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Although India has
had significant success in IT services, it has yet to strike gold with IT
products and intellectual property
IT in India has come a long
way since it first appeared in the 1980s, when US technology companies started leveraging
the cost arbitrage between US and Indian programmers. The liberalization of
certain economic policies that started in 1991 led to the birth of innovative
companies, such as Infosys and Wipro. These companies used the “quality route” to
grow their business—Indian IT companies followed the five levels of the
Software Engineering Institute’s certification more than any other country,
The arrival of the Internet
and imaginative government policies, such as fast and easy access to international
data circuits and tax benefits through Software Technology Parks of India
(STPI), led to further growth. Then, by the turn of the century, the IT
industry started focusing on what I refer to as EQQ—English language
skills for engineers and higher quantities of quality engineers. EQQ gave India
an advantage over Ireland (which had fewer programmers), China (which lacked
engineers proficient in English), and the Philippines (which lacked qualified
programmers). The Y2K phenomenon that led to a global shortage of programmers
propelled Indian IT companies into aposition of global leadership. By the
middle of the last decade, Indian IT had arrived.
India’s IT industry is
growing steadily. Indian IT companies have reached the global stage and are
undertaking interesting IT projects.
Employment and Education
The IT sector has created
jobs for 2.8 million IT professionals and has indirectly employed an additional
8.9 million. The rapid growth of engineering education, with more than 500,000 undergraduate
IT engineers graduating per year, feedsinto this steadily growing IT industry.
For the 2012 financial year
(which ended March 2012), annual business crossed US$100 billion in sales
revenue, with IT contributing to 7.5 percent of India’sGDP. Furthermore, Indiahad 58 percent of the “global IT services” outsourcing
revenue. Indian IT services account for 25 percent of its exports.
Most Fortune 500 companies outsource
some of their work to Indian IT companies, and many (almost all in the top 100)
operate either directly or indirectly in India.
The IT company Tata Consultancy
Services reached $10 billion in annual revenue by March 2012, with a healthy bottom
line (22 percent). Another company, Infosys (with $7 billion in annual
revenue), created the “ACM Infosys Foundation Award for Computing Science” in
2007 to celebrate 25 years of service (awards.acm.org). Fortune magazine
recently named Infosys founder NR Narayana Murthy, who is known for his
unique way of combining capitalism and socialism, as one of the 12 greatest entrepreneurs
of our time.
Over the past five years, India has
spent billions of dollars on its e-governance project—one of the largest
e-governance projects in the world (http://negp.gov.in).
Up the Value Chain
Al though India has had significant
success in IT services (including business-process outsourcing), it has yet to
strike gold with IT products (hardware and software) and intellectual property
(IP). There are just a handful of success stories, one of which is the Finacle
software suite from Infosys.
Finacle addresses the core banking,
e-banking, treasury, wealth management, and customer relationship-management
needs of retail, corporate, and universal bank customers (including Islamic banking).
Finacle is currently used by 148 banks spread across 75 counties with nearly
400 million accounts and 300 million customers (www.infosys.com/finacle). Gartner has
placed it in the “Leaders Quadrant” of its “Magic Quadrant for International Retail
Ittiem Systems offers another success
story. It creates IP in the digital signal processing (DSP) area for video
communications, automotive in fotronics, networking, and media (see www.ittiam.com ). It has been in business for
10 years and its current revenue is $20 million—37 percent of which is
generated through IP licensing. Such a revenue model isn’t common in many
Indian companies. For the last seven years, Forward Concepts (www.fwdconcepts.com ) has named Ittiam
Systems the “World’s Most Preferred DSP IP Supplier.”
Indian IT companies must “move up the
value chain” in the years to come. Possible strategies might include :
-Producing focused products for either the domestic sector, specific markets (say, emerging or African markets), or global markets;
-Developing technology in emerging areas ( next -generation networking protocols, for example); and
-Creating IP in areas where Indian IT companies have strength or for local markets.
The consumption of IT within India must improve too. In addition to surging exports, IT should improve efficiencies within the Indian industry. Although a lot has yet to be achieved, India successfully transformed its banking through widespread IT adoption. Thanks to the Reserve Bank’s constant push for technology upgrades in the banks, the banking sector saw core banking, ATM, and multichannel banking implemented across all the banks. Efforts are ongoing to get those citizens who aren’t covered by banking (a significant portion of India’s population) covered through “no frill,” inclusive, or mobile banking.
Former Indian Prime Minister Atal
Bihari Vajapayee once described IT as “India’s tomorrow.” With the convergence of
computing, communications, and electronics, the scope of IT is changing, as are
key industries, such as :
-transportation (road, rail, air, sea, and urban transport);
-financial services (banking, insurance and stock trading);
-hospitality (hotels, restaurants, and tourism);
-automotive and aerospace;
-core industries (oil, gas, steel, and mining);
-services (education and healthcare); and
Areas such as industrial automation and
medical electronics are embracing open standards and starting to use commodity hardware.
Leading companies in those domains—such as ABB and Siemens—could soon become “IT
companies.” Indian IT is thus likely to enjoy steady and sustained growth for
at least another decade.
to Continued Growth
However, the Indian IT industry must
overcome some roadblocks to maintain its current rate of growth.
Increasingly, global markets (including
in the US) are trying to prevent outsourcing—particularly to “low cost”
destinations like India.
India has seen higher internal costs
(mostly wages), reduced productivity, and unionism among its IT employees. The
Indian IT industry has had double-digit wage increases for many years, whereas
wage increases have been considerably lower elsewhere. For example, the 2012
projected salary increase for India is 12 percent, whereas it’s 9.5 percent for
China and 7 percent for the Philippines.
Universities haven’t been able to
graduate large numbers of high quality professionals to take up jobs in the IT
industry. There’s an acute shortage of faculty in higher education due to much smaller
enrolment in graduate studies compared to undergraduate degrees. In addition,
faculty compensation is insufficient. However, things are improving with the
start of new Institutes of Information Technology (IITs), Central Universities
(including “Innovation Universities,” which focus on new technology and inter/cross-disciplinary
research in emerging areas), and capacity increases in existing institutions- along
with the recommendations of the Sixth Pay Commission in 2010.
India must address disruptions in
business models. For example, new applications are fundamentally changing how
software is produced (in very small groups or by just a single person),
delivered (over the “cloud”), and consumed (using appliances like smart
Projects and Emerging Companies
Here, I look at some key IT projects
and emerging IT companies in India. (For a brief discussion of how I selected
these particular projects, see Box.)
Project Aadhar, which started in 2009
and is one of the most ambitious IT projects in the world, aims to provide a
unique ID to every citizen (http://uidai.gov.in
). By 2014, using a combination of biometric measures, Aadhar aims to identify
every Indian and accept or reject identity claims within a few seconds- for the
1.2 billion Indians spread out across the country.
In 2007, two IIT graduates, Sachin and
Binny Bansal, started Flipkart, an Indian e-commerce store (www.flipkart.com). It’s current annual
revenue is almost $100 million, and it’s expected to grow to $1 billion by
2015. Flipkart focuses on:
-ease of use;
-variety (books, stationery, electronics, laptops,Mobiles & tablets, cloths and recently digital rights.
-management (DRM)-free digital music);
-low prices (books are often sent with no shipping charges); and
Flipkart also address the unusual
Indian needs of “cash on delivery” (most of the adult Indian population doesn’t
use credit cards) and “credit-card swipe on delivery” (for the younger generation,
which uses credit cards but doesn’t trust online Internet commerce).
RedBus provides Internet-based ticketing
solutions for small and often unorganized bus operators across the country (www.redbus.in ). Founded by Phanindra Sama, Charan
Padmaraju, and Sudhakar Parapuneni—IT professionals from three different parts
of India—RedBus currently helps more than 350 operators driving more than 4,500
routes. Millions of RedBus customers can go to any of the 4,500 outlets to buy
a ticket, from anywhere to anywhere.
Over the last three years, RedBus
revenues were 5 million, 50 million, and 1 billion rupees, respectively, and it
currently has almost 500 employees. In March, Fast Company named it one of the
50 most innovative companies (www.fastcompany.com/most-innovativecompanies/2012/redbus
). Using an unusual model of offering its bus operators the same commission
whether they sell 100 or 1,000 tickets has helped RedBus quickly win over the
large number of operators who are new not only to Net-based service but also to
the “organized sector.”
TutorVista, a leading online education
company (www.tutorvista.com ), was
incubated at the Indian Institute of Information Technology, Bangalore. Its
founder, serial entrepreneur Krishnan Ganesh, bet on the Internet in 2005 to
help high school students in the US with online tutoring. His unique selling
proposition was to offer quality teachers at an affordable price.
Pearson acquired TutorVista in 2011,
and today it has 2,000 teachers across India, the US, the UK, the United Arab
Emirates, Australia, China, and South East Asia. The tutors help students in
math, physics, chemistry, biology, and English and with test preparation and
homework. IT in India has seen amazing growth, thanks to the liberalization of economic
policies, conducive government policies, growth in higher education, and the uptake
in entrepreneurship. Several countries are attempting to leverage IT for their
economic development, and focusing on the key issues of education, policy support,
and entrepreneurship is likely to pay rich dividends. Unless Indian education
and research (on the supply side), IT companies (on the demand side) , and the
government and media (enablers) continue to innovate, India might not be able
to sustain its current leadership position in this area.
Sowmyanarayanan Sadagopan The author is Director, Indian Institute of InformationTechnology, Bangalore.
development needs sustained investments of a long-term
nature. Not only is a rigorous monitoring of sector-wise
targets critical for the success of the entire investment programme, it is also
necessary for the policy environment to be dynamic in
Equitable development is dependent on sustained
growth of an economy which is critically reliant on the sustainable development
of infrastructure. Infrastructure is, therefore, a driver for inclusive growth.
However, investments in infrastructure are not easily available due to
requirements of lumpy capital investment with very low returns. Such investments
are justified normally on grounds of social benefits rather than on financial
India is poised to become the third
largest economy in terms of GDP in the next two decades. At present, along with
China, it is one of the fastest growing economies in the world. The growth
momentum needs to be sustained to ensure that the fast pace of growth does not
peter down. Absence of world class infrastructure facilities in India is often
considered as one of the major impediments to growth. With the sprawling
urbanization, demand for infrastructure continues to
rise faster than the capacity in the economy tosatisfy such demands.
Glancing across the major infrastructure
sectors, it is found that apart from telecom where teledensity is extremely
high (79.28 in May 2012 as compared to 0.31 in 1981) and tariffs one of the
lowest in the world, other sectors are yet to achieve levels of stable growth coupled
with quality services.
India has a road network of
33 lakh kilometres which is the second largest in the world. These roads carry
65 percent of the freight traffic and 80 percent of the passenger traffic of
the country. National Highways carry 40 percent of the traffic, yet constitute
only 1.7 percent (71,772 kms) of the total road network in the country and rural
roads cover a length of about 26.5 lakh kms. Only 20percent of this National
Highways network is four-lane, 50 percent two-lane and 30 percent single-lane.
The State Highways have also suffered from prolonged neglect.
As regards Indian Railways,
the largest rail network in Asia comprising about 64,000 route kilometres,
there has not been much growth in the network since independence. At the time
of independence, the route kilometres stood at 53, 596 kms. Hence, just about
10,000 route kilometres have been added in the last 65 years resulting in
saturation of routes and restricted capacity. Naturally,
the share of goods and
passengers carried has come down drastically since independence.
India has a total installed
capacity of 2.03 lakh MW of power as against 1,362 MW in 1947. Thermal power
forms 66.32 percent of this capacity and about hydel power 19.2 percent. The
per capita consumption has increased 49 times since independence and stood at
813.3 kwh for the year 2010-11. This was, however, less than one-third of the
world average per capita consumption of power. The power sector suffers from a
peaking deficit of 9.8 percent and anenergy shortage of 8.5 percent due to
underinvestment and poor maintenance. The distribution segment of the sector suffers
from average Aggregate Technical &Commercial losses of 27 percent and as
per the 13thFinance Commission’sprojections, in absolute terms, these losses
are projected to increase to Rs. 1.16 lakh crore by the year 2014-15.
At the end of the 11thFive Year Plan, India was the 9thlargest civil aviation
market in the world with a passenger handling capacity of over 220 million and
cargo handling capacity of 3.3 MT. However, air travel penetration continues to
be low at 0.04 air trips per capita per annum. The Indian civil aviation sector
was able to attract private investment of about Rs. 30,000 crore in four
airportsat Delhi, Mumbai, Hyderabad and Bengaluru. Airports Authority of India
had a plan to develop 35 non-metro airports in the country. Of these, 26 have
been developed and the balance would be completed in the current financial
The Indian maritime sector handles
95 percent of India’s foreign trade by volume. There are 13 major ports and 187
minor/ intermediate ports in the country. In the year 2011-12, the major ports handled
560.1 million tonnes of traffic and the total cargo handled by all the ports
together was 915 million tonnes. The average turnaround time at major ports has
increased from 3.93 days to 4.67 days between 2006-07 and 2010-11. There has
also been a deterioration of 3 percent in the pre-berthing detention time.
development through the Five Year Plans
In the initial Five Year
Plans, it was widely believed that agriculture needed the necessary push to
sustain the economy and the basic needs of food for the masses needed to be met.
There was also considerable importance attached to setting up heavy industries.
Infrastructure requirements were proposed to the extent of meeting the
aforesaid objectives and were never the stated objective of the Plan exercise
as such. However, there was heavy allocation of resourcestowards irrigation
and power since the two were necessary for the development of the agrarian
economy and industries. At a later stage in the 60s and the 70s, development of
roads also picked up momentum.
In the mid-80s onwards, the
thrust of the development process was towards obtaining state of the art
technology for the country. This resulted in impressive development of
communications technology. It was only from the Ninth Plan onwards that there
was a definite thrust towards infrastructure development in the Five Year Plans.
In each of the previous two Plan periods, the investment in infrastructure has
almost doubled. This is evident from Figure 1.
growth in the last two decades has increased demand for land from many sources,
such as infrastructure, industry, resource extraction (such as mining), and
urbanization, including real estate. Even when many of these activities are
funded privately and driven by profit motive, they serve a social purpose, as
employment generation per unit of land is higher in non-agricultural uses than
in agriculture. For instance, a 4000 MW thermal plant may displace about 250
households but would create tens of thousands of new jobs by providing power to
small industry and tubewells that would increase both gross cropped area and
productivity. At present the share of urban dwellers in total population of
India is 32 percent, but they occupy only 6 percent of the total area of the
country. Thus growth through industrialization and urbanisation would not only
increase labour productivity but will reduce pressure on farm landby pulling people away from land to
non-farming occupations. However, land acquisition has emerged as the most
important structural constraint in India to the process of fast
industrialization and improvement in infrastructure. Delays in procuring land
leads to uncertainty and cost escalation, and thus affects development.
Acquisition of land
by government has lately drawn resistance in many cases due to inadequate
compensation for the land and loss of livelihoods of the affected people, as
well as for involuntary displacement without proper rehabilitation. Moreover,
people are not willing to give up their present dwelling and occupation of
farming for a dark future totally dependent on the vagaries of market. The
present land acquisition law has been quite hostile to the interests of the
landowner, as it attempts to make land available to industry through government
at a minimal price. So far the practice in most state governments has been to
coerce people to give up their lands by using the legal powers of eminent
domain, and in some cases even through the use of force. Thus the model followed
has been, ‘let some people lose out so that others (this includes some
enterprising poor too) may gain’. Unfortunately the losers tend to be the
poorest with little skills, often tribals, who are unable to negotiate with the
market forces and cope with the consequences of their forced expulsion from
land, and end up much worse off than before acquisition.
Bombay Stock Exchange (BSE) first ever stock exchange in Asia (established in
1875) and the first in the country to be granted permanent recognition under
the Securities Contract Regulation Act, 1956, BSE Limited has had an
interesting rise to prominence over the past 137 years. BSE has facilitated the
growth of the Indian corporate sector by providing it with an efficient capital
BSE is the world’s number 1 exchange in terms of the number of listed companies
(over 4900). It is the world’s 5th most active exchange in terms of number
of transactions handled through its electronic trading system.
An agricultural drought has very specific effects on
crops and regions, and the rainfall pattern on more important welfare effects
like drinking water and employment
Is India a
‘monsoon economy’? Not true any longer. Until the mid-1970s, in half the year’s
growth was negative and in the other half the economy grew between 3 percent
and 6 percent, giving us the average Hindu growth rate. But since then, we had
only two years with a growth of less than 3 percent. It has been argued by
Arvind Panagriya that volatility is higher now. Even that is not the complete
picture. If you compare the Sixties of the last century with the post mid
seventies period volatility is less now.
A meteorological and an agricultural drought are, to an extent, two
different issues. An agricultural drought has very specific effects on crops
and regions, and the rainfall pattern on more important welfare effects like
drinking water and employment. Human welfare is very important and tracking the
events and ameliorating policies in a time-bound manner are essential.