accounting for 7% of India's gross domestic product. That growth is inspiring more of the best and brightest to stay home rather than migrate. "We work in world-class companies, we're growing, and it's exciting," says Anandraj Sengupta, 24, an IIT grad and young star at GE's Welch Centre, where he has filed for two patents. "The opportunities exist here in India."

If India can turn into a fast-growth economy, it will be the first developing nation that used its brainpower, not natural resources or the raw muscle of factory labor, as the catalyst. And this huge country desperately needs China-style growth.

India is penetrating America's economic core. The 900 engineers at Texas Instruments Inc.'s Bangalore chip-design operation boast 225 patents. Intel Inc.'s Bangalore campus is leading worldwide research for the company's 32-bit microprocessors for servers and wireless chips. Venture capitalists say anywhere from one-third to three-quarters of the software, chip, and e-commerce startups they now back have Indian R&D teams from the get-go. Says Sequoia Capital partner Michael Moritz, who nurtured Google, Flextronics, and Agile Software "India has seeped into the marrow of the Valley."

It's seeping into the marrow of Main Street. This year, the tax returns of some 20,000 Americans were prepared by $500-a-month CPAs such as Sandhya Iyer, 24, in the Bombay office of Bangalore's MphasiS. After reading scanned seed and fertilizer invoices, soybean sales receipts, W2 forms, and investment records from a farmer in Kansas, Iyer fills in the farmer's 82-page return. "He needs to amortize these," she types next to an entry for new machinery and a barn. A U.S. CPA reviews and signs the finished return. Next year, up to 200,000 U.S. returns will be done in India, says CCH Inc. in Riverwoods, Ill., a supplier of accounting software. And it's not only Big Four firms that are outsourcing. "We are seeing lots of firms with 30 to 200 CPAs -- even single practitioners," says CCH Sales Vice-President Mike Sabbatis.

"The Indian labor card is unbeatable," says Chief Technology Officer John Parkinson of consultant Cap Gemini Ernst & Young. "We don't know how to use technology to make up the difference." India's IT workers, in contrast, sense an enormous opportunity. The country has long possessed some basics of a strong market-driven economy: private corporations, democratic government, Western accounting standards, an active stock market, widespread English use, and schools strong in computer science and math. But its bureaucracy suffocated industry with onerous controls and taxes, and the best scientific and business minds went to the U.S., where the 1.8 million Indian expatriates rank among the most successful immigrant groups. Now, many talented Indians feel a sense of optimism India hasn't experienced in decades.

Inside GECIS' Bangalore center -- one of four in India -- Gauri Puri, a 28-year-old dentist, is studying an insurance claim for a root-canal operation to see if it's covered in a certain U.S. patient's dental plan. Two floors above, members of a 550-strong analytics team are immersed in spreadsheets filled with a boggling array of data as they devise statistical models to help GE sales staff understand the needs, strengths, and weaknesses of customers and rivals. Other staff prepare data for GE annual reports, write enterprise resource-planning software, and process $35 billion worth of global invoices. Says GE Capital India President Pramod Bhasin: "We are mission-critical to GE." The 700 business processes done in India save the company $340 million a year, he says.

Indian finance whizzes are a godsend to Wall Street, too, where brokerages are under pressure to produce more independent research. Many are turning to outfits such as OfficeTiger in the southern city of Madras. The company employs 1,200 people who write research reports and do financial analysis for eight Wall Street firms. Morgan Stanley, J.P. Morgan, Goldman Sachs, and other big investment banks are hiring their own armies of analysts and back-office staff.

The remarkable high-tech rise of India is a much-less-told tale than the ascendancy of China. Yet its impact may be greater. India may soon bring to services the kind of deflation now seen in manufacturing. Thanks to global broadband connections, the tens of thousands of English-speaking professionals graduating every year from India's first-rate universities are plugging into the U.S. economy. Broadband arbitrages cost across global time zones, and India's high-tech workers and service providers are paid a fraction of what Americans get. Manufacturing, China's strength, accounts for just 14% of U.S. economic output, while services, India's forte, make up 60% of the economy, employing two-thirds of American workers.

India Is Raising Its Sights At Last
NO HIGHWAY, NO WEALTH. Three years ago, no one thought India, with its inefficiency, rigid bureaucracy, and corruption, could build such projects. But it did, pushed by Prime Minister Atal Bihari Vajpayee. And it's building more: roads, airports, schools, hospitals. The country finally seems ready to build a robust economy, inspired by the example of Bangalore's global software success.

If India does take off, it will be because of its chaotic, robust democracy, not in spite of it. In the past two years, six companies have won prestigious Deming quality awards, and their excellence has triggered a surge in export orders. It's not just business that has learned a few lessons. New Delhi has abandoned its attempts to micromanage the economy. It has steadily lowered interest rates, eased up forex restrictions, and freed banks from their obligation to lend to agriculture and favored state companies. That has made the rupee virtually convertible, with Indian business largely free to invest where it chooses, while credit has become so affordable that it has resulted in a consumer boom.

The chief architects of this rising business model are the 30,000-odd Indian IT professionals who live and work in the Silicon Valley. Indian engineers have become fixtures in the labs of America's top chip and software companies. Indian émigrés have also excelled as managers, entrepreneurs, and venture capitalists. As of 2000, Indians were among the founders or top execs of at least 972 companies, says AnnaLee Saxenian, who studies immigrant business networks at the University of California at Berkeley.

Now, this ambitious diaspora is generating a flurry of chip, software, and e-commerce startups in both nations, mobilizing billions in venture capital. The economics are so compelling that some venture capitalists demand Indian R&D be included in business plans from Day One. Hundreds have returned to India since 2000 to start businesses or help expand R&D labs for the likes of Oracle, Cisco Systems and Intel. The downturn - and Washington's decision to issue fewer temporary work visas - accelerated the trend. At a Nov. 6 tech job fair in Santa Clara, hundreds of engineers lined up, résumés in hand, for Indian openings offered by companies from Microsoft Corp. to Juniper Networks Inc.

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