8 Zibemr Vol1 Issue3 PDF

ZENITH International Journal of Business Economics & Management Research
Vol.1 Issue 3, December 2011, ISSN 2249 8826

Online available at http://zenithresearch.org.in/
CONTRIBUTION OF SOFTWARE INDUSTRY IN THE GROWTH OF

INDIAN ECONOMY IN THE LAST DECADE
DR. RAJESH KUMAR JHAMB*
*Lecturer, Govt. Polytechnic for Women,
Sector 10-D.Chandigarh.
ABSTRACT
The Growth rate of the Indian Economy was at its fastest pace in the fast 18 years during the
financial year ended March 3 that was headed by a brave performance of its manufacturing and
service sectors. The history of the Indian Economy shows that before the last decade India was
probably on the short list of the countries which had the worst economic systems. At the time of
independence the economy was predominantly agrarian. Although after that the Growth of the
Indian Economy covering various other sectors made good progress. The rate of Growth of
Indian Economy improved in the 1980s.
In recent years, Indian Software Industry has boomed due to rapid increase in globalization. It
has accomplished this growth by becoming an important part of the global division of labouring
software. In particular, nearly two thirds of the revenues of the Indian software industry are from
exports, with a much smaller domestic market. The talent pool of computer engineers is easing in
quantitatively as well as qualitatively. According to NASSCOM figures, the top 25 companies
accounted for 58.67 percent share of software exports revenue in 1997-98. Nearly one fourth of
companies have safes of fess than Rs. 10 million (about $250,000}. Tata Consultancy Services
(TCS) was the first firm to agree to export software in return for being able to import hardware.
This study highlights the contribution of Software Industry in Growth of Indian Economy in the
last decade. Indian Software Industry has boomed the growth rate of Indian Economy.
KEYWORDS: Indian Economy, software/ Industry/growth.
______________________________________________________________________________
1.
INTRODUCTION
www.zenithresearch.org.in
Information Technology essentially refers to the digital processing, storage and communication
of information of all kinds. Therefore, IT can potentially be used in every sector of the economy.
The true impact of ST on growth and productivity continues to be a matter of debate, even in the
United State, which have been the leader and largest adapter of ST. India's software industry is,
of course, more robust -at least in certain areas. While selling packaged software to consumer
(and most business) markets requires economics of scale and scope, as well as marketing and
customer support muscle, project-oriented components of software development do not do so, to
quite the same degree. To some extent, therefore, India's software industry remains narrowly
focused.
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In recent years, Indian software industry has boomed due to rapid increase in globalization. It has
accomplished this growth by becoming an important part of the global division of labour in

software. In particular, nearly two thirds of the revenues if the Indian software industry are from
exports, with a much smaller domestic market. The talent pool of computer engineers is rising in
qualitatively as well as qualitatively. According to NASSCOM figures, the top 25 companies
accounted for 58.67 percent share of software exports revenue in 1997-98.Nearly one fourth of
companies have sales less than Rs. 10 million (about $250,000).Tata Consultancy Services
(TCS)was the firm to agree to export software in return for being able to import hardware in
1974.
The growth rate of the Indian Economy was at its fastest place in the last 18 years during the
financial year ended march 31 that was headed by a brave performance of its manufacturing and
service sectors. The history of the Indian Economy shows that before the last decade India was
probably on the short list of the countries which had the worst economic systems. At the time of
independence the economy was predominantly agrarian. Although after that the growth of the
Indian Economy covering various other sectors made good progress. The rate of growth of
Indian economy improved in the 1980s.
2. STRUCTURE OF SOFTWARE INDUSTRY

The Indian software industry specializes in the export of Low-end software development
services, competing primarily on cost and availability of software talent.
The Indian comparative advantage is based on cost and availability of software talent: the
ability to offer the services of a large number of software professionals at costs
substantially lower than those in the U.S. U.S. do not outsource requirement analysis,
specification, and high-level design, nor do they outsource larger scale system integration
type of activities to India. However, the leading Indian software firms do not have the
ability to provide these high end services.
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Software development can be broadly categorized into custom developed software and
packages or generic software products. Customized software development involves close
interaction between the developed team and the end user. Typically, software companies that
provide customized software concentrate on vertical market segments or domain areas, like
retail, banking and manufacturing. The customized software is specific to those clients or
domains. In some cases, business software products, such as ERP packages that manage the flow
of inputs, work in process and shipments in a company, are very large and complex. These
require a great deal of customization before they can be used. Often, this customization is done
by outside software consultants. Information technology consultants, such as Anderson
Consulting, provide solutions, which may involve some combination of custom developed
software and commercial off-the-shelf software and hardware products. Software development
involves a number of stages : Conceptualization, requirement analysis, high-level design, lowlevel design, coding, testing and support. The value added is typically greater in earlier stages of
development-namely requirement analysis and high level design. Traditionally firms have
designed the software in-house and outsourced the coding and support. As we discussed, Indian
software firms largely provide serviced rather than products.Further, Indian software exports
consist largely of low-level design, coding, and maintenance services.
1.1 HISTORICAL BACKGROUND

The industry is diffusing geographically. Although, Bangalore is still home to many of

the leading firms, the industry is not confined to Bangalore and is diffusing to regions
other than Bangalore and Bombay, with a substantial presence in Hyderabad, Madras and
Delhi and a growing presence in Calcutta and Pune.
The domestic market is still small. Although PCs are diffusing more rapidly,
communication bandwidth is still limited. The bandwidth problem is compounded
because of the rigid attitude of the department of telecommunications as it tries to retain
control over telecommunications in India. The result is that the Internet access in India is
still slow and expensive. In addition, various infrastructure constraints have combined to
slow the adoption of IT for business and government operations. Insufficient electricity
and transportation system, limited competition in the economy, and uncreative and less
informed top managers.
3. GROWTH IN IT SECTOR
The Indian IT industry has grown almost ten fold in previous decade. Domestic software has
grown at 46 per cent while software exports have grown at 62 per cent over the last 5 years.
Information Technology enabled services (ITes) with elements like call centres, back office
processing, contents development and medical transcription are key to rapid growth. The sector
has an employment potential of 2 million by 2010. All this shows the significant contribution of
software industry to Indian economy in terms of GDP and as an employment provider.
India's specialisation in software has been driven by two sorts of wage advantages that have
reinforced each other:
1: The lower wages for Indian software developers relative to that of their US and European
counterparts make Indian software cheaper in global markets,
2: while the higher wages earned by software professionals in India relative to that in other
industrial sectors has ensured a steady stream of supply of software professionals.
Software exports make up 20 % of India's total export revenue in 2003-04, up from 4.9 % in
1997. This figure is expected to go up to 44% of annual exports by 2010. Software service
exports increased from US $ 0.50 million in 1990 to $5.9 billion in 2000-01 to 23.6 billion
dollars in 2005-06 recording a 34% growth.. Though India accounts for just about 3 % of the
world market for information technology services, this sector has been growing at a scorching
pace, helped by a large pool of English-speaking workers, nearly 4 million engineers and the
increasing tribe of tech-savvy entrepreneurs in the country. The Information Technology industry
currently accounts for almost 4.8 % of India's GDP. It will account for 7 % of India's GDP by
2010.
3.2 CONTRIBUTION IN TERMS OF BALANCING CURRENT ACCOUNT DEFICIT
3.1 CONTRIBUTION IN TERMS OF EXPORTS
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Software and IT enabled services have emerged as a niche sector for India. This was one of the
fastest growing sectors in the last decade with a compound annual growth rate exceeding 50 per

cent. A compound annual growth of over 25% per annum is expected over the next 5 years even
on the expanding base. The impact on the economy of projected software and IT enabled service
exports of $ 60 billion by 2010 is likely to be profound. One manifestation is that India notched
up a current account surplus in 2001-02, for the first time in 24 years. India further needs an open
environment under GATS to promote exports of services through outsourcing and off-shoring.
3.3 THE INITIAL GROWTH OF INDIAN IT INDUSTRY
The Indian economy saw a wave of liberalization for the first time in 1980.Besides formulating
the national vision to promote software industry in India in the early 1980s by the government,
there were deliberate attempt by the companies to promote software production like compilers,
device drivers and operating system to cater to the domestic hardware sector. The high tariffs for
the hardware sector had meant that the production of domestic hardware segment (including PCs
which were introduced in the same period) had to be sustained requiring necessary softwares
like operating system and drivers.
Subsequently by mid 1980s, software started coming up unbundled with the hardware. This
further gave fillip to the software industry and exports. The 1990s and early 2000 saw the rise of
Software Technology Parks and formation of the Ministry of Information Technology,
respectively. Despite liberalization of the 1991, the software industry flourished signifying the
inherent strength that it developed due to benign and enabling environment provided over a
period of time and also the fact that the 1990s saw the dramatic decline in telecommunication
costs (government explicit intervention) and the commercialization of the internet along with the
Y2K problem. The Data Envelopment Analysis (DEA) model is used to work out technical
efficiency of Information and
Communication Technology (ICT) Industry in host of countries which are front runners as far as
ICT is concerned. India lags behind the most as far as ICT (not IT) is concerned.
With such rapid growth the software related service sector today accounts for over 2.6%
of GDP in 2003-2004 compared with 0.5% in 1996-97, representing a more than fivefold
increase. Its share of Indias exports of goods and services has increased even seven fold (from
3.2% to 21.3%) during the same period. Furthermore, Indias share of the global market for
customized software that is outsourced across borders is also more significant. The rapid
growth of software exports in the 1990s has been moderated since 2001.
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The Indian software and related service industry, which include ITES-BPO, has grown at
an unprecedented rate over the past decade or so. The output value of Indias software service
sector increases more than 18 times from less than US$830 million in 1994-95 to US$15.5
million in 2003-2004.The sector growth , services increased by more than 25 times during the
same period.
4. RISE OF INDIAN SOFTWARE: A PERSPECTIVE

Year
Manpower
Revenue per employee(s)
2003-04
118,000
6,198.5
2004-05
1,76,000
6,998
2005-06
2,40,000
8,924.5
2006-07
2,98000
11,036
2007-08
3,72,000
15,000
2008-09
4,12,000
15,600
TREND IN PRODUCTION &EXPORT OF SOFTWARE AND SERVICES

In 1999 total ITES exports were only of the order of US $ 565 million and are
estimated to have increased to US $ 3.6 billion in 2003-04. ITES-BPO exports grew by 59 %
during 2002-03 to 2003-04. Hence, but for the rise of BPO export, the growth of software
exports would be even slower than what is shown above. As a result, the share of ITES-BPO
in total software and service exports more than doubled, from about 14 percent in 2000 to
more than 29 % in 2003-04.
CREATING JOBS
The software and ITES-BPO sectors accounted for 813,000 jobs by 2003-04.Of these,
nearly 500,000 (260,000 jobs in the software industry and 245,000 jobs in (ITES-BPO)
have been primarily for export oriented activities. In Particular, jobs in ITES-BPO have
risen rapidly, from 42,000 in 1999-2000 to 245,000 in 2003-04. One may argue that the
IT-BPO services that are booming currently are relatively low value adding and low skillintensive activities.
Apart from creating jobs for highly qualified professionals as well as ordinary college
pass outs, the rise of the software industry has provided opportunities for expanding the
local base of entreneurship. The initial starts up costs in the sector are low than the
economies of the scale are not particularly significant especially for service enterprises.
Hence, the entries barriers are low. This has helped a number of technical professionals to
start on their own. Many of the leading software enterprises of today were started by first
generation entrepreneurs. Infosys, Satyam, Mastek, Silverline and Polaris, among
numerous others, were started by software professionals and engineers with small savings
and loans at a modest scale to begin with.
EXPANDING THE BASE OF ENTREPRENEURSHIP
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REVERSING THE BRAIN DRAIN

The rapid rise of software industry in the country has also helped to reduce the extent of
the brain drain by creating rewarding oppurtunities within the country, a trend also
supported by the availability of venture capital to implement new. Indians to return to the
country to start new software ventures. According to some estimates , the rate of
returning of professionals increased from 2% in 1991 to 8 to 10 % in the late 1990s, with
several senior software professionals returning ti India to set up their own companies.
CREATING A BRAND VALUE FOR THE COUNTRY IN KNOWLEDGE-BASED

INDUSTRIES
Despite a large pool of trained engineering manpower, Indias image in the world has
been that of a poor and underdeveloped economy having a comparative advantage only in
low skill and low technology industries. As a result , the country has suffered from the
disadvantage in exporting knowledge intensive goods. The emergence of the country as
a centre for outsourcing such a highly knowledge-intensive services as software is
helping to change the public perception of India and is focussing attention on the
potential of the country in knowledge- based industries.
FACILITATING CAPITAL INFLOWS

The development of the software industry has led to an increased flow of capital to the
country in three forms : foreign directive investment (FDI) by outside MNEs in their
subsidiaries and joint venture in India, foreign institutional investments (FIIs) in software
companies in India through stock purchases, and capital raised abroad by Indian software
companies. It has been estimated that MNE affiliates account for 23 % of exports of
software services and 26% of ITES-BPO exports.
The development of the software industry in different parts of the world is characterized
by a strong tendency towards clustering because of agglomeration economies. In India,
the software industry developed initially in Mumbai. Bangalore subsequently emerged as
a centre of software industry development , especially after as a centre of software
industry development , especially after the entry of Texas Instruments in the mid1980s.In addition to Bangalore and Mumbai , Delhi and the suburban communities of
Noida and Gurgaon have emerged as the third most popular location for software units.
As Bangalore has become saturated owing to the limits of its infrastructure and the
scarcity of space, Hyderabad and Chennai have started to provide alternative locations in
the south. The top five cities together account for 80.5% of the top 600 companies.
5
GROWTH OF THE SOFTWARE INDUSTRY
In software development and use, the life cycle includes analysis and specification of
requirements, design, coding, testing, installation, maintenance and support. Many of these
activities, particularly coding and testing, involve relatively routine IT skills that Indias
workforce has in large absolute numbers (though small relative to the total population). Hence,
SPATIAL AGGLOMERATION AND REGIONAL DISTRIBUTION
102

attributing Indias software export boom at least partly to standard comparative advantage seems
reasonable.
One can further elucidate the supply and demand factors by considering the existence of
the Indian Institute of Technology (IITs), the ubiquity of Unix in academic environments, and
the relatively low infrastructure demands of learning to use and create software all worked in
Indias favour on the supply side. The use of English in Indias higher education system, the
increase in the use of Unix and related operating systems due to explosion of the internet, and the
large number ofY2K related projects in the late 1990s all contributed to demand for Indias
software industry services, in addition to the general growth in IT in the 1990s the lack of
explicit government restrictions on this sector has also helped.
Static gains from the use of IT come from more efficient use of scarce resources,
allowing higher consumption in the present. They are independent of any impact of growth.
Benefits that are measurable as increased market based economy activity, and hence show up in
GNP statistics, are not the only component of development. Development can include
improvement in the capabilities of the population, independently of any direct or indirect
economic impact. Minimum levels of education, health and nutrition are perhaps the most
important examples of such capabilities. The ability to participate in democratic decision making
can also fall into this category. The role of It in effecting improvements along non-economic
dimensions must also be considered, though this role may be harder to quantify.
While successful examples of direct implementation of e-goverence initiatives exist,

there is also an alternative. This comes from recognizing the fact that citizens typically incur
private costs (often substantial) in availing of government provided services. If the use of IT can
reduce such costs, even low income individuals may be willing to pay at least some fraction of
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There are two broad classes of uses of IT for improved government functioning. First,
back-office procedures can be made more efficient, so that internal record keeping, flows of
information, and tracking of decisions and performance can be improved. Second, when some
basic information is stored in digital form, it provides the opportunity for easier access to that
information by citizens. The Emailing requests or complaints, checking regulations on a web
page, or printing out forms from the web so that a trip to pick up the forms from a physical office
can be avoided. The use of IT can increase transparency and accountability, simply by requiring
information, such as basic complaints, to be logged completely and systematically.
Digital IT involves the electronic processing, storage and communication of information,

where anything can be represented in digital form is included in the term information.
Information goods typically have the characteristic that one persons use does not reduce their
availability for another person. Thus, a message or weather news can be viewed by many people,
simultaneously or sequentially. Depending on the content of the news or message, different
people may place different valuations on the information. Only friends and relatives may be
interested in a personal message, all farmers in a district may be interested in local weather news,
and so on. The ability to share information among users can impact the feasibility of providing it
on a commercial basis. IT dramatically increases sharebility of information, and this affects the
economics of private provision of information goods and services.

the cost saving, and there is scope for private provision of intermediate services that reduce the
cost of access to government.
There have been numerous examples of successful pilot e-governance programs in India.
These include:
Computer-aided registration of land deeds and stamp duties in Andhra Pradesh, reducing
reliance on brokers and possibilities for corruption.
Computerization of rural local government offices in Andhra Pradesh for delivery of
statutory certificates of identity and landholdings, substantially reducing delays.
Computerized checkpoints for local entry taxes in Gujrat , with data automatically sent to
the central database, reducing opportunities for local corruption.
Consolidated bill payment sites in Kerela, allowing citizens to pat bills under 17 different
categories in one place, from electricity to university fees.
E-mail requests for repair to basic rural infrastructure such as hand pumps, reducing
reliance on erratic visits of government functionaries.
6 MAJOR CONTRIBUTION AREAS

Together the IT and ITes are predicted to grow at 25% pa till 2010.The IT industry is highly
export oriented and the exporters are predominantly Indian. The Indian BPOs (ITES) are moving
up the value chain, handling high end data for many other industries like:
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It is important to note that once Internet access is available; its benefits are not restricted
to e-governance. Individuals can obtain market information, training, job information, advice on
farming techniques and so on, as discussed earlier in this section. This is certainly part of
Drishtees long run model. Here also, a commercial approach may find more flexibility. For
example in Jaipur district in Rajasthan, Drishtee has piggybacked on the expansion of a fiber
optic company, and combined its internet kiosks with cable TV franchises for greater and more
immediate financial viability.
As in the broader case of using the internet for communications and transactions, sustainability
of e-governance initiatives is a significant issue. Since government at all levels are financially
strapped, the initial investments and ongoing expenditure for IT based service delivery may act
as a barrier to adoption as well as to long-run sustainability. However, fieldwork suggests that a
franchisee model can be successful here. Low cost rural Internet Kiosks, a tiered franchising
model, and a suite of basic government access services for which users are willing to pay, are
key components of what Drishtee, a spin off of the Gyandoot project in Madhya Pradesh, is
implementing in several parts of India. Cooperation of local governments and subsidized
financing have been important elements for Drishtee , as in the case of TARAhaat,with the
former being obviously critical in the case of Drishtee.

Airline information,
Insurance,
Banking sector
Mortgage companies,
Enterprise resource planning
And many others. Some of the companies have already moved into significantly higher value
added segments such as:
Mission- critical applications
Development and support
Product design
HR Management
Knowledge Process Outsourcing (KPO) for pharmaceutical companies and large complex
projects.
6.1 E-COMMERCE AND E-GOVERNANCE
E-government is the application of Information and Communication Technologies (ICT) by
government agencies. It was started for the first time in 2006. Its use promises to enhance the
effectiveness and efficiency of government and alter its relationship with the public. EGovernance models can be used for effective governance and for higher agricultural growth and
development.
E-Commerce primarily refers to buying, selling, marketing and servicing of products or services
over internet and other computer networks. E-Commerce in India is just taking off with the
advent of Railway and Online Air bookings and Net banking. The business is likely to grow
manifolds by 2010.Electronic commerce allows efficient interactions among customer, suppliers
and development partners cutting down on transaction time and reducing the costs of doing
business. The role of government is to facilitate the development of E-Commerce.
6.3 CONTRIBUTION IN RURAL AREAS
IT services have been used by rural communities for their benefit and for policy and
development goals of the government in general.
6.2 E-COMMERCE
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Web based software development and software product development (like device drivers) is
necessary for providing complete business and consumer oriented solutions. These are also areas
of interest for the Indian IT entrepreneurs to work upon in times to come.

FACTORS FAVOURING THE GROWTH OF SOFTWARE REVENUES IN INDIA

Software is not just another industry: Firms that produce software or employ software developers
is much larger than the set of firms commonly thought of as software firms, such as Microsoft or
Oracle.
Indeed, large banks, insurance companies, finance companies ,and virtually every organization
above a certain size writes a great deal of software. Much of this software is either developed for
a particular user, or consists of standard platforms such as SAP ERP system or an oracle
accounting system and customized to the needs of the user organization
Once in place, these software systems have to be maintained and enhanced. Some observers
claim that over two thirds of all the software development effort is spent in maintaining and
enhancing existing software code, rather than producing new software.
Despite the steady growth in software technology and tools, software development is still labour
intensive and requires relatively little capital. Estimates by Lakha (1994) suggest that labour
costs accounted for about 70% of all software costs in the early 1990s. As the information
technology revolution has taken hold in the 1990s, the demand for such workers has steadily
outstripped supply in the developed world. However, a fairly substantial fraction of these
activities can be outsourced, and increasingly, are carried out away from the user organization.
This type of outsourcing demand has formed the basis of the initial growth of the Indian software
industry.
The initial growth of the software service industry in India was facilitated by the enlightened
hands off policies of the government of India. By the late 1980s and early 1990s, PC prices
had fallen steadily, as had the prices of the other equipment. The government allowed liberal
imports of both hardware and software tools, and firms were able to provide their own electrical
power through a variety of sources, including self generation. Growth of software revenues came
disproportionately from export revenues. Thus it is worth exploring the nature of Indias
advantage in software exports. Amongst developed countries only Greece shows similar levels of
salaries to software professionals as India. If one concentrates on the availability of scientists and
engineers, India has one of the largest numbers of engineers and scientists in the world, almost
all of speak English.
This story of the growth of exports of software from countries like India on account of lower
labour costs Is well known. It also underlies a somewhat pessimistic outlook for the future of
such exports and the growth of the software industry in India, because as the stock of surplus
The needs of such software production seem particularly suited to the resource endowments of
the Indian economy. Moreover, scale economies are not a significant barrier to entry. Firms can,
and id start as little more than one software development team, while others have started as
temporary employment agencies, requiring a few rooms in which to set up a handful of PCs and
a telephone. Further, the production of software does not depend quite so heavily on physical
infrastructure such as roads and ports, although a steady supply of electrical power is critical, as
is ready access to PCs, workstation and communication airports, phones, faxes and
increasingly the Internet.
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trained labour depletes, the cost advantage erode, making India less attractive (compared to
countries such as China and Russia) as source for lower value added services. The absence of a
sizable domestic market is said to compound the problem by depriving software exporters in
India of the depth of experience that will ultimately enable them to produce higher value added
services and products. In this view, the only way out is for India to develop a sizable domestic
market and reduce its export dependence.
This however begs the question. After all, perhaps the biggest reason for the absence of a large
and sophisticated domestic market is a relatively unsophisticated economy, which has, until
recently, grown at 3.5% per year. Thus, it would appear that the development of a sizable
domestic market for Indian software is likely to be a consequence as much as it is a cause of the
growth of the Indian software industry. They conclude that domestic market experience is not
particularly valuable for the export market.
Though the share of the software production in Indias industrial output, exports and
employment is growing, its share in the world market for software remains low. The Indian
software industry accounts for a small proportion of her domestic employment outside
agriculture, and Indian software account for a very small fraction of the world software market.
The picture changes somewhat when we look at customized software alone. Indias share of the
customized software market is estimated to have grown from 11.9% in 1991 to 18.5% 1999.
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Productivity levels measured as revenues per employee are lower in India compared to other
parts of the world (notable Ireland and especially Israel). More importantly however, software is
far more productive relative to other sectors in India compared to other countries the essence of
a comparative advantage argument. For instance, productivity in software is more than twice that
in manufacturing in India, whereas it is 1.3 times in the US. A similar picture obtains for Israel,
another country with a fast growing software industry. In an open economy, both India and its
trading partners will benefit from Indias specialization in software, and implicitly her imports in
the sectors that the economy is less productive in (e.g. manufacturing). The distribution of these
gains is a moot point, of course. Given the high reliance on US exports of the Indian software
sector and the undifferentiated nature of software exports from India, it seems likely that the
productivity improvements in the Indian software contribute more to productivity in US rather
than in India.
Another way of looking at the growth of software exports from India is to ask if there is an
underlying comparative advantage that India enjoys in software production vis--vis the rest of
the world? If such a comparative advantage does exist then, both the absolute cost advantage
enjoyed by India, and favourable events like the excess demand caused by the millennium bug,
could give Indian software exporters the experience and scale of output that is required for
dynamic learning processes to kick in and start making their effect felt on the further growth of
the productivity in the sector. In this story the future of Indian software exports is less bleak; the
erosion of the labour cost advantage could be compensated for by increasing productivity.

8. CHALLENGES
Infrastructure constraint: It continues to hamper the growth of IT industry. Most
important of these is the availability of power and the quality of telecommunications
infrastructure bandwidth and the increasingly telephone penetration. Thus, it is
estimated that in 1996, India had 15 main telephone lines per 1000 people compared with
395 lines per 1000 for Ireland and 446 lines per 1000 for Israel. The picture is much
worse when we consider the penetration of PCs in the total population: India boasted 1.5
computers per 1000 people compared to 145 for Ireland and 117.6 for Israel. It is
difficult to estimate exactly how much infrastructure constraints have affected
productivity, but some indirect evidence is available. Expenditure on power was second
largest category of expenditure among software firms and many firms generate their own
power.
Low Bandwidth: While current bandwidths are adequate for the simple tasks required of
Indian software exporters, they could potentially be keeping more complex, higher value
added tasks from coming to the same firms. For the newly emerging area of e-commerce
in India, the lack of telephone penetration (which does not require land lines) saw the
most rapid growth in smaller towns. In this context, the development of mobile telephony
and internet products present a window of opportunity and growth is as much as demand
for these is not constrained by telephone lines and for mobile phones, by literacy.
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The export oriented software sector has been criticized to contain a very little forward and
backward linkages to the regional economies, leading to less likelihood of providing as
many growth points as the manufacturing sector. Although the software industry has
grown out of the software processing zones of the 1980s, it has till date remained
concentrated in the handful of cities. Whereas many researchers attribute this
development to the concentration of science and engineering institutes and telecom
infrastructure in a limited number of cities, the impact of the regional policy
entrepreneurs can not be overstated. The states of Andhra Pradesh, Karnataka and
Maharashtra are cases in example where the state governments have proactively engaged
in structural reforms. As per the study reported by Kambhampatti , by 1997 a major
proportion of firms were headquartered in Mumbai (96 of 302) , followed by Delhi
()61/302 and Bangalore (51 of 302). Most recently, the industry has spread to other
smaller cities, albeit the concentration of firms in the southern and western region has not
altered significantly. Software development is seen to be gender neutral from an
Economic output, exports and employment: Indias software sector has been argued to
have represented an embodiment of a market model within a social-welfare focussed
economic structure. This market model may have led to combined economic development
at the aggregate level, but when analyzed at the micro-level taking regional, sectoral or
knowledge- content indicators into account, this development appears uneven and
disconcerted at best. However, scholarly literature suggests that the even economic
development that has resulted from the rapid evolution of one particular sector in the
worlds fifth largest economy is rooted in the differential innovative capability and
infrastructure, the uneven diffusion of technical education and the varying policy
entrepreneurship underlying Indias overall socio-economic and political structure.

employment standpoint, providing a more conducive and less discriminatory work

employment from women. Approximately 10% of the software employees were women
by mid 1990s, the proportion is believed to have grown to 18-20% in the last five years.
9. ANALYSIS
Indian software exports consist largely of low end software development services. The
availability of software development services from India has been of substantial value to many
large and medium sized US firms. Indian software industry is largely complementary to the US
industry. Indian firms provide essential maintenance and development services, enabling US
firms to use their IT staff design and develop new types of software and applications. In addition,
many of these US firms rely on Indian programmers and have significant India based operations.
Many US firms are increasing their business involvement in India based operations. Many firms
are increasing their business involvement in India through outsourcing, directly setting up
subsidiaries, and establishing software development centre. The rise of the Indian software
industry has provided substantial benefits to US firms, both users and developers of software. US
firms benefit because Indian software firms compete fiercely among themselves for contracts. As
a result, users enjoy most of the gains from the trade. They can tap a source that is flexible, cost
effective, and willing to work on ordinary tasks, enabling local staff to do newer things in
software and developing new applications.
10. CRITICISM
11. CONCLUSION
The IT sector has brought about revolution in India particularly since 1990s. This is
because it has reduced intermediation in business and society, provided solutions across sectors
(be it agriculture sector or manufacturing sector), re-organised firm level behaviour, empowering
individuals by providing them with more information and is increasingly becoming an important
tool for national and rural development through E- governance, E-Banking and E-Commerce
programmes. The export performance of Indias software and service sector during the last
decade has been unprecedented. As a result, the software and service sector accounts for over
109
A potentially important and under appreciated contribution of the software industry is thus as an
exemplar of good entrepreneurship and corporate governance to the rest of Indian industry.
Though less visible than the macro contributions to employment and foreign exchange, this role
is a source of productivity improvement for all industry, which can have powerful long- term
benefits for India's industrialization and growth.
The widespread criticism of the growth in software sector is that it has been limited to a small
section of the Indian economy, and there are questions whether the current growth can be
sustained without a significant growth of domestic demand. Many people believe that export led
growth is sustainable in the medium term. On the other hand, the success of the software industry
has contributed to an increase in the relative value of professional workers' programmers, but
also managers and analysts. In turn, the growing importance of human capital has lead to
innovative models of entrepreneurship and organisation, pioneered by the software sector, which
are slowly taking root and spreading to other parts of Indian industry.

1.
C. Jones, Software Quality and Productivity Today -- The Worldwide Perspective, IS

Management Group, Carlsbad, Calif., 1993.
2.
Capers Jones, Assessment and control of software risks, Yourdon Press, Upper Saddle
River, NJ, 1994
3.
J. Nowell, An Economic Analysis of the Software-Engineering Process, Software

Productivity Research, Burlington, Mass, 1994.
110
REFERENCES
20% of Indias total exports and 2.6% of GDP. In addition, there has been a marked decline in
the share of on site services and today almost 60% of Indias software and services export takes
the form of off shore services. The undifferentiated and service nature of Indian software firms
has meant that human capital has acquired an importance that was hitherto reserved for financial
and physical capital in Indian industry. In an extremely competitive international market for
software services, Indian firms have tried to emphasise the quality of procedures and human
resource used by them to gain competitive advantage. This microeconomic response has had
both good and bad consequences. The good consequences stem from the appreciation of rewards
to training in an environment where trained software programmers are scarce and get scarcer.
This in turn has resulted in substantial private investment in the provision and acquisition of
tertiary training. The bad consequences stem from show bidding up of prices for the most
superior of the technically trained workers viz. Engineers. Engineers who for years had to
acquire other qualifications to increase the value of their engineering degrees and be
accommodated in the better paying management cadre find themselves in the enviable position
of being able to command large salaries for doing tasks for which their training is rather
irrelevant. The rise of the software and related service industry has also generated jobs and a
number of other favourable externalities However, the industry is characterized by high spatial
concentration and the software export activity continues to be an enclave, with limited linkages
with the rest of the economy. Given the fact that IT users benefit somewhat more than IT
producers and that the marginal social benefit of dollars worth of software consumed is more
than a dollars worth of exports, India needs to focus more on the diffusion of ICT into different
sectors of its economy. While it has been argued that Indias success in software and related
services is the outcome of benign state neglect, the present paper shows that such conclusions not
only conceal more than they reveal but are of little relevance for countries that are in process of
developing such capacity because there are many developing countries that have assigned a
prime role to the market and have nonetheless achieved limited success. While Indias success is
due to cumulative efforts of the last five decades and transplanting experience from one country
to another has its limits, developing countries aspiring to develop software and service sector can
learn much more from the Indian experience. In general, while developing countries can adopt
liberal trade and investment policies, they can hardly afford to ignore the development of
national innovation system, which is a prerequisite for building capabilities in skill and
technology intensive sectors, such as software and services. The Indian experience tends ro
suggest that, while a bad policy could drive investment away, a good market- friendly policy per
se does not necessarily attract investment or facilitate growth.

4.
L.H. Putnam, A.D. Shumaker, and P.E. Hughes, Economic Analysis of Reuse and Software
Engineering Process, Volume I, Standards System Center, Air Force Communications
Command, Maxwell Air Force Base, Ala., 1993.
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Bhagwati, Jagdish (2004). In Defense of Globalization. Oxford, New York: Oxford

University Press.
6.
Sheila L. Croucher. Globalization and Belonging: The Politics of Identity in a Changing

World. Rowman & Littlefield. (2004). p.10
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"Special Report - The Global 2000," Forbes, April 2, 2008.
8.
Andre Gunder Frank, "Reorient: Global economy in the Asian age" U.C. Berkeley Press,
1998.
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Nouriel Roubini (January 15, 2009). "A Global Breakdown Of The Recession
2009".
http://www.forbes.com/2009/01/14/global-recession-2009-oped-cx_nr_
roubini.html.
In
0115
10. Jurgen Osterhammel and Niels P. Petersson. Globalization: a short history. (2005) P.8
11. Steger, Manfred (2002). Globalism: the new market ideology. Lanham, MD: Rowman &
Littlefield Publishers. ISBN 0742500721.
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Oxford University Press. ISBN 0-19-280359-X.
111
13. Stiglitz, Joseph E. (2002). Globalization and Its Discontents. New York: W.W. Norton.
ISBN 0-393-32439-7.

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ZENITH International Journal of Business Economics & Management Research

Vol.1 Issue 3, December 2011, ISSN 2249 8826

CONTRIBUTION OF SOFTWARE INDUSTRY IN THE GROWTH OF

ZENITH International Journal of Business Economics & Management Research

2. STRUCTURE OF SOFTWARE INDUSTRY

1.1 HISTORICAL BACKGROUND

ZENITH International Journal of Business Economics & Management Research

The industry is diffusing geographically. Although, Bangalore is still home to many of

3.1 CONTRIBUTION IN TERMS OF EXPORTS

ZENITH International Journal of Business Economics & Management Research

4. RISE OF INDIAN SOFTWARE: A PERSPECTIVE

ZENITH International Journal of Business Economics & Management Research

Revenue per employee(s)

TREND IN PRODUCTION &EXPORT OF SOFTWARE AND SERVICES

EXPANDING THE BASE OF ENTREPRENEURSHIP

ZENITH International Journal of Business Economics & Management Research

REVERSING THE BRAIN DRAIN

CREATING A BRAND VALUE FOR THE COUNTRY IN KNOWLEDGE-BASED

FACILITATING CAPITAL INFLOWS

GROWTH OF THE SOFTWARE INDUSTRY

SPATIAL AGGLOMERATION AND REGIONAL DISTRIBUTION

ZENITH International Journal of Business Economics & Management Research

While successful examples of direct implementation of e-goverence initiatives exist,

Digital IT involves the electronic processing, storage and communication of information,

ZENITH International Journal of Business Economics & Management Research

6 MAJOR CONTRIBUTION AREAS

ZENITH International Journal of Business Economics & Management Research

ZENITH International Journal of Business Economics & Management Research

FACTORS FAVOURING THE GROWTH OF SOFTWARE REVENUES IN INDIA

ZENITH International Journal of Business Economics & Management Research

ZENITH International Journal of Business Economics & Management Research

ZENITH International Journal of Business Economics & Management Research

employment standpoint, providing a more conducive and less discriminatory work

ZENITH International Journal of Business Economics & Management Research

C. Jones, Software Quality and Productivity Today -- The Worldwide Perspective, IS

J. Nowell, An Economic Analysis of the Software-Engineering Process, Software

ZENITH International Journal of Business Economics & Management Research

Bhagwati, Jagdish (2004). In Defense of Globalization. Oxford, New York: Oxford

Sheila L. Croucher. Globalization and Belonging: The Politics of Identity in a Changing

"Special Report - The Global 2000," Forbes, April 2, 2008.

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