The It Industry and Economic Development in India

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the IT industry has become an entrenched feature of the Indian economic policy. Despite the IT industry’s critics, many policymakers regard it as highly successful and as playing a positive role in India’s economic development. From this perspective, Indian governments, and institutional actors within the state, have little incentive to break with the software services export-oriented strategy and many reasons to ignore criticisms of the IT industry. The IT industry’s ‘success’ has, if anything, reified the existing policy approach. Only changes in the global economic environment, such as a dramatic collapse in export earnings, or economic and political ruptures within Indian society, are likely to influence radical change in this scenario.

THE FOUR FAVORABLE FACTORS

1) Skilled Labor and the IT Industry

The tertiary education institutions and technical colleges have produced large numbers of young workers suitable for employment in software services as well as ITES/ BPO. There is evidence that ‘technical talent’ has been returning to India during the 2000s as domestic salaries have grown. IT firms have led the revival in skill formation by exploiting global links, transforming the ‘brain drain’ into ‘brain circulation’.

While widespread economic disadvantage, linked to the low quality of basic education, has narrowed the pool of recruitment (Dutta and De 2009: 209), IT and ITES/BPO firms have been able to recruit workers from a large group of science and engineering graduates with appropriate ‘cultural capital’. Evidence on social composition suggests that the industry’s labor force is a relatively homogenous group and that, by and large, the industry has not employed people from poorer or disadvantaged sectors. IT workers tend to be tertiary educated, higher caste and urban in origin. Despite job hopping within the industry, attrition rates are relatively low at an inter-industry level. The IT industry is not absorbing large numbers of workers from poorer or underprivileged backgrounds.

Higher income occupations within the industry have generally been reserved for better-educated, forward caste workers from already high-income households. While there may well be a range of incentives to create high-tech job opportunities for larger numbers of wage-seekers in urban and rural areas, there is little evidence that the success of the IT industry has, thus far, added to these incentives.

2) Structure of the IT Industry

The dominant role of software services is structurally embedded in the evolution of the IT industry as a whole. The large software services firms which dominate the contemporary IT industry grew to prominence due to their role providing services to overseas markets in the 1970s and 1980s, particularly in the USA, and to their role providing services, such as systems maintenance, on relatively cheap imported hardware as India gradually softened import restrictions in the 1980s. In part, the success of software services was consciously encouraged by policymakers due to the potential for foreign exchange accumulation through export earnings. But much of this success also appears to have been the unintended outcome of the failure to develop a large or internationally competitive hardware manufacturing sector. The demand for imported hardware in the 1980s was based upon the inability to satisfy local requirements via state-owned monopoly production, itself the outcome of prohibitive conditions placed upon foreign investment and commercial production. The ability of the most successful software services providers to garner support from the state, especially at a regional level, was based upon their dominant position within the IT industry. By implication, the comparative weakness of domestic hardware and electronics producers has put them in a much less advantageous position from which to demand a greater allocation of fiscal resources.

Government policies have favored software service

- NO duties on capital import

- Free electricity and water supply (software technology parks)

- Tax benefits (Wholly export oriented firms were given tax free status)

- Land benefits (provision of free or subsidized land)

3) The Political Character of State–Industry Relations

The article has outlined the political character of state–industry relations. The ability of key software services firm to create a ‘developmental association’ with key state institutions was boosted by the shift towards pro-business policies in the 1980s, including trade liberalization as well as export promotion. It has also been strengthened by the caste and class ties that link the older generation of public servants, bureaucrats and policymakers with the IT industry workforce as a whole. The caste and class linkages between older generations of public servants and bureaucrats and the newer generation of well-paid IT workers may be an important factor that explains the success of ongoing state–industry relations. They also help to explain why the IT industry has been in an advantageous position to garner ongoing state assistance.

IN other sectors, there were structural impediments to the formation of such ‘developmental associations’. There were policies which were unfavorable for industries.

4) Software Services and External Stability

The activities of software service providers have contributed to India’s transition to rapid economic growth. The contribution has come indirectly, through export earnings and foreign exchange accumulation. Export earnings from software services have mitigated the sharp expansion in India’s merchandise trade and current account deficits and, alongside workers’ remittances, have enabled the country to meet its debt obligations at the same time as it has gradually opened its economy to manufacturing imports and foreign direct investment. Software services have thus contributed to India’s economic transition by providing the external stability needed for investment inflows to continue and for state institutions to pursue economic policy management in a relatively stable macro-economic environment.

CONCLUSION:

Many key policymakers are convinced that the IT industry is indispensable to India’s economic future and strong firm–state relations appear to be the bedrock of ongoing state support.

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