Information Technology
For information technology, it was excluded from the Industrial Policy Resolutions of 1948 and 1956. There was no domestic research and production capacity and by the 1960s, India’s computer industry was entirely in the hands of the emerging multinational firms. Until the mid-1960s, India’s computer industry was very small and was completely in the hands of a few foreign enterprises, International Business Machines (IBM) and International Computer Ltd (ICL) the 2 dominant ones.
After the wars with China and Pakistan in 1962 and 1965, the government of India recognized the strategic importance of the computer industry and did not want to leave it completely in the hands of the multinationals. In 1965, the Bhabha Committee, named after its Chairman, Dr Homi Bhabha, acknowledged that the industry was so far being developed under foreign collaboration and was a source of weakness. The committee recommended a strategy of self-reliance and pledged to eliminate reliance on foreign assistance in 10 years.
The Bhabha committee recognized that India’s needs and production capabilities for large computer systems were very small and could still be satisfied by foreign collaborators or subsidaries. Self-sufficiency was aimed at the fields of small and medium-range computer systems. The government decided to locate production exclusively within a public sector enterprise. In 1970, the Department of Electronics (DoE) was set up. The following year, the Electronics Corporation of India Limited (ECIL), under the authority of the Ministry of Atomic Energy, started production of small and medium-sized computer systems.
In 1972, a Minicomputer Panel was set up to assess minicomputer demand and make recommendations about industrial capacity needed to ensure self sufficiency at reasonable prices. The Indian government wanted to eliminate domestic competition and make ECIL the sole domestic supplier for minicomputers. No industrial licenses were given out for years on under various pretences. The import of computer parts were regarded as expensive and added unnecessarily to foreign exchange losses. To import computers from overseas, they must cost more than five lakh rupees and proof of essentiality and non-availability must be furnished. All these administrative details led to delays for imports of computers of up to 30 months. However, the volume of ECIL computers did not increase drastically as it was overpriced and the importing of computers was often more viable.
Until 1977, the regulatory framework proved inadequate for the establishment of technological capabilities in entrant firms. Industrial policies restricted firms’ access to technological sources, impeded quality competition, and slowed down the diffusion process.
In 1975, a Computer Maintenance Corporation (CMC was formed to service all foreign systems installed in the country. Only domestic manufacturers could service their own systems. CMC later played a special role in the service of IBM systems when they decided to leave India. The five lakh rupees criteria was also relaxed in the late 1970s. The restrictive policy was however still significant and there was a stagnation in import volume between 1977 and 1986.
Computer manufacturing finally took off in 1986 due to slashed duties on imported computer components.
Up until 1991, India constituted a veritable nightmare in this respect as nearly every sector of the economy was subject to laws governing private and foreign investment. More recently, and more relevant to a discussion on IT in India, significant deregulation has occurred in the telecommunications industry, allowing giants such as AT&T to move in to exploit enormous opportunities. There has been tremendous progress in the liberalization of the Indian economy since the early 1990s. However, some examples of ill thought-out legislation still exist.
Since 1991, liberalization has removed many barriers to foreign investment. India's "license raj" ended in the early 1990s, making it easier for companies to innovate and to explore new areas of the IT industry. As the Indian economy became more open, trade restrictions were eased; as a result, international trade, foreign investment, and the presence of MNCs began to increase.
More recently, the Indian government has recognized the software industry as a major area of growth and has implemented income-tax exemptions on profits from software exports. In fall 1998, Prime Minister Atal Behari Vajpayee introduced several initiatives that would aid the IT industry, such as granting more licenses to internet service providers (ISPs) and allowing more foreign investment in private ISPs. He also unveiled plans for a Vidya Vahini Network that would combine satellites and regular communication lines for educational purposes. Furthermore, the government's National Information Technology Task Force has set ambitious goals for the software industry. It wants to create 500,000 more jobs in the technology sector over the next five years and increase the value of exports to US$50 billion over the next ten years
India has many strengths in Information Technology (IT) including: an abundance of cheap and skilled software personnel; relative freedom from regulations in the software industry; the ability to 'leapfrog' over intermediate technologies, and; access to
top-quality western management personnel. English is also widely spoken and many of the software engineers have studied overseas and even worked in the Silicon Valley, thereby bringing back invaluable knowledge.
PC sales currently dominate the market, but LAN server and peripheral sales have been growing at a rate of over 100% per year since 1993. Despite the billion dollar market in hardware, India's growth in IT has been fueled by the export of software. International companies are flocking to India to form offshore programming ventures. Bangalore has been touted as the Silicon Valley of the East with subsidiaries of Intel, Novell, Philips, Siemens, Sony, and Texas Instruments setting up shop there. The world's leading multinational corporations (MNCs) have flocked to India after realizing that Indian programmers will work for a fraction of what Western workers demand to resolve the Y2K bug and adapt programs to euro conversion rates. Operating in India costs about one-sixth to one-fifth of the cost in the United States and 30 to 40 percent less than in Southeast Asian countries. Indian programmers are famous in the industry for being fluent in English and for possessing superior mathematical and technical skills. Consequently, many Western companies have begun to outsource information technology (IT) projects to offshore Indian companies.
Bangalore attracts foreign companies with its low wages and a progressive atmosphere, along with an IT-oriented labour force. The sharply rising salaries for Indians (US$3,500 for an entry-level software programmer, rising to US$23,700 ten years later) are high by Indian standards. Much like its counterpart in California, India's "Silicon Valley" has a young, laid-back ambience. Employees work hard, but they also play hard, thanks to the numerous discos, pubs, and restaurants that have emerged throughout the city. Both the Multinational and domestic companies have realized that they must improve working conditions and facilities to retain employees in an industry where employee turnover and job migrations are common afflictions. Consequently, companies provide more perks, such as zero-interest home loans, health centres, and world class facilities.
With India's IT strengths, it seems as though success is guaranteed. However, despite its wide variety of competitive advantages, India is faced with an immense weakness in its telecommunication infrastructure. It has been remarked that India's telecommunication infrastructure is poor even for a developing country. This situation can be attributed mainly to the state monopoly over telecommunication in India. Recently, however, the Indian government has taken a series of steps to promote private competition and to increase Indian presence in the IT market.
Future
According to CSFB chief regional economist P K Basu, software exports will soon be capable of funding a much higher level of imports and by 2005, annual software exports should be over $35 billion, which is equal to India's total exports this year, thus reducing the external financing constraints over this period.
CSFB expects the software industry to be the most important long-term phenomenon in helping India's external balances. On a conservative basis, it estimates that the software sector will grow at an annual compounded rate of 50 per cent over the next five years because of no constraints on supply of skilled labour and the significant labour cost differentials.
Software will have a significant impact on the economy by 2005, by substantially improving external balances and therefore, its ability to import capital goods. By 2005, software should contribute 5-7 per cent of GDP.
National Task Force on Information Technology and Software Development
1. Recognizing that the impressive growth achieved by the country since the mid-1980s in Information Technology is only a fraction of the potential, a National Task Force on Information Technology and Software Development was set up on May 22, 1998 under the chairmanship of the Deputy Chairman, Planning Commission.
2. The Task Force submitted the Information Technology (IT) Action Plan comprising 108 recommendations on 4th July, 1998. The recommendations have since been notified in the Gazette of India, dated 25th July 1998.
3. While making recommendations, the Task Force has kept in view the objective that by 2008, the annual export of computer software will be US $ 50 billion and the export of computer and telecom hardware will be US $10 billion.
4. The major recommendations of the Task Force are:
— The compound annual growth rate of around 55 per cent observed between 1992-97 should increase to 80 per cent by 2008.
— Schools, polytechnics, colleges and public hospitals in the country shall have access to computer and Internet by the year 2003.
— A new paradigm in setting up IT software and hardware manufacturing units for making them viable for meeting both local demands as well as exports by creating a policy framework and investment climate in the country comparable to that in Taiwan, Malayasia and Singapore.
— A policy framework and industrial strategy designed for making the Indian IT industry strong enough to meet the demands of a zero duty regime under the WTO-ITA by the year 2003.
— Spread the IT culture to all walks of economic and social life of the country.
— The 108-point Action Plan also includes opening of Internet Gateway access; encourage private STPs; zero customs and excise duty on IT software; income tax exemption to software and services exports; encouragement to set up venture capital funds; a fund to handle the Y2K problem; gift tax exemption on computers; 1-3 per cent of Budget of every Ministry/ Department for IT applications; networking of allUniversities and research institutions; allowing US Dollar linked stock options to employees of Indiansoftware companies; Sweat Equity; and new schemes for students including attractive package for buying computers etc.
5. Government has accepted the Task Force recommendations and has directed all concerned departments to implement the recommendations.
6. On the basis of the IT Action Plan, the Internet policy as well as licensing terms and conditions were modified and a large number of Internet service providers have been licensed.
7. An ‘Operation Knowledge’ has been launched for universalizing IT education and IT-based education in a phased manner.
8. The second report on “Information Technology Action Plan Part II: Development, Manufacture and Export of IT
9. Hardware” was submitted on November 3, 1998.
