RIS Research and Information System for Developing Countries No. 1 March 2007 Indian IT Industry: Lessons for Mekong Countries ○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○ he strong demand over the past few job opportunities through indirect and ○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○ certified at SEI CMM Level 5 - higher than years has placed India among the induced employment in telecom, power, any other country in the world. Therefore, Tfastest growing IT markets in the construction, facility management, IT Indian firms are gradually gaining world. The Indian IT industry has been transportation, catering and other ground. demonstrating its superiority, sustained services. Government has taken several Why India has been so successful cost advantage and fundamentally- steps to further enhance this industry. in IT sector? According to many powered value proposition in the In order to ensure that the benefits commentators, it is the Abundant Talent international market. Over time, India has of IT reach the common man, Indian which has helped India to sustain the become the global IT hub. Today, Indian government has initiated a move to make rapid growth in IT sector over time. With IT industry represents US$ 37.4 billion available tools and fonts in various Indian over half of the population of India aged market and is expected to become US$ languages freely to the general public. less than 25 years, India’s young 47.8 billion by end of 2007-08, an Several regional languages software demographic profile is a unique and an increase of nearly 28 per cent in the tools and fonts have already been inherent advantage. This, complemented current fiscal (see Table 1). The IT released. All Indian languages are by a vast network of academic industry (software and ITES) exports from expected to be covered in 2007-08. infrastructure and the legacy effects of India grew from US$ 12.9 billion in 2004- To facilitate penetrations of the IT British colonisation, has contributed to an 05 to US$ 23.6 billion in 2006-07, and is and ITES in the rural areas, the Indian unmatched mix and scale of educated, expected to reach US$ 31.3 billion in government has formulated a proposal English-speaking talent. 2007-08 (see Table 1). It presently to establish 100,000 Common Service Cost Advantage is another contributes 5.4 per cent of GDP, up from Centres (CSCs) in rural areas, which will important factor which has positively 4.8 per cent last year. With this serve not only as the front-end for most contributed to the rise of India’s IT spectacular performance, Indian IT government services but also as a means industry. India has a strong track record sector is shifting its base from low-end to connect the citizens of rural India to of delivering a significant cost advantage, business processes to high-value ones. the World Wide Web. According to the with clients’ regularly reporting savings Service and software exports remain Goverment of India, the scheme will be of 25-50 per cent over the original cost the mainstay of the sector contributing implemented through Public-Private base. There is still scope for further US$ 31.3 billion and beating forecast to Partnership (PPP). An outlay of Rs. 57.42 lowering of infrastructure and overhead register a 32.6 per cent growth. billion has already been approved. costs in coming days in India due to its According to NASSCOM, increasing Indian companies are enhancing double digit growth and higher spending traction in offshore product development their global services delivery capabilities in infrastructure sector. For example, due and engineering services is supplementing through a combination of greenfield to technology diffusion, we witness rapid India’s efforts in IP creation. This segment initiatives, cross-border mergers and decline in telecom costs in India. is growing at 22-23 per cent and is acquisitions, partnerships and alliances Emphasis on Quality and expected to report US$ 4.9 billion in exports with local players. This is enabling them Information Security is also another in 2006-07. FDI has reached an to execute end-to-end delivery of new important factor for the rise in India’s unprecedented scale; over US$ 10 billion, services. Global software giants such as software exports. Demonstrated process announced in 2006-07, to be invested over Microsoft, Oracle and SAP, have quality and expertise in service delivery the next few years. The total IT software established their captive development has been a key factor driving India’s and services employment is likely to reach centres in India. A majority of the sustained leadership in global service about 1.6 million in 2007-08. The industry companies in India have already aligned delivery. Today, India-based centres in collaboration with the government and their internal processes and practices to ○○○○○○○○○ (both Indian firms as well as MNC-owned other stakeholders has initiated several international standards such as ISO, captives) constitute the largest number initiatives to further enhance the CMM, and Six Sigma. This has helped of quality certifications achieved by any availability and access to suitable talent establish India as a credible sourcing single country. According to NASSCOM, for IT-ITES in India. destination. As of December 2006, over National Skills Registry and the Cyber- Indian IT-ITES sector is estimated to 400 Indian companies have acquired labs initiatives launched over the past 18- have helped create an additional 3 million quality certifications with 82 companies 24 months are now running successfully Mekong-Ganga Policy Brief, March 2007 1 ○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○ Table 1: Indian IT Sector Performance In order to strengthen IT sector, the first and foremost requirement for (US$ billion) Mekong countries is to ensure domestic FY 2004 FY 2005 FY 2006 FY 2007E supply of adequate talent pools. Training is the regular and significant IT Services 10.4 13.5 17.8 23.7 component in the induction process of Exports 7.3 10.0 13.3 18.1 Domestic 3.1 3.5 4.5 5.6 all IT firms. Mekong countries firms ITES-BPO 3.4 5.2 7.2 9.5 should establish dedicated facilities Exports 3.1 4.6 6.3 8.3 and teams for employee skill Domestic 0.3 0.6 0.9 1.2 enhancement initiatives. Mekong Engineering Services and R&D, 2.9 3.9 5.3 6.5 countries should also work with the Software Products academia across the subregion and Exports 2.5 3.1 4.0 4.9 Domestic 0.4 0.8 1.3 1.6 abroad, through IT Workforce Total Software and Services 16.7 22.6 30.3 39.7 Development Initiative to encourage Revenues, of which, and facilitate greater industry interaction Exports 12.9 17.7 23.6 31.3 in Mekong subregion. The long term Hardware 5.0 5.9 7.0 8.2 steps that are needed include much Total IT Industry (including Hardware) 21.6 28.4 37.4 47.8 higher government investments in E – Estimated education, major education reform and Source: NASSCOM, New Delhi. better compensation and research grants for teachers/researchers in IT sector. and the industry proposes to consolidate ○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○ earned wide appreciation, which is best Indian government may think to set these efforts by establishing a self- exemplified in the fact that several other up (similar in the line of Entrepreneurship regulatory organization that will identify nations are trying to emulate the policy Development Institute of India) a chain a basic set of security and privacy environment that has helped develop the of finishing schools for IT professionals standards, that member companies will IT-BPO sector in India. The Software to make them more employable with a be expected to adhere to. Technology Parks of India (STPI) scheme short terms of honing of technical skills Spread of quality telecommunication has played a pivotal role in catalyzing the and imparting soft skill training, helping facilities is another factor for software growth of this sector and supporting its bridge the manpower supply-demand sector development.Telecom penetration rapid proliferation across the country. The gap in Mekong subregion. in the country has increased from a tax holiday has helped attract much Setting up Special Economic Zone modest 3.6 per cent in 2001 to over 12.6 needed investments (MNC and Indian) in (SEZ) for IT sector in Mekong subregion per cent in 2006, and is targeted to reach the sector and the virtual model has would be very useful in attracting FDI and to 29.6 per cent by 2009. While the wire- allowed firms to avail benefits without also strengthening domestic supply ○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○ line segment continues to witness steady constraints on their choice of location – capacity. growth, rapid adoption of wireless encouraging entrepreneurship and For Mekong to fully capitalize on the telephony has made India the fastest integrated growth. Other aspects of opportunity in the IT space, countries growing market in the segment. At the continuing policy reform that will aid the in this subregion need to continue end of 2006, there were over 98 million sectors growth include the rationalization working towards timely and coherent wireless subscribers in India, up from of international taxation policies, mutual execution of initiatives to address barely 4 million in 2001. Yet, this is only a trade agreements with partner nations, supply-side concerns by (i) ensuring start. The low penetration levels and a and a proactive and positive stance on talent supply, (ii) creating world-class growing consumer base are driving international free trade. infrastructure, (iii) strengthening strong growth forecasts across all information security, (iv) enhancing segments of telecom demand, and are Going Forward: Opportunities operational excellence, (iv) providing likely to keep this sector in the spotlight regulatory support, and (iv) catalyzing for the foreseeable future.
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