India is better placed than most of its emerging market peers, such as South Africa, to benefit from the Fourth Industrial Revolution, the next frontier of technology development, which is the integration of the digital, physical, and biological worlds.
Before the global and eurozone financial crises in 2008, India had firmly established itself as the globe’s largest exporter of IT services and software.
India’s IT industry now makes up one-fifth of the country’s exports, brings in an income of $70billion (R911.54bn) annually, and directly employs more than 3million people, and indirectly more than 10million.
India has become synonymous with being the preferential location for global call centres and Business Process Outsourcing. IT can help developing countries to leapfrog development, without having first to put in place the expensive, time-consuming and environmentally destructive, first generation physical infrastructure, mature manufacturing and stages of growth.
The success of India’s IT industry is based on the government identifying it as a priority sector, then setting up supporting state institutions, and providing cheap finance. Indian governments also struck partnerships between the governments and the private sector to build the IT industry. It compelled foreign companies to set up manufacturing plants in India, bring in research and development, partner with local firms and train locals. And the Indian government provided flexible education models, to foster IT skills.
It set up new institutes of technology, it also introduced regional IT hubs, where educational institutions in the IT sector cluster together, or institutions in a region sharing IT development facilities, skills and know-how. The Indian government fostered partnerships between the state and educational institutions to nurture the appropriate technical skills. But it also created partnerships between Indian and industrial countries' higher education institutions to bring foreign skills to India, and take Indians abroad to learn IT skills.
Immediately, after independence in 1947, the Indian Congress Party (ICP) and the government itself did not view IT as crucial to industrialisation. From independence in 1947 to 1977, when it was voted out, India’s liberation movement turned the government, the ICP into a party of the left that was rigidly ideologically opposed to supporting or partnering with local or foreign business, believing wrongly that the state alone can deliver development.
All changed after India’s battle with China in 1962, in the Sino-Indian war over the disputed Himalayan border.
Government strategists now concluded that India needed to develop an electronics industry to make the country competitive.
Influential sections of the ICP were initially opposed to the development of a computer industry. In 1969, the Ministry of Labour, Employment and Rehabilitation, set up what was known as the Dandekar Committee on Automation, to study the impact of automation on employment.
The Dandekar Committee in 1972 opposed the development of the computer sectors, called for controls in introducing computers in industry, and for mandatory consultation with trade unions before it is introduced at company level.
It argued that because of the high unemployment in India, introducing computers may introduce efficiencies, which could slash employment.
Nevertheless, in spite of such opposition, the government set up the state-owned Electronics Corporation of India Limited in 1967, to create indigenous electronics, computers and IT related research and development, and in 1976 a state-owned Computer Maintenance Corporation, to provide IT services for the government.
The government set up the National Centre for Software Development and Computing Techniques in 1972, to train software engineers. The government also set up Regional Computer Centres at higher education institutions, where computers are accessible to both academics and industry.
The government sent a number of computer technicians to higher education institutions abroad to learn about computers.
When Rajiv Gandhi, the leader of the ICP became Prime Minister in 1984, he introduced the New Computer Policy in 1984, a reform package which allowed foreign IT firms to set up shop, lift import tariffs on hardware and software and made Indian software exports legible for state finance.
Importantly, India’s software industry in the 1980s, given the lack of capacity, access to technology and finance, started at the lower end of the IT value chain, with “body shopping” or “onsite” work, which required less investment, less high skills and less technology.
Overall, India’s industrial plan for the IT sector was built on software, and then gradually upgraded in the value chain, as productivity increased, capacity expanded and new technology was mastered.
The term “body shopping” was coined. In the beginning such early contracts mostly “routine tasks of coding, debugging, data conversion and migration rather than higher-skill tasks of design, analysis and project management”. Such “body shopping” made up for almost 80percent of the IT export income.
The Indian IT industry copied and learned new skills from this practice, on which they built to establish the country’s current dominant IT sector.
By the 1980s, through learning by copying, some Indian companies had grown enough to form joint ventures with foreign companies.
The software industrial plan focused on exports - forcing Indian companies to be competitive abroad. The government also provided incentives for multinationals to set up shop in India. They were compelled to transfer technology, skills and capacity to the domestic industry. US global IT firms such as HP, Oracle and IBM were lured to India.
The subsidised physical infrastructure, soft regulation and financial incentives, meant that India’s IT services were competitively priced. The government also expanded and supported IT educational institutions. It provided financial, infrastructure and regulation incentives to support the infant industry.
The opposition party in the government, the Bharatiya Janata Party, introduced a New Telecommunications Policy in 1999, which strengthened the competitiveness of the IT industry. It changed the government telecommunications regulation from based on a fixed licence fee to a revenue-sharing model, which opened up the market to new players. Excise duties, taxes and restrictions to inputs such as semiconductors and optical fibres were drastically reduced.
The government ended its monopoly on international long distance telecommunications, bringing in private players, which immediately lowered the costs of long distance data, voice and other services.
At the time of the Y2K crisis, Indian software companies, built over time, were now well-placed to provide global expertise, kick-starting a boom for the country’s business software industries.
The rise of India’s IT industry is based on what the UN Conference on Trade and Development, in another context described as how “strong government intervention can be a powerful engine of technological development if it takes place within an export-orientated strategy and is reinforced by policies to boost learning, acquire new skills and access information”.
William Gumede is Associate Professor, School of Governance, University of the Witwatersrand. His latest book is South Africa in BRICS - Salvation or Ruination? Tafelberg (http://www.amazon.com/Tafelberg-Short-Africa-Salvation-ruination-ebook/dp/B00FRHV7LC)
The views expressed here are not necessarily those of Independent Media.
- BUSINESS REPORT