The Domestic Policy Context for Indias Software Production
Indian Institute of Information Technology, Bangalore
published: 3 May 2004
Abstract: This essay explains how the domestic policy
context enabled the Indian software industry to become the
largest non-OECD (Organisation for Economic Co-operation and
Development) exporter by 2000. The policy context is examined
in three phases. Prior to 1984, rigid policy restrictions
ensured that there was virtually no software industry. In
the second phase (1984 to 1990), the restrictions were eased
and Indian firms entered the global market by providing low-cost
programming services. In the third phase (1990 to 2000), pro-active
promotion of the industry, along with economy-wide policy
liberalization, led to rapid growth in exports. The nature
of exports also changed from providing programming services
at client sites, to providing offshore services from India
for turnkey projects demanding a wider range of capabilities.
The policy changes themselves are explained in terms of the
changing character of state institutions. The essay also discusses
the relevance of the Indian case for policy initiatives in
Keywords: Globalization, India, Software
Services, Public Policy, Software Industry
of Policy-Making in the Computer Industry
Software Exports before 1984
Policy Shift and the Transformation of DoE
IV. Software Technology
Parks and Other Policy Initiatives since 1990
The Indian Software Industry that Emerged
Indian software industry has grown rapidly since the 1980s,
with revenues increasing from less than $100 million in 1985-86
to nearly $8.4 billion by 2000-01 (Figure 1). During this
period, exports grew even faster, with their share
increasing from less than a third to nearly three quarters
of revenues. This essay will analyze the domestic conditions
under which this export-led industry has grown. Although global
demand for software, sustained by the PC, networking and internet
revolutions of the 1970s, the 1980s and the 1990s respectively,
played an important role in facilitating the growth of the
Indian industry, it was also available to other countries.
[end of page 1] Similarly, while India offers a highly skilled,
English-speaking workforce whose wages are much lower than
that of the US (Figure 2), Indias main software market,
India is hardly unique in possessing such labor force characteristics.
Indeed, global demand and the availability of a high-skill,
low wage workforce are necessary, but not sufficient, conditions.
If they were sufficient conditions, one must explain why India
failed to take similar advantage, unlike her East Asian counterparts
such as Taiwan, South Korea and increasingly China, of the
globalization of semiconductor design and manufacturing since
In other words, the growth of Indias software industry
must be explained in terms of how shifting domestic policy
conditions allowed her to take advantage of global demand
and her labor force characteristics to become, along with
Israel, the leading non-OECD software exporter by the end
of the millennium.
(in millions of US$)
EXPORTS AS % OF REVENUES
EXPORTS AS % SHARE OF STPS
Figure 1. Indias Software Revenue
and Exports, 1985-86 to 2000-01. Sources: www.nasscom.org;
National Association of Software and Service Companies (NASSCOM),
Indian Software Directory, 1993-94, (New Delhi: NASSCOM,
1993); National Association of Software and Service Companies
(NASSCOM), Indian Software Directory, 1992, (New Delhi:
NASSCOM, 1992); STP data from www.stpi.soft.net.
Indias software exports, however, did not grow uniformly
between the mid-1980s and 2000. A statistical analysis showed
that, between 1987 and 1992-93, a linear equation provides
the best fit for the growth trend.
From 1992-93 (and up to 1994, the last year for which there
was data), however, an exponential equation provided a better
fit, though there were insufficient data points to determine
whether that was a long-term trend. [end of page 2] But it
was projected that if exports maintained the exponential trend,
they would amount to $630 million by 1997. Since Indias
software exports in 1996-97 were $997 million, the trend was
clearly exponential. Using this data analysis as a starting
point, this essay will examine why exports behaved the way
they did from the mid-1980s on: in other words, why they followed
a linear trend in a world that tends to behave exponentially,
before there was a substantial change in the behavioral
attributes of the software export sector.
|Quality Assurance Specialist
|Database Data Analyst
Figure 2. Average Annual Software
Labor Cost in US Dollars (1999). Source: International
Labor Organization (ILO), World Employment Report 2001:
Life in the Information Economy (Geneva: ILO, 2001), p.
The changed growth characteristics of Indias software
exports have also been accompanied by certain qualitative
shifts. While Indias exports mostly involve the provision
of software services (Figure 3), during the 1990s, there was
a gradual shift away from onsite service provision, which
involves sending employees to work at client sites overseas,
to offshore service provision, which refers to developing
and exporting software from India. This essay will explain
how policy changes facilitated the quantitative expansion
of software exports and shifts in the spatial organization
of exports. But explaining why the export of software products
and packages has remained relatively insignificant is beyond
the scope of this essay.
The first section of this six-section essay will introduce
the key institutions, especially the Department of Electronics
(DoE), responsible for policy making for the computer industry.
Until 1978, a scientific establishment staunchly committed
to indigenous technology and self-reliance dominated the DoE.
The highlight of this period was the unsuccessful effort to
promote a public sector national champion in the
computer industry after ousting IBM. [end of page 3] Section
2 describes how the policy environment ensured that there
was really no software industry to speak of until 1984, despite
efforts to develop software for locally manufactured computers,
and a series of programs to encourage software export by providing
easy access to imported computers.
PRODUCTS & PACKAGES
Figure 3. Sources of Indias
Software Export Revenues, 1990-2001 (as a percentage of export
revenues). Source: www.nasscom.org; National Association
of Software and Service Companies (NASSCOM), Indian IT
and Software Services Directory, 2001, (New Delhi: NASSCOM,
Though the ineffectiveness of autarkic policies became apparent
by the late 1970s, Section 3 will describe why a policy departure
had to wait until Rajiv Gandhi took office as Prime Minister
(PM). A few reform-minded bureaucrats used the political backing
to redefine the role of the DoE and its policies to support
the growth of the computer industry in the private sector.
They were keen that the opportunities provided by the globalization
of the computer industry not bypass India, as was the case
with other sectors of the electronics industry. Thus, the
Computer Policy of 1984 eased the availability of microcomputers
and facilitated software exports by encouraging on-site service
provision. The 1986 Software Policy encouraged foreign investment
in the industry and access to technological developments overseas,
by allowing easy imports of the latest software and software
While the 1984 and 1986 policies mainly removed hurdles before
the industry, positive promotion came in 1990 when the DoE
initiated the Software Technology Park (STP) scheme after
doing battle with other government departments such as the
Department of Telecommunications (DoT), as Section 4 will
describe. The STPs provide data communication facilities using
which firms can provide offshore services from India instead
of being limited to on-site provision. Since the sweeping
economy-wide policy changes of 1991, various tariffs have
been reduced and procedures simplified to further help domestic
firms and to attract a large number of transnational corporations
(TNCs). [end of page 4]
Section 5 will describe some of the characteristics of the
Indian software industry that emerged from the policy changes
since 1984. Although Indian firms entered the global market
in the 1980s by offering sought-after expertise, the expertise
was deployed primarily toward low-value added programming
services at client sites. The rapid growth in exports in the
1990s followed the commissioning of the STPs that permitted
firms to shift to offshore service-provision and work profitably
with skilled labor at home. Further, Indian firms combined
state-of-the-art infrastructure and production processes at
their offshore development centers (ODCs), with well-developed
project management abilities to obtain turnkey jobs that went
beyond low-value-added programming services. A few also began
converting experience gained in specific application areas
into generic products. In the 1990s, a number of TNCs were
also attracted to India by the quality of skills. After an
early trickle of TNCs in the 1980s proved that India could
be more than a low-wage hunting ground, the ODCs established
by TNCs in the 1990s began to undertake work similar to their
The essay will conclude by highlighting the key shifts in
policies and how they the facilitated the transformation of
India into a significant software exporter. The conclusion
will also examine the lessons that the Indian case offers
for other newly industrializing countries (NICs) seeking to
encourage the production and export of software.
Origins of Policy-Making in the Computer Industry
Though the first electronic computer arrived in India in
1955, the origins of a computer policy dates to August 1963
when the Committee on Electronics was established following
Indias defeat in the war with China the previous year.
The chairman of the committee was Homi J. Bhaba, a nuclear
scientist who was also the chairman of the Atomic Energy Commission
(AEC). Since electronics was perceived to have a strategic
role in national development and security, the Bhaba committee,
as it was widely referred to, recommended ways to strengthen
the technological base in electronics in the country. In its
report submitted in February 1966, the committee argued that
computers were playing an increasingly important social and
scientific role. It also constituted a Working Group on computers
under Prof. R. Narasimhan of the Tata Institute of Fundamental
Research (TIFR), Bombay, an institution controlled by the
AEC. The Working Group, in its 1968 report, called for a national
effort to attain self-sufficiency within 10 years in small
and medium computers. In calling for the development of across-the-board
design and manufacturing capabilities, the report also argued
that, [end of page 5]
A computer system is only as versatile
as the software that is made available with it. . . . Software
is business. Software is strategic. Thus it would be very
foolhardy if a programme for the manufacture of the computer
systems . . . does not have built into it a scheme for the
development of appropriate software. . . . Software development
can be farmed out to other organizations . . . this is also
a labour intensive activity except that it requires intellectually
skilled manpower. . . . Software development would seem
to have very high employment potential in a country like
India . . . the export potential, as well as the value added
in the case of software, is very large.
Initially, policy-making was in the hands of the Electronics
Committee of India. The Committee was set up in November 1965
after the US cut off the supply of electronics equipment during
the war with Pakistan that year. Given the circumstances,
the committee was dominated by the Defense Ministrys
Department of Defense Supplies. Since the Electronics Committee
lacked the finances and the staff to implement policy, the
DoE was established in June 1970, reporting directly to the
Prime Minister. In February 1971, the Electronics Commission
(EC) replaced the Electronics Committee as the primary policy
M.G.K. Menon, a solid-state physicist and earlier director
of TIFR, was the first chairman of the EC and Secretary DoE.
Apart from Menon, the other members of the EC were the Cabinet
Secretary, the Secretaries of the Finance Ministry and the
Planning Commission, and the chairman of the public sector
enterprise Electronics Corporation of India (ECIL).
With Menon in charge of the new institutions, control of
electronics policy making in the country effectively shifted
from the Defense Ministry to the scientific community, most
of whom were drawn from the atomic energy program. For instance,
Ashok Parthasarathi, who became the Secretary, EC, was drawn
from the AEC, and N.Seshagiri, who headed the ECs Information,
Planning and Analysis group, came from TIFR. This shift in
control of the EC and DoE also resulted in a shift in policy
emphasis. The defense establishment had been keen on ensuring
access to electronics and computers. Thus, in the 1960s, it
allowed IBM and International Computers Limited (ICL) to operate
in India, though IBMs Indian operations were mostly
limited to reconditioning and leasing obsolete 1401s. IBM
went on to dominate the Indian computer market until the early
1970s, controlling nearly 75 percent of the market.
In contrast, the scientific establishment was technologically
ambitious and committed to self-sufficiency and self-reliance.
This fit well within the larger economy-wide policy framework
in place between the 1950s and the early 1980s. To meet the
policy objective of building a broad-based indigenous industrial
capability, this period witnessed the implementation of a
heavy industry based, import substitution led industrialization
(ISI) strategy in which a vast network of public sector enterprises
(PSEs) was given the pride of place.
[end of page 6] The private sector was often barred from operating
in the sectors where PSEs had a presence, although both PSEs
and private sector firms were hampered by a highly restrictive
and discretionary licensing regime in which state sanction
for virtually all aspects of their operation, be it production
capacity, plant location or credit and foreign exchange needs,
The policy regime not isolated the Indian economy from the
world, and stifled entrepreneurship and innovation. It also
hindered the growth of the electronic computer industry and
prevented India from taking advantage of the emerging international
division of labor in the semiconductor industry. Thus, until
the early 1980s, the overall policy framework and the commitment
of the DoEs leadership constrained the development of
computing in India.
The PSE charge in computing was lead by ECIL. Originally
established by the Department of Atomic Energy (DAE) in 1967
in Hyderabad to manufacture instrumentation for nuclear plants,
it was promoted as Indias national champion
in the computer industry. ECIL started its computer manufacturing
efforts by producing a 12 bit machine, the TDC-12. In 1974,
it released a more advanced version of the machine, the TDC-312,
and a 16 bit machine, the TDC-316. The development of these
computers also resulted in the first significant attempt to
write software on a commercial basis in the country. To develop
the software, ECIL assembled a team of 100 engineers and supplemented
their efforts by awarding contracts to TIFR, the Indian Institute
of Management, Ahmedabad, the Indian Institute of Science,
Bangalore, and the Administrative Staff College of India,
But writing all the software from scratch, including the
operating system, compilers and applications, proved to be
a formidable task. The lack of adequate software severely
limited the uses to which ECILs computers could be put.
Though custom packages were developed for several applications
including data acquisition systems for the DAE, and data loggers
for the steel industry, there were few applications for electronic
data processing (EDP). ECIL did develop E-COBOL, its own version
of COBOL. But, being a non-standard language, E-COBOL was
not widely used. Thus, of the 208 TDC-12, TDC-312 and TDC-316
computers that ECIL sold until 1986-87, only 18 were purchased
by the private sector.
The rest went to government departments, PSEs and universities.
In contrast, of the 154 IBM machines installed until May 1978,
more than 50 were in use in the private sector.
In light of the experience with the 12 and 16 bit machines,
it was clear that ECIL lacked the resources to develop its
32 bit machine, the System-332, on its own. It therefore imported
a French computer, the IRIS-55, and resorted to reverse engineering.
The idea was that if the machine served as a model for hardware
design, ECIL would not have to develop software for it. [end
of page 7] But the IRIS used unfamiliar technology and it
was compatible with neither ECIL nor IBM machines.
Despite the problems, ECIL had displaced IBM as the leading
player in the domestic market by 1972, after the EC had forced
the latter to abandon the sales of its reconditioned 1401
machines. The DoE also began pressurizing IBM and ICL to move
away from trading and to make a commitment to manufacturing
more up-to-date systems locally, for the domestic market as
well as for export. Further, since IBMs presence in
India was through a 100 percent subsidiary of the parent company,
it fell within the purview of the Foreign Exchange and Regulation
Act, 1974. The Act disallowed foreigners from holding more
than 40 percent equity in any firm in India. A higher stake
of 74 percent was allowed only when technologies unavailable
in India were involved. IBM proposed to the government that
it would set up a 100 percent export unit to manufacture peripherals
and another unit to export software worth about a million
dollars annually. In return, it wanted to import computer
systems up to 80 percent of the value of exports, besides
retaining 100 percent equity in its core manufacturing, marketing
and maintenance operations. But the equity issue proved non-negotiable.
In contrast to ICL, which stayed on the governments
terms, IBM shut its Indian operations in June 1978.
Software Exports before 1984
Although IBMs proposal fell through, the government
made other efforts to promote software exports. The primary
means was to permit the import of computers in exchange for
a guarantee to export a certain amount of software. In any
case, with the decline in IBMs sales, and the DoE stalling
the licensing of manufacturers other than ECIL, despite recommendations
to the contrary in the Microcomputer Panel Report of September
1973, imports were the only option. Unless, of course, somebody
wanted to wait 18-24 months for a ECIL computer costing significantly
more than comparable international models.
As early as in September 1970, the DoE issued newspaper advertisements
inviting proposals for developing software, especially for
export. But the response was poor. In 1973, the government
established the Santa Cruz Electronics Export Processing Zone
(SEEPZ) in Bombay. Guidelines issued in 1974 stated that computer
time for exports would be guaranteed on a non-profit basis
at the governments Regional Computer Centers.
New computers could be imported provided there was no foreign
collaboration involved and the net foreign exchange earned
within a five-year period equaled the amount spent on the
import. The export requirements were later increased to 200
percent of the cost of the system. Tata Consultancy Services
(TCS), Bombay, was the first company to export software under
these guidelines. [end of page 8] In 1977, the Tatas went
into partnership with Burroughs to establish a unit in SEEPZ
to export software and peripherals. Money from the exports
would pay for the import of Burroughs mainframes into the
In July 1976 the government announced a programs to encourage
non-resident Indians (NRIs) to invest in India.
Under the program, software firms could be established with
imported computers with an export commitment equal to 100
percent of the value of the computer. Customs duties on hardware
imports were also reduced in 1976 from over 100 percent to
40 percent. While duties were reduced, guidelines for the
import of computers costing more than Rs.500,000 (US$ 56,000)
Importers had to follow a five-step procedure. It began with
submitting an application listing the functional specifications
of the computer and the applications for which it would be
used. This was scrutinized by the DoE to determine whether
or not the requirement could be met domestically. If the request
was approved, tenders were placed. A commission of experts
appointed by the DoE then evaluated the tenders and a final
decision was made with input from the user. Before placing
the order, a letter from the concerned state government stating
that the interests of labor would not be hurt was required,
as was a final nod from an approval committee chaired by the
EC Chairman. These cumbersome guidelines led to delays and,
in a study of 82 cases, it was found that it took anywhere
between 6 to 64 months to procure the computer after the initial
application was made.
Despite the tedium of the procedure, 441 computers of various
makes were imported between 1976-77 and 1980-81
in contrast to the 35 computers that were approved
for imports between 1970 and 1975.
But exports did not grow, partly because of the difficulties
in importing computers and software tools, and because of
problems with obtaining foreign exchange for overseas marketing
and business expenses. Efforts at tapping East European markets
by sending government delegations were not fruitful either.
It was also found that many who had imported systems either
evaded their export obligations or stopped exporting once
they had fulfilled their obligations. Instead, they established
service bureaus to lease out computer time in the domestic
market. The establishment of service bureaus (and the jump
in computer imports) not only reflected unmet demand in the
country, but it also marked the beginnings of a software industry
in the private sector. Following IBMs departure, many
of its former employees established the service bureaus before
shifting to software development.
Other developments also increased the local availability
of computers. In 1978, S.R.Vijayakar was made Managing Director
of ECIL and, in December, Prof. B.Nag took over from Menon
as Chairman EC and Secretary DoE. [end of page 9] Neither
Vijayakar nor Nag had any links to the atomic energy network
and were not as committed to the idea of self-reliance and
protecting ECIL. In any case, even before Menons exit,
there was growing disenchantment with ECIL. Pressure for policy
changes began to mount from users and from other firms wanting
to enter the market.
In response, the Minicomputer Policy of 1978 permitted the
setting up of systems engineering companies to design and
assemble computers. The permission was not without restrictions:
no foreign financial or technical collaboration was allowed;
annual production was limited to Rs.20 million (US$ 254,000),
no more than five different types of systems could be produced
and none of them could cost more than Rs.300,000 ($38,000).
Despite the restrictions, four firms quickly established themselves
to produce microcomputers, incorporating advances in microprocessor
technology. By listing their products as accounting and invoice
machines, these firms captured about 75 percent of the total
computer market between 1978 and 1980. ECILs share in
the same period fell to 10.7 percent from approximately 50
percent between 1973 and 1977.
The availability of computers was further eased when the
Import Policy of 1983-84 permitted the duty-free import of
computers costing less than Rs.500,000 (US$ 50,000). It also
became easier to import completely knocked down (CKD) and
semi knocked down (SKD) kits. As the cautious liberalization
of the early 1980s increased supply and the exposure to computers,
the demand for hardware and software grew. Despite more liberal
tendencies in the domestic market, the DoE was concerned about
the misuse of the computer import for software export program.
Though it was the DoE that authorized computer imports, the
Chief Controller of Imports and Exports (CCI&E) was responsible
for monitoring export performance. There was an information
gap between the two agencies that, from the DoEs viewpoint,
The recommendations of the Rajaraman committee became the
basis for a tighter policy in 1981. The committee argued that
since a relatively large number of computers had been imported
in previous years, exporters should utilize spare computer
capacity in the country wherever possible. If the DoE determined
that no domestic capacity existed, import proposals would
then fall under one of 3 categories: (A) Indian nationals
who required foreign exchange from the government could import
if they had a firm order for at least 20 percent of the value
of the computer. They also had to export 200 percent of the
value of the computer over a five-year period. (B) Similar
conditions applied to NRIs who did not need foreign exchange.
The only difference was that their export obligation over
a five-year period was limited to 100 percent of the computers
value. (C) Indian nationals could import against a specific
export order without any conditions provided the computer
was not used for any domestic work and it would be re-exported
within a two year period. [end of page 10] The DoE tried to
push as many importers as possible to the last category. In
any case, all importers had to sign a legal bond with the
CCI&E and those failing to meet their obligations could
have their machines confiscated and be subject to legal action.
1984 Policy Shift and the Transformation of the DoE
Although the DoE had given 86 approvals for computer manufacture
by 1 December 1981 under the Microcomputer Policy of 1978,
only six licensees went into production.
The local content in manufacturing was low among the licensees,
reflecting the limited financial resources and design skills
at their disposal. Concerned with the state of affairs, he
EC took upon itself the task of revising computer policy in
the latter half of 1982. After much input and debate, a draft
policy was approved on 14 September 1983. But the draft never
became policy. Instead, a different version of the new computer
policy was announced on 19 November 1984, within twenty days
of Rajiv Gandhi taking office as PM. In contrast to the EC
approved draft which, despite giving a significant role for
the private sector, asserted that the guiding principles
were to be national control over the production base and major
application areas of computers,
the new policy effectively abandoned that premise. In a significant
departure, it aimed at developing manufacturing capabilities
in the country incorporating advanced technologies, simplifying
procedures and promoting applications for development.
The manufacture of mini and microcomputers was now open to
any Indian manufacturer, except those with more than 40 percent
foreign equity, and all restrictions on production capacity
were removed. Import procedures were also simplified. Although
the policy did not look too critically at manufacturing operations
that were little more than the assembly of imported CKD/SKD
kits, it established minimum viable capacities and required
manufacturers to follow a phased manufacturing program to
indigenize the industry.
Despite the simplification of import procedures, domestic
manufacturers were to be protected initially with high tariffs,
although there was to be a progressive reduction in tariffs
to force them to compete at international levels. As a start,
the policy allowed educational, research and defense institutions
to import without any duties. Other users could import computers
not available indigenously for a low duty provided the computers
were among those approved by DoE. Though it never happened,
the idea of approving 12 to 18 models was an attempt to standardize
machines in the country so that the DoE could negotiate bulk
purchases and ensure the availability of software. As for
the manufacture of mainframes, they continued to be reserved
for the public sector, i.e. ECIL, though the reservation was
to cease after two years. [end of page 11]
The policy also made changes that affected software directly.
The DoE was to establish a Software Development Promotion
Agency to promote development efforts both for the local and
export markets, and also set up a research, design and development
facility. Software was recognized as an industry,
making it eligible for investment allowance and other incentives,
and it was freed from the demands of locational policy. Duties
for the import of software were loweredsource code and
object code could be imported at 60 percent ad valorem,
instead of 100 percent, while source code as printed matter
attracted no duty at all. The import of application software
was more cumbersome and continued to attract a high rate of
Though the 1981 policy continued to provide the basic framework
for exports, software export over satellite data links was
now permitted. The National Computer Network INDONET was also
to be made available for software exports. The import of computers
for software export was permitted at a special low duty and
exporters were permitted to retain 50 percent of their foreign
earnings beyond their obligation in any year for any purpose.
Income from the provision of services at customers sites
overseas, including bodyshopping, was also to count as exports.
Bodyshopping refers to the practice of software firms offering
programming services, typically for low-value added services,
where billing is directly proportional to the number of programmer-hours
The prime mover behind the new policy was N.Seshagiri, Additional
Secretary at the DoE and Director General, National Informatics
Center (NIC). Although Seshagiri was part of the atomic energy
network that had entered the DoE when it was first formed,
by the early 1980s, he no longer subscribed to autarkic views.
Seshagiri had argued in various fora that existing policies
and procedures were too restrictive and cumbersome. He wanted
to quickly build a strong domestic industry without being
wedded to self-reliance. He also argued that if India were
to realize its software ambitions, of becoming to software
in the nineties what Taiwan and South Korea were to hardware,
it would have to begin with high volume, low-value-added exports
and then move up the value chain.
To him, it was the failure to follow such a strategy that
had left India far behind East Asia in hardware exports. Thus,
the policy explicitly recognized all on site services as valid
Seshagiris ideas had to wait until they had the right
backing. In May 1984, ECIL chairman Vijayakar moved to the
DoE take over as Secretary. His first hand experience with
the problems that ECIL faced with the TDC 332 made him take
a pragmatic approach to the question of foreign technology
and self-reliance. Unlike Menon or Nag, who were academics,
Vijayakar was an engineer with a commercial outlook. [end
of page 12] A few other senior bureaucrats, including the
then Cabinet Secretary and the Industries Secretary, were
also supportive of Seshagiri.
Politically, crucial support came from Shivraj Patil, Minister
of State for Science and Technology, and from Dr.M.S.Sanjeevi
Rao, the Deputy Minister of Electronics and the Chairman,
EC, since November 1982.
Most importantly, Seshagiri had impressed Rajiv Gandhi when
the two had interacted during the design and operation of
the information systems for the 1982 Asian Games held in New
Delhi. As his views fit well with Rajiv Gandhis own
interest in encouraging the widespread application of computers,
Seshagiri came to be one of Gandhis computer boys,
as the PMs team of advisers was popularly referred to.
With the backing at the highest political level, he was able
to push through the new policy without even formally informing
the EC until February 1985. Seshagiri also became the chairman
of the Inter-Ministerial Standing Committee (IMSC) in the
DoE which, as per the new policy, was to be the last word
on all matters pertaining to the regulation of the computer
The 1984 policy succeeded in achieving one of its major objectives,
which was to ease availability of computers, especially microcomputers.
The production of micros grew almost ten-fold from 3400 in
1984-85 to 33,000 in two years.
Though international prices were two to three times lower
than domestic prices, end-user prices fell by almost 30 percent
in less than a year.
While there were a few who were concerned with the official
sanction given to screwdriver technology, especially
companies that had invested in developing local engineering
skills, by and large, the hardware industry had much to cheer
In contrast, policy confusion and bureaucratic hurdles continued
to afflict the software industry. On one hand, policy confusion
arose in part because of a limited understanding of the industry.
The confusion, however, had its advantages. Seshagiri would
have been unable to push through his policy had it not been
for misconceptions that prevailed about software among various
If the administrators and some of the bureaucrats
had too deep a knowledge, they might have prevented bodyshopping
or on site services. Software was seen as a glamorous hi-tech
industry, so they said, all right, do it.
At the same time, the basic framework remained unchanged.
The issue of copyrights continued to plague the industry and,
despite the industry being permitted to export with satellite
data links, establishing an earth station was a long-winded
procedure requiring permission from various government departments.
Indeed, it required ingeniously removing or breaking 25 government
rules before Texas Instruments (TI) could set up the first
earth station in Bangalore.
For instance, no one other than the DoT was legally allowed
to own, install and operate the earth station and related
equipment. [end of page 13] To get around this, an arrangement
was worked out whereby it was made to seem that TI, which
had paid for the equipment, was merely renting the equipment
from the DoT. TIs capital costs were adjusted against
the DoTs rental charges.
In response to industry concerns and demands, the government
announced the Computer Software Export, Development and Training
Policy on 18 December 1986. The aim of the policy was to increase
Indias share of world software production by facilitating
a quantum jump in Indias software exports
besides promoting the domestic industry. The key feature of
the policy was flood in, flood out: Indian firms
would be provided liberal access to the latest software and
software tools so that they could enhance their international
competitiveness, and exports could have a higher value-added
content. To that end the policy placed software imports in
the open general license (OGL) category i.e. software could
be imported in any form in any quantity by anybody by paying
60 percent ad valorem duty.
Various other procedures were also simplified. Those wanting
to import hardware for software export now had to apply to
the IMSC that would convey its decision in six weeks. The
IMSC clearance would also automatically ensure an import license
from the Joint Chief Controller of Imports and Exports and
foreign exchange from the Reserve Bank of India. The importer
would merely have to deal with the Computer, Communications
and Instrumentation (CCI) wing of the DoE, which would employ
the necessary chasers to obtain all post-IMSC
clearances. Applying through the IMSC was no longer the only
alternative either. Applicants could also go through the Export-Import
(EXIM) Bank. Not only was this approach faster but imports
through this route were also given a 50 percent duty rebate.
Importers who went through the IMSC and needed foreign exchange
from the government had to generate net exports equivalent
to 250 percent of the amount. For those using their own foreign
exchange the obligation was 150 percent, while using the EXIM
Bank route came with a 350 percent obligation. Whatever the
obligation, it had to be earned within four years with specific
Those failing to meet these obligations had to pay a penalty
equal to the export shortfall. Exporters could, however, retain
up to 30 percent of excess export earnings and use it to make
new investments to generate further exports. Firms were also
given a foreign exchange allocation of up to 30 percent of
their previous years earning for overseas travel and
other marketing expenses. To ease the availability of funds
at home, the policy promised to make venture capital available.
Ultimately, Seshagiri hoped that providing easy access to
technological developments overseas and encouraging foreign
investment would have a domino effect, encouraging thousands
of small software companies in the country and thereby increasing
export as well as local development.
[end of page 14] He also wanted industry to be independent,
with the government only stepping in to provide promotional
and general infrastructure support. Overall, this policy was
radical, as it explicitly rejected Indian ISI and the ideology
of self-reliance, even as broader economic policy in the 1980s
was characterized by tentative liberalization with efforts
to simplify the regulatory and administrative regime without
making major policy departures.
While the new policy was welcomed by the large, export oriented
firms, smaller firms had their grouses. First, a net export
obligation of 250 percent meant that gross exports would have
to be at least 500 percent of the value of imported hardware
and software. This, along with the annual targets, was felt
to be too stiff for new firms entering the export market.
Other biases against small firms followed. In 1987, the Software
Development Authority, which was established by the DoE in
1986 to formulate and coordinate software policy, announced
that software firms had to register with the DoE to receive
export promotion assistance. Initially, only firms with exports
of Rs.5 million in the previous year were eligible, though
that figure was reduced to Rs.1 million (US$ 72,000) in 1988
and to Rs.0.2 million (US$ 12,500) in 1989. Similarly, in
1988, firms exporting more than Rs.100 million ($7.2 million)
were permitted to pay off their export obligations in any
manner whereas smaller firms were restricted to exports using
the imported computer. But an earlier decision to disallow
the import of either used computers, or computers on loan,
was reversed. Such computers could now be brought in at 20
percent duty for up to a year with a 50 percent export obligation
and up to 6 months with a 25 percent obligation.
Second, firms focusing on the domestic market felt that placing
software under OGL would kill local efforts. In response to
this concern, new norms were announced in February 1987 for
the import of software under OGL. It was now to be restricted
to actual users, including government departments and computer
manufacturers, the DoE, and firms registered with the DoE
as distributors of foreign software, or stock and sale
as it was referred to. In April, the government tightened
the norms further: stock and sale was only permitted
either with the 30 percent excess export earnings or up to
50 percent of income tax paid on the software activities of
the firm in the previous year. The duty on imported software
was raised from 60 to 65 percent in 1988 and to 107 percent
in June 1989. But these steps ensured that only the largest
firms could continue to import, without necessarily addressing
the question of how imports were affecting local efforts.
[end of page 15]
As duties went up the government also levied a 15 percent
travel tax that hit software firms hard as most of them relied
on supplying on site services to their clients. The raising
and imposition of duties did not affect the software industry
alone; they also affected the hardware industry. In the 1987-88
budget, a 10 percent excise tax was re-imposed on computers.
The following years budget laid a uniform duty of 98
percent on all imported systems and peripherals to replace
duties that varied between 0 percent and 147.5 percent. The
1988-91 export-import policy shifted many peripherals and
computer sub-assemblies from OGL to the limited permissible
list, which required prior clearance. An export obligation
of 30 percent of ex-factory value in the case of computers,
and 15 percent in the case of peripherals, was imposed on
all computer firms approved after April 1986 that needed to
The tightening of trade and import policies reflected Indias
growing inability to pay for imports following the policy
liberalization, and Rajiv Gandhis efforts to shore up
his political fortunes after his liberal policies began to
be perceived as elitist.
There were changes at the DoE too. Seshagiri was transferred
from the DoE as full time head of NIC in January 1988 following
a power struggle between the IMSC and K.P.P.Nambiar who had
taken over as Secretary, DoE, in January 1987. But despite
the backtracking with trade and import policies, some promotional
policies did continue. In 1987, an insurance scheme was introduced
protecting clients from Indian software companies and, in
1988, one-year visas were offered for overseas trainers.
In 1988, the Commerce Ministry sponsored the Electronics
and Software Export Promotion Council (ESC) to promote electronics
and software exports. Although the Engineering Export Promotion
Council (EEPC) had constituted a software panel in 1981 and
included industry representatives on trade visits abroad,
ESC was formed because it was felt that the EEPC was responsible
for too many sectors to be able to pay any special attention
to software exports.
The ESC grew from 40 members to 1800 members in the
mid-1990s, 600 of whom were software firms. It has a working
committee to which 25 members are elected once every 2 years.
The committee includes four members from the government at
the Joint Secretary level, two of whom are from the Commerce
Ministry and one each from the DoE and the Finance Ministry.
ESCs focus is to discover markets, to provide contacts,
and to remove domestic hindrances to exports. To that end
it regularly takes up space at trade exhibitions overseas
and lets it out at subsidized rates to firms. Although such
marketing measures are not directed at helping individual
firms as such, they are praised by both companies and
independent commentators as helping larger companies to diversify
their collaborations and helping small companies to find clients.
[end of page 16]
In 1988, the industry also formed its own trade body, the
National Association of Software and Service Companies (NASSCOM),
to promote its interests. When it was formed, NASSCOM had
38 members who accounted for 65 percent of the industrys
revenues. A decade later, it had 464 members, accounting for
95 percent of industry revenues.
Technology Parks and Other Policy Initiatives since 1990
While the policies of 1984 and 1986 signaled a liberal shift
in Indias computer policies, the shift in the political
fortunes of Rajiv Gandhi slowed promotional policies after
1987. According to Pronab Sen, former economic advisor at
the DoE, amidst the euphoria following the growth in software
exports in the 1980s, arrogance and ignorance also encouraged
the opinion that the software sector did not need much by
way of policy support.
Thus, he scathingly writes,
until 1991-92, there was virtually no policy support
at all for the software sector. Even the term benign
neglect would be too positive a phrase to use in this
There was ambivalence within the government about actively
promoting bodyshopping as some of the more technologically
conversant policy makers were critical of intellectual
More crucial to Sen was the failure to provide reliable telecommunication
facilities, in the absence of which Indian firms had no option
but to resort to on-site services.
He points out that the lack of data communication
facilities also meant that India was unable to take advantage
of the global demand for data-entry services, something that
it could have well done given its work-force.
It was not until N.Vittal took over as Secretary DoE on 20
June 1990 that many of the specific concerns of the software
industry were addressed. When Vittal took charge, the then
Cabinet Secretary asked him to do something about
Vittal was a vociferous advocate of liberal policies and,
though he had no prior awareness of the issues affecting the
software industry, he was familiar with running an industry,
in contrast to most other bureaucrats. His career as an officer
of the Indian Administrative Services (IAS) included a five-year
stint as Managing Director of the Gujarat Narmada Fertiliser
Corporation (GNFC). While at GNFC he had set up a printed
circuit board plant and a plant to manufacture TV glass shells.
Vittal therefore set about rapidly to address the concerns
of the software industry. The industry wanted high-speed data
communications facilities for exports and lower import duties
on software. It wanted service exports to be treated on par
with merchandise exports. Specifically, it wanted profits
on exports to be exempt from taxes and a concession on the
import of computers under the Export Promotion Capital Goods
scheme. [end of page 17]
Based on his dialog with the industry, Vittal drew up a policy
package and presented it before a meeting of the Committee
of Secretaries on 30 August 1990. At this meeting, the Finance
Ministry agreed to clear the whole package provided he could
guarantee a five-fold increase in exports, to $500 million,
in a year. Though they finally settled on a still unrealistic
target of $400 million, Vittal decided to accept it arguing
that somebody had to take a bold leap forward. Not only did
industry fail to meet the target, many concessions also did
not take immediate effect due to the prevailing political
uncertainty. The concessions had to wait until the Narasimha
Rao government took office in June 1991.
Although many aspects of his package could not take effect
immediately, Vittal pushed to initiate the Software Technology
Parks (STP) scheme to promote software exports from India
using data communication facilities. The idea had been talked
about since 1986, after TI unambiguously demonstrated the
potential of offshore development: it was possible to encourage
the growth of an industry that utilized high-skilled labor
at home, instead of sending it overseas to work at client
But, as mentioned earlier, TI had to cross many bureaucratic
hurdles before establishing its satellite connection. Even
after operations commenced, security concerns prompted the
Intelligence Bureau to post a person at TIs offices
to check samples of the data being sent.
It was in an effort to overcome such hurdles that the STP
scheme was established.
Under the STP scheme, firms are allowed to import equipment
without an import license or having to pay an import duty.
Similarly, equipment purchased from the domestic market is
exempt from excise duty. Foreign equity up to 100 percent
is permitted and firms are allowed to freely repatriate capital
investment, royalties and dividends after paying the necessary
taxes. In return, there is an export obligation. Firms have
to earn a net amount equal to 150 percent of the hardware
imported within four years. They also have to earn a net amount
equal to 150 percent of their wage bill on an annual basis.
Although the STP scheme was meant for 100 percent export units,
in January 1995 STP firms were allowed to sell up to 25 percent
of the value of their exports to the domestic tariff area.
The figure was revised to 50 percent in 1999.
Administratively, the STP scheme provides a decentralized,
single window clearance mechanism for applications from investors.
The Directors of the individual STPs handle the export valuation,
letters waiving import licenses and customs duty, and other
formalities. In 1993, the Directors were also granted the
power to clear projects without foreign equity up to Rs.30
million, a figure that was later raised to Rs.100 million.
The local Directors were given wide-ranging powers in the
hope that each one would become a friend, philosopher
and guide to the industry while also functioning as
the eyes and ears of the DoE.
[end of page 18] Inclusion of industry representatives
on the boards and councils of the STPs was also meant to emphasize
the industry-friendly approach of the scheme.
In establishing the STP scheme, the DoE had to intrude on
the turf of other ministries. Though the scheme is in principle
no different from the 100 percent export oriented unit (EOU)
scheme or the export processing zones (EPZs) established by
the Commerce Ministry, the DoE had its own reasons for establishing
separate facilities. First, it argued that the export potential
of the software industry merited special attention. Since
the EOU scheme and the EPZs cater to various industries, the
people who administer them often have little knowledge of
the software industry.
Many regulations governing the EOU and EPZ schemes were also
not meaningful when applied to the software industry as the
issue of disposal of obsolete hardware showed.
Under the EOU/EPZ schemes, inputs that are imported duty-free
are bonded i.e. they cannot be removed from the premises.
They can be de-bonded and sold in the domestic tariff area
(DTA) only if all the duties that apply to imports to the
DTA are paid. This presents a problem with hardware that becomes
obsolete very rapidly and has little resale value after a
couple of years. In the absence of clear regulations, the
unwanted material would just lie around occupying space.
Similarly, the DoE also felt that the export obligations
for firms, based on value-added criteria, were unrealistically
high in the EOU and EPZ schemes.
It wanted to place realistic shadow prices on the
two scarce resources, foreign exchange and skilled labor,
so that artificial constraints were not placed on exporters.
The 150 percent export obligation on foreign exchange used
over a four-year period, and the annual 150 percent obligation
based on the wage bill, was set with an eye on competition
from other low-wage countries such as China and the Philippines.
While STPs can be established by anybody, anywhere in the
country, when the scheme was first formulated, reliable and
affordable high-speed data communications facilities were
not available. The 9.6 Kbps lines provided by the DoT and
VSNL did not have enough bandwidth, while the three 64 Kbps
lines were each priced at an equivalent of $180,000 per annum
in comparison to the internationally prevailing rate of $84,000.
When asked to provide more 64 Kbps lines, the DoT wanted users
to deposit money up front so that it could be certain that
the demand existed for a service it would then provide 18
months later. [end of page 19]
Figure 4. Geographical Distribution
of the DoEs Software Technology Parks. Source: STPI.
To get the STP scheme going, the DoE intruded on the turf
of the DoT and took the initiative to provide data communication
facilities and other infrastructure by establishing its own
STPs. The first STPs were established in Pune, Bangalore and
Bhubaneshwar in September, October and December 1990 respectively
(Figure 4). In June 1991, the Software Technology Parks of
India (STPI) was registered as an autonomous society under
the DoE and the three STPs established the previous year were
brought under its umbrella. Later, in 1991, in addition to
the STP at Noida, three more were established in Gandhinagar,
Hyderabad, and Thiruvananthapuram at the initiative of their
respective state governments. The first earth station was
commissioned in Bangalore in April 1993, followed by Hyderabad
in October 1993 and Thiruvananthapuram in April 1994. [end
of page 20] The DoE provided 90 of the 200 64Kbps links in
the country in 1994.
The DoEs STPs provide infrastructure such as core computer
facilities, reliable power, ready to use office space and
high-speed data communication facilities including 64 Kbps
lines, internet access, remote log-in and video-conferencing.
Office space and shared computer facilities in the STP are
meant to encourage small firms, while larger firms that can
afford their own space and hardware can locate anywhere within
a 30 kilometer radius and connect to the earth stations with
a microwave link. The STPs also have a mandate to undertake
technology assessments and market analysis besides organizing
training programs for software professionals and encouraging
the acceptance of new ideas in software engineering.
Soon after the establishments of the first STPs, a balance
of payments crisis in mid-1991 forced the Narasimha Rao government
to turn to the IMF for a fiscal stablization plan.
This plan was accompanied by a structural adjustment program
whose aim was to increase the efficiency and competitiveness
of the economy by relying on foreign technology and FDI to
a greater extent than was hitherto the case. To that end,
a New Industrial Policy (NIP) was announced on 24 July 1991.
The NIP permitted FDI in virtually all sectors of the economy
and substantially loosened licensing to ease entry barriers
for new firms. India also demonstrated its seriousness in
this pursuit by joining the Multilateral Investment Guarantee
Agency in April 1992.
This was not just a one-way flow and soon international investments
were also permitted. In 1997, software firms were allowed
to invest in joint ventures and wholly owned subsidiaries
abroad to the extent of 50 percent of their foreign exchange
earnings in the previous three years, subject to a maximum
of $25 million. In 1998, they were also allowed to offer ADR/GDR
linked stock options to their employees.
In July 1991, the Rupee was devalued by 24 percent and made
convertible on the current account, which made Indian software
Further encouraging software exports was the income tax exemption
granted to profits on service exports under Sections 10A and
B, and Section 80HHE of the Income Tax Act. Initially, this
exemption was granted on an annual basis before being made
permanent in 1995. On the trade front, the duty structure
was rationalized and, in the case of software, they were reduced
from 114 percent in 1991 to 0 percent by 1997.
Royalty payments were liberalized
and foreign trademarks and brands could be used freely in
the domestic market. Thus, in April 1993, Indian companies
were allowed to import software packages at the regular duty
and then pay a taxable royalty on each copy duplicated and
sold in the country. DoE permission was required only if the
royalty was more than 30 percent of the local price. [end
of page 21] The Indian Copyright Act, 1957, was amended in
1994 to levy stiffer penalties on copyright infringement.
While the many economy-wide policy changes of the 1990s undoubtedly
helped the rapid growth of the software industry, many sector-specific
policy changes and initiatives also emerged from NASSCOMs
constant interaction with the government.
NASSCOM is represented on various committees of the
GoI in the DoE, the DoT, the Ministries of Commerce, Finance,
External Affairs, Human Resources Development and Labour.
Apart from its interaction with the state, NASSCOM has tried
to cultivate a public constituency for the industry. For instance,
regular club meetings are held in major cities
over cocktails where we invite the member
companies, government officials, the press, leading IT users,
politicians, bureaucrats, diplomats. It is a meeting ground
where a lot of information is exchanged, people are able
to talk frankly. It creates a good understanding between
people across segments, not only among members. We hold
meetings very often, about six club meetings per year per
The result of such efforts was the creation of an awareness
of the policies needed to promote the information technology
(IT) industry, and their potential benefits, among the political
leadership, the upper echelons of the bureaucracy and the
urban intelligentsia. A leading business weekly describes
NASSCOM as an organisation that has lobbied for policy
changes openly, transparently, and in a well-planned manner
in India and abroad on a wide variety of subjects and achieved
NASSCOM also acts as a consulting body for various state
governments. By the late 1990s, virtually every state had
an IT policy, at least on paper, and promoted itself as the
next Silicon Valley.
In addition to an IT policy, state governments typically
try to attract the industry by providing infrastructure either
on their own or by encouraging the private sector. In 1998,
there were at least 25 STPs under various stages of planning
and development in different parts of the country.
This was in addition to the STPs under the DoE. For instance,
the Information Technology Park (ITPL) in Bangalore, is a
partnership between the Government of Karnataka, Tata Industries
and a consortium of Singapore firms. While the data communication
links at these new parks are provided by the Videsh Sanchar
Nigam, Indias monopoly international telecommunications
carrier until recently, private STPs, unlike the DoE STPs,
are allowed to provide connections only to firms within their
premises. To overcome such limitations, private parks began
to provide other infrastructure such as residential units
and recreational facilities. [end of page 22]
Indian Software Industry That Emerged
Having described the policy changes that played a crucial
role in the emergence of an Indian software industry, the
paper will briefly describe the characteristics of the industry
that emerged. One key feature of the Indian industry was the
ability to offer the specific expertise in demand by the global
market for software services. The departure of IBM in 1978,
and the failure of ECIL to develop a commercially viable computer,
had forced most Indian users to rely on imports. But since
high duties proved a disincentive to import, mainframes never
had a significant presence in India. Even the few mainframes
that were imported came from various sources. As a result,
in 1990, Computer Maintenance Corporation (CMC), the PSE established
in 1975 with ex-IBM staff to maintain and service all computers
not manufactured locally, was supporting 923 computers of
approximately 60 models of various vintages made by 34 manufacturers.
Thus, in the 1970s, Indian programmers worked on a
variety of platforms. This proved helpful in the 1980s in
acquiring contracts for the maintenance of various legacy
With the growth in computer manufacture and usage in India
in the 1980s, Unix became the operating system of choice.
As it undertook limited computerization of some of its activities
the government also played an important role in encouraging
the use of Unix. For instance, the Rangarajan committees
report on bank automation took the advice of CMC and recommended
the adoption of Unix-based systems. This potentially large
market encouraged investment in research and led to many innovations
in the design of Unix-based hardware in the late 1980s and
Firms obtained the Unix source code and modified it to run
on the machines they designed. The DoE helped fund and coordinate
import substitution work in Unix.
The importance of familiarity with Unix cannot be overemphasized.
Unix itself was first developed by Ken Thompson and Dennis
Ritchie in 1969 at Bell Laboratories as a multi-user OS to
provide a comfortable programming environment.
Even as the usage of Unix spread, AT&T refused to support
it, forcing users to come together to share information and
ideas. AT&Ts liberal licensing of Unix to many universities
across the world was particularly conducive to fostering a
collaborative spirit and Unix developed as a truly open system.
It is widely used as the worlds leading computer
vendors adopted different various versions. According to a
review on its 25th anniversary,
Putative standards and consortia have done
nothing to calm the splintered 25 year old. Solaris, HP-UX,
AIX, Ultrix, and myriad derivatives sit at the . . . table
today. Since the late 1970s, Unix has influenced every operating
system that is sold today. Unix has had a profound impact
on DOS, Mac OS, and Windows NT. Windowing, multitasking,
and networking would not be what they are today without
[end of page 23]
As circumstances forced Indian programmers and engineers
to adopt Unix,
India entered the 1990s in a position of
special advantage. Indian programmers are not only well
educated and English-speaking, but out of necessity theyre
keenly focused on client/server or multi-user solutions
for PCs running DOS (with Netware) or Unixjust the
kinds of solutions that U.S. and European companies are
rushing to embrace.
Despite the expertise, exports grew slowly in the 1980s,
because Indian software firms were stuck in the relatively
low-value added production segments such as coding and testing,
or in maintenance and reengineering
tasks, as opposed to the more conceptually demanding
and lucrative segments such as requirements analysis or design.
Further, a substantial proportion of the low value-added
software exports took the organizational form of on-site services
which, in the case of Indian firms, meant bodyshopping. Bodyshopping
had its advantages and limitations. On one hand it provided
easy access to the global market as it represented
almost inputless exports which
require only a contact overseas, a little finance, and the
names of local programmers who can be hired if a contract
is forthcoming. Such a path can also be followed relatively
independent of government policy measures, particularly
those on imports, because no imports are needed.
The drawback, however, was that once sent overseas, many
employees tended to quit and seek better paying and professionally
more challenging jobs. The high employee turnover only reinforced
the tendency of Indian firms to compete on the basis of low
costs rather than being able to fall back on a repository
of technical and managerial expertise acquired from previous
projects. It also led to an under-utilization of Indian engineering
Despite the drawbacks of bodyshopping, and the kind of work
that it entailed, firms had few other options. In the absence
of easily available and affordable data communication facilities,
firms could not shift to offshore services. Further, with
the exception of a few firms such as Tata Consultancy Services
(TCS), which has been an exporter since the 1970s, it was
not until the 1980s that Indian firms began to make their
presence felt as suppliers of software in the global market.
Firms from a country that had hitherto merited no consideration
as a source of IT products had to establish their credibility
with global customers before the latter could be convinced
that their software, that was strategically crucial to business
operations, could be written several thousand miles away.
A study of 230 projects across 125 firms in India shows that
reputation matters in software contracting, even after controlling
for project, firm and client characteristics.
[end of page 24] A reputation could not be established
overnight and had to wait until at least a few projects were
completed satisfactorily. Interviews with industry representatives
indicated a widespread agreement that, in order to gain the
confidence of western customers, there was no alternative
to on-site services in the 1980s. Besides, while Indian engineers
had the necessary technical skills, they had been trained
in a closed economy. On-site services provided exposure to
not just new technologies but also management processes, market
trends and socially specific communication protocols with
During the 1990s, however, the Indian software industry underwent
significant changes. There was a shift away from onsite to
offshore facilities following the commissioning of the STPs
(Figure 2). It is more than mere coincidence that the shift
from a linear to an exponential trend in software exports
began in 1993, the year that the first earth stations were
commissioned at the Bangalore and Hyderabad STPs. STPs have
also proven popular with industry as the rising share of STPs
in software exports illustrates (Figure 1).
STPs became popular because, as one interviewee mentioned,
they provided a step-function jump in terms of
the work done and value-added at home. For instance, firms
could exploit the 12.5-hour difference between Indian Standard
Time and Pacific Standard Time to undertake maintenance and
reengineering after regular users in the US left for the day.
This, in turn, meant lower costs and greater profitability,
as overall resource costs in India are only about a third
of what they are in the U.S. One reason for the lower costs
is that engineers in India can be paid just an Indian wage
whereas, once abroad, they also have to paid an overseas allowance
to cover their expenses.
Offshore development also offered the advantage of having
most employees under one roof instead of them being scattered
across many customer sites. This allows them to interact with
one another and learn from other projects in a way that communication
by email alone does not permit. It also helped firms build
a repository of knowledge that helps in competing for subsequent
projects. Though this did not overcome the problem of employee
mobility and labor turnover, in the event of a crunch, employees
could be moved from one project to another or new hands could
be hired at local wages.
With the availability of data communications facilities,
offshore software factories emerged complete with the infrastructure,
technology, training programs, quality processes, productivity
tools and methodologies of the customer workplace. For instance,
by October 1999, 140 Indian firms had obtained the ISO 9000
certification offered by the International Standards Organization,
and 134 firms were awaiting certification.
27 firms had obtained SEI-CMM certification of the
Software Engineering Institutes (SEI) five-stage Capability
Maturity Model (CMM).
[end of page 25] Not only were six of the worlds
12 CMM Level 5 firms Indian, but NASSCOM also claimed that
in the software industry, India would soon have more
ISO 9000-certified companies in the world than any other country.
There are at least two reasons why quality certification is
widely sought by the Indian software industry.
First, it is a marketing device, to signal to potential customers
that the certified firm follows a well-defined and documented
development process. Second, a well-defined process improved
the ability of firms to estimate and manage the time and resources
required for a project, helping them bid for larger projects,
thereby expanding business.
Although the relationship between certification and better
rates is not very robust, for firms with an on-going commitment
to quality, getting bigger projects is a route to obtaining
more profitable contracts.
Interviews indicated that firms with a proven record were
able to bid for projects directly with clients rather than
work as subcontractors for other vendors. This opened the
doors to turnkey contracts, giving Indian firms responsibility
of coordinating a much wider range of tasks than just programming.
They had to take responsibility for the overall project schedule,
quality and productivity, in contrast to bodyshopping which
is little more than resume selling.
For firms that developed the managerial skills and proved
their ability to deliver, there were significant benefits.
According to a representative of a MNC software firm, who
was otherwise highly critical of the Indian industry,
a few large companies have established
themselves to the extent where they are granted large consultancy
or development contracts. Companies like TCS, CMC, Infosys
have established a reputation out there. They are past that
hurdle of a dollar a day kind of savings. In fact, there
are instances of these companies charging essentially international
rates and getting away with it because the work needed certain
talent that they had.
Not only were some Indian firms getting better work at better
rates, but they also began to move away from competing solely
on the basis of hour-based productivity to intellectual property
rights based productivity. They did so by converting critical
knowledge gained during consulting projects, in specific application
areas, to a generic product that is subsequently customized
for clients with similar needs.
Even as Indian firms were establishing their credibility,
many Indians who had migrated to the US were distinguishing
themselves professionally. Since the passage of the Immigration
Act of 1965 removed restrictions on Asian migrants, by allowing
immigration based on of either the possession of scarce skills
or family ties to citizens and permanent residents, Indians
went to the US for higher education and employment. [end of
page 26] Although Indians have accounted for less than 5 percent
of all migrants, they have also accounted for nearly a fifth
of all migrants with professional and special technical skills
(Figure 5). The latter figure is more than double the norm
for migrants from all other countries. By the 1980s, many
Indians had entrenched themselves in positions of authority
in various corporations and, by the 1990s, many were also
taking the plunge as entrepreneurs.
On the basis of their own performance and the rising credibility
of Indian firms, they could recommend India to their management,
either as a possible software source or even as a production
base in light of the policy changes taking place in India.
A number of firms acknowledged the important roles played
by Indians in the parent company in influencing, either explicitly
or implicitly, the decision to work in India. One representative
of a TNC described the Silicon Valley headquarters of his
if you walk . . . the halls, you will see
an enormous number of Indians doing everything from development
to support to design to marketing
. . . VPs, senior VPs are Indians, a huge percentage of
them. So there was no reason to prove that the skills existed.
% OF ALL MIGRANTS
Figure 5. Migration from India to
the United States, 1971-1996 (as a percentage of all migrants
with professional and special technical skills). Sources:
Immigration and Naturalization Service, Statistical
Yearbook of the Immigration and Naturalization Service, (Washington,
DC: GPO, various years); Rafael G. Alarcon, The Migrants
of the Information Age: Foreign-Born Workers and Scientists
and Regional Development in Silicon Valley, Ph.D. diss.,
University of California, Berkeley, 1998, p. 83.
TNCs freely acknowledge that low wages were a big attraction
in establishing ODCs in India, because the total cost of employing
an engineer is only about 35-40 percent of what it is in the
US. But most were at pains to emphasize that the real attraction
was the availability of high quality skills. The only
reason low wages matter is because they provide an attractive
trade-off to working in an environment plagued by chronic
uncertainties of infrastructure:
We came here because of the skills. We
expanded because of the skills. We were able to come to
India because the risk of being 10,000 miles away, the risk
of the satellite link and the telephones and the flights
and the Bharath bundhs
were offset by the costs. But I cannot offset the skills
by the costs.
[end of page 27]
When TNCs started trickling into India from the mid-1980s
for the skills, they did not trust that labor with tasks that
similarly skilled labor undertook in the home country. Some
even started off doing internal bodyshopping, i.e. recruiting
engineers in India and sending them off to do projects overseas
with the parent company before starting their ODC. When the
Indian subsidiary of a German TNC set up a software export
division in 1989,
There were about
50-60 engineers working on various projects . . . across
Europe . . . at a very competitive price without sacrificing
quality. That was the origin. It went off very successfully
and there were so many people working on projects there.
Then the idea expanded and they said why should we
go there . . . when projects can be brought back to India.
. . . Slowly an Indian base started with people who were
Though TI did not resort to any internal bodyshopping when
it set up the first ODC in the mid-1980s, a representative
explained the evolution of the status of the Bangalore center
within the global framework of TI, by detailing how the development
of CASE (computer-aided software engineering) tools took place
Initially when the project started, we
were doing reengineering work in the sense that TI was working
closely with customers . . . who had their applications
written in a COBOL-like environment and they wanted to migrate
to this environment. So we started with application support
kind of work where we used to visit all parts of the world,
work with customers, understand their current environment
and manually reengineer that application in this new environment.
. . . But TI is consciously getting out of that business.
. . . Though we still do some of that work, now the major
thrust in India . . . is really on the product itself and
not the final application. . . . The fact that the India
organization has moved away from support means we are not
playing just a wage game. When we do a project in India
we ask ourselves the question, would I do this project
if it was the US? Earlier, in 85-86, we
wouldnt be asking such questions. But now these questions
are definitely asked. In other words, India is an integrated
member of the whole team and it is really one to one.
Many TNCs chose to put software engineers in India on a learning
curve especially when a specific domain expertise was not
readily available. Until such expertise was acquired, TNCs
took advantage of the availability of programming skills before
giving programmers the kind of responsibility that engineers
in the home country were given.
By the 1990s with the establishment of the STPs and after
the early entrants of the 1980s had demonstrated that India
could be much more than a low-wage hunting ground, there was
a substantial increase in the ODCs of TNCs. Many shed their
subordinate status and were undertaking projects either jointly
or independently, as equal partners, with their parent organizations.
Some even outdid their parent organizations. For instance,
in 1994, Motorolas Bangalore center was only one of
two software centers worldwide (the other being Lorals
space shuttle software project in the US) to attain CMM Level
[end of page 28] The local chief executive of a software firm,
explained why they waited until the 1990s to establish the
Now . . . the feeling is that high-tech,
leading edge quality, timely, delivered, supported software
will come out. That was not a risk you could have taken
five years ago. Five years ago, . . . they would have said
no. If they had asked me, I would have said no. I would
have said, do anything, bodyshopping, subcontracting,
modular work, but dont give full dependability here
because nobodys ever done it. Its not proven.
This CEO went on to compare the work done at his center with
the work at the company headquarters in Silicon Valley:
New products come from here, new versions
of old products come from here
. products on a particular
hardware platform come from here as opposed to an application
for a customer or something like that. Its the same
thing that they do over there. Technologically, theres
The essay has examined the evolution of public policy and
policy-making institutions that facilitated the emergence
of the Indian software industry. Policy changes took place
in three phases: the pre-1984 phase, with its restrictive
regulatory regime; a second phase between 1984 and 1990, when
the regulatory regime eased; and a third phase in the 1990s,
when there was more pro-active promotion of the industry.
The changing policy regime was due to the changing characteristics
of policy-making institutions, especially the DoE, following
changes in bureaucratic leadership. In the 1970s, under the
leadership of a technological ambitious scientific establishment
focused on self-reliance, there was neither an industry nor
any significant exports. It was only after more technologically
and commercially pragmatic bureaucrats, with their global
ambitions, took charge at the DoE by the early 1980s that
a significant policy departure was attempted. The pragmatism
was accompanied by a greater willingness to work with the
industry, especially the private sector. Thus, despite the
liberal shift in policies since the 1980s, it was only after
dialog with industry that the key initiative in the form of
STPs was launched.
The shift in policy, however, would not have been possible
but for the political backing it had. With Rajiv Gandhi taking
office as Prime Minister in 1984, there was a shift away from
the autarkic economic model and software was among the first
economy sectors that benefited from the shift. Subsequently,
by the 1990s, the economy-wide liberalization helped the sector
further and a virtuous cycle of export growth and policy liberalization
was established. The timing of the political and institutional
changes coincided with the increasing globalization of the
software industry with the rapid growth in demand for software
following the PC revolution of the 1970s. [end of page 29]
Demand was then sustained by the popularity of networking
in the 1980s, the commercialization of the Internet in the
1990s and other maintenance opportunities such as the Y2K
While the market opportunities provided to the Indian software
industry by technological developments since the 1970s, and
the political and institutional changes behind the liberal
policies that allowed the industry to seize the opportunities,
were historically specific and socially contingent, the Indian
experience nevertheless offers at least a couple of lessons
for other NICs entering the software industry. The Indian
experience shows that it is possible to enter the global market
and go through a process of learning with the one key advantage
that NICs possess: low-wage labor, although in the case of
software the labor must also be relatively high-skilled. India
entered the global market by capitalizing on the demand for
low-cost but high-quality programming skills. As Indian software
professionals and firms demonstrated technical expertise and
increasing project management capabilities, it not only led
to rapid growth in exports, it also began to gradually alter
the relationship between the Indian industry and global markets.
An appreciation of Indian capabilities was not limited to
the awarding of more lucrative turnkey contracts by global
customers; many global software producers also increasingly
saw beyond the obvious cost-advantage to the technological
advantage of locating development centers in India. The Indian
strategy and experience with software services is not very
different from the strategy and experience of a Taiwan or
a South Korea in manufacturing, although there is one difference.
Whereas in the case of the East Asian NICs, it was mass
manufacture that provided the means for their late industrialization
efforts, in the Indian case, it has been the provision of
custom software services.
The relative weakness with mass producing and exporting packaged
software or software products leads to the second lesson from
the Indian case. Critical to success in packaged software
is the ability to embody intellectual content from various
domains into code that is able to address the functional needs
of users in a domain.
The most effective way to continuously acquire evolving
intellectual content in any domain is to locate close to the
largest and most critical users whose decision to adopt any
particular software as standard typically influences other
users and unleashes network externalities.
But the limited demand for software in India is evident
not only from the growing proportion of software produced
in the country that is exported (Figure 1), but also in the
spending on IT as a share of GDP.
For instance, in 1999, India spent 0.53 percent of
its GDP on IT in contrast with 3.09 percent in the OECD countries
or 1.81 percent in the Asia Pacific.
India failed to pursue a walking on two legs
strategy that pays as much attention to policies encouraging
domestic demand and consumption of software as they do to
supply and production for export.
[end of page 30] The rationale for the strategy is
that the domestic market provides a good learning opportunity
before venturing into the often more competitive global market.
Considering that the global market for packaged software grew
at 11.8 percent in comparison to 7.8 percent for software
services between 1990 and 1997,
and that the packaged software business is more profitable
than services due to the near-zero marginal cost of electronic
Indias relative failure in nurturing a domestic
market offers another lesson.
Balaji Parthasarathy, Globalizing Information
Technology: The Domestic Policy Context for Indias Software
Production and Exports, Iterations: An Interdisciplinary
Journal of Software History 3 (May 3, 2004): 1-38.
The author thanks Dr.Vigneswara Illavarasan and two anonymous
referees for their helpful comments on earlier versions of
the essay. The usual disclaimers apply.
1999-2000, 62 percent of Indias software exports went
to North America. National Association of Software and Service
Companies (NASSCOM), Indian IT Software and Services Directory
2001. (New Delhi: NASSCOM, 2001).
Henderson, The Globalisation of High Technology Production:
Society, Space and Semiconductors in the Restructuring of
the Modern World, (London: Routledge, 1989). Also see
John A. Mathews and Dong-Sung Cho, Tiger Technology: The
Creation of a Semiconductor Industry in East Asia, (Cambridge:
Cambridge University Press, 2000)
Sen, Software Exports from India: A Systemic Analysis,
Electronics Information and Planning, 22,2 (1994):55-63.
otherwise mentioned, the changes in policy described in this
section and the next are drawn from Richard Heeks, Indias
Software Industry: State Policy, Liberalisation and Industrial
Development, (New Delhi: Sage Publications, 1996); Eswaran
Sridharan, The Political Economy of Industrial Promotion:
Indian, Brazilian, and Korean Electronics in Comparative Perspective
1969-1994, (London: Praeger, 1995) and C.R.Subramanian,
India and the Computer: A Study of Planned Development,
(New Delhi: Oxford University Press, 1992).
in Subramanian, op.cit., p.133.
EC was wound up in May 1989.
M. Grieco, Between Dependency and Autonomy: Indias
Experience with the International Computer Industry, (Berkeley
and Los Angeles: University of California Press, 1984).
the outline of the policy regime is described here. For the
economic rationale and the political arguments for the policy,
see Baldev Raj Nayar, Indias Mixed Economy: The Role
of Ideology and Interest in its Development, (Bombay:
Popular Prakashan, 1989) and Sukhamoy Chakravarty, Development
Planning: The Indian Experience, (New Delhi: Oxford University
[end of page 31]
J. Ahluwalia, Industrial Growth in India: Stagnation Since
the Mid-Sixties, (New Delhi: Oxford University Press,
DoE had licensed ICL to manufacture its 1901A system and,
in 1977, its 2903 and 2904 systems. But these were not
in direct competition with ECILs offerings.
DoE established the Regional Computer Centers (RCCs) in the
1970s. Though conceived by the Bhaba committee, the first
center opened only in 1977, in Calcutta, because funding proved
to be a problem. The centers proved popular with the public
sector but the idea that they would be used by the private
sector for software export, never took off. As computers became
more easily available, and PCs provided an alternative to
mainframes, RCCs became less relevant. Subramanian, op.cit.
Cabinet approved the guidelines in December 1975.
conversion rates are taken from http://fx.sauder.ubc.ca/etc/USDpages.pdf.
of India (GoI), Report of the Review Committee on Electronics
(Sondhi Committee), Electronics Information and Planning,
7,6&7(1979): Appendix 12.5.
op.cit., Table 1.
Lakha, Growth of Computer Software Industry in India,
Economic and Political Weekly, 25,1(1990):49-56.
interview with N.Seshagiri, former Additional Secretary, DoE,
New Delhi, 24 June 1996.
The New Software Policy: Dr.Seshagiri Clarifies,
interview with Pronab Sen, former Economic Advisor, DoE, New
Delhi, 19 June 1996.
placed on the OGL list meant that an item could be imported
by merely paying the import duty without obtaining an import
percent of the earnings had to come at the end of the 2nd
year, and 50 percent by the third.
[end of page 32]
Kohli, Democracy and Discontent: Indias Growing Crisis
of Governability, (Cambridge: Cambridge University Press,
of ESC obtained during authors interview with R.K.Singh,
ESC, New Delhi, 19 June 1996.
with N.Vittal, former Secretary, DoE, New Delhi, 25 June 1996.
interview, op.cit. Details of administrative bargaining and
coordination that follow are from the same source.
interview with N.Gopalaswami, former Joint Secretary (Software
Development), DoE, New Delhi, 21 June 1996.
interview with S.K.Agarwal, Director, STPI, New Delhi, 20
address this issue, and to encourage computer use, firms were
allowed to donate computers and peripherals at 0 percent duty
after 2 years, to government-recognized non-commercial institutions
such as schools.
Vijay Joshi and Ian Little, India: Macroeconomics and Political-Economy,
1964-1991, (Washington D.C. and New Delhi: The World Bank
and Oxford University Press, 1994) for an extended discussion
of the factors leading to the 1991 crisis.
of the NIP are from Charles Oman (ed.), Policy Reform in
India, (Paris: OECD, 1996).
joining the Multilateral Investment Guarantee Agency, India
was committing itself to protecting foreign investment against
risks such as war, civil disturbance and expropriation.
American/Global Depository Receipts. The ADR is a certificate
issued by a US bank that trades like a share on NASDAQ, allowing
the US investor to invest in a foreign market without having
to deal with risk of currency transactions. ADRs represent
a certain number of domestic shares of the firm deposited
with the bank. GDRs are similar to ADRs, except that they
are traded on international stock exchanges such as London.
[end of page 33]
weakening of the Rupee was underway even earlier. Between
1985-86 and 1989-90, the Rupee depreciated by 45 percent in
nominal terms and 30 percent in real terms. See Joshi and
Little, op.cit. Between 1991 and 2000, the Rupee declined
from Rs.22.74 to the US$ to Rs.44.94. However, the falling
value of the Rupee is hardly the only reason for the growth
in Indian software exports. Between 1987 and 1993, only 40
percent of the growth could be attributed to the falling Rupee.
The rest was real growth. See Sen, op.cit.
Isher J. Ahluwalia, Indias Opening up to Trade
and Investment, in Oman, op.cit. for details of changes
to trade policies.
imports are automatically approved for royalty payments up
to 5 percent of domestic sales and 8 percent of export sales.
For lump sum payments, the limit for automatic approval is
1994 amendment to the Copyright Act came into effect from
10 May 1995. It clarified the rights of a copyright holder,
the position on rentals of software, the rights of the user
to make backup copies and imposed punishment and fines for
infringement of copyright of software. According to Section
14 of this Act, it is illegal to make or distribute copies
of copyrighted software without proper or specific authorization.
The only exception is provided by Section 52, which allows
a backup copy purely as a temporary protection against loss,
distribution or damage to the original copy. A civil and criminal
action may be instituted for injunction, actual damages (including
infringers profits) or statutory damages per infringement.
With these amendments, even the criminal penalties were substantially
increased. Section 63 B, stipulates a minimum jail term of
7 days which can be extended up to 3 years. The Act further
states the fine ranging from Rs. 50,000 to 200,000.
interview with the late Dewang Mehta, former Secretary, NASSCOM,
New Delhi, 26 June 1996.
Kanavi, Power Lobbying, Business India,
19 February - 4 March, (2001):50-56.
The Year of Hope, 15 July, (1999). www.dqindia.com
Parkin Tales, 15 September, (1998). www.dqindia.com.
These included one each in Andhra Pradesh, Kerala, New Delhi,
Punjab and Rajasthan, two each in Gujarat and West Bengal,
five each in Maharashtra and Tamil Nadu and six in Karnataka.
U. Harding, India: After IBMs Exit, an Industry
Arose, Software Magazine, 9,14(1989):48-54 and
Subramanian, op.cit., p.210.
maintenance work arises when organizations are forced to use
computer systems dating back to the pre-PC era because the
older (legacy) systems embody years of valuable business information
and experience and cannot be easily discarded. Such organizations
can spend over 70 percent of their systems development budgets
on maintenance activities because they
what can only be regarded as software museums: collection
of systems that incorporate or exemplify all the significant
developments in computing
., including some of the blind
alleys. The result is the systems equivalent to a medieval
city, a hotchpotch of dissimilar buildings and winding lanes
where only the locals can find their way around. Alex
Mayall, Spaghetti Systems, Which Computer?
14, (1991):40. The hotchpotch structure makes maintenance
very labor intensive. In the 1990s, format problems with older
software, especially those involving dates, acquired urgency.
The year 2000 or Y2K problem, for instance, arose from a programming
convention that used only two digits to represent a year.
This was originally done to save expensive memory. Under this
convention, 2000 was read as 00, with potentially ruinous
implications for sectors such as finance and banking, whose
functioning relies on date-based calculations. The problem
afflicted older mainframe programs using COBOL code in particular,
but other systems were not immune either. Joe Celko and Jackie
Celko, Double zero, Byte, 22,7(1997):89-91.
Fixing the problem was not so much a technological challenge
as one of scale and management. Norton Greenfeld, UNIX
and the Year 2000, UNIX Review, 15,2(1997):7-10.
It was a laborious process requiring a lot of planning, project
management and testing, with no quick fixes or silver bullets
Peter de Jager, Year 2000: The Silver Bullet Solution,
Datamation, 43,5(1997):33-34. While the Y2K problem
was the most publicized, other format problems with older
software also manifest themselves in the 1990s. Another date
problem had to do with global positioning system (GPS) satellites.
A network of twenty-four satellites kept track of dates from
midnight 5 January 1980 for 1024 weeks. On midnight 21 August
1999, the week counter was reset to zero. This did not affect
the satellites as much as applications, such as global fund
transfers, which rely on GPS time signals. A different kind
of format problem was posed by the shift to the Euro, replacing
ten European currencies, from 1 January, 1999. The situation
was complicated because the Euro was gradually eased into
use. Its introduction varied by country, industry and commodity
and existing currencies were considered legal until 2002.
Capers Jones, Bad Days for Software, IEEE Spectrum,
[end of page 34]
H. Salus, Unix at 25, Byte, 19,10(1994):75-82.
work done at the University of California, Berkeley, deserves
special mention. Among the key players there were Ken Thompson,
who had moved to Berkeley in 1975 as a visiting professor,
and a few graduate students, prominent among whom was Bill
Joy. Starting in 1977, various Berkeley Unix versions were
released. With funding from the U.S. Defense Advanced Research
Projects Agency (DARPA), version 4.1a was test released in
June 1982 incorporating TCP/IP (Transmission Control Protocol/Interconnection
Protocol) which later became the Internet networking standard.
After version 4.1c was released in late 1982, Bill Joy left
Berkeley for Sun Microsystems, where 4.1c became the Sun OS.
[end of page 35]
Udell, Indias Software Edge, Byte, 18,10(1993):55-60,
reengineering is a means of reducing and simplifying maintenance
by essentially replacing the older software with equivalent
new software i.e. changing its form without altering its function.
The result is easier and more efficient data access by shortening
access paths, providing better query facilities and distributing
data among several servers. Other benefits include better
security, elimination of bugs lurking in the older software,
and laying the ground for functional enhancement. Typically,
reengineering involves migration from a mainframe to a newer
operating environment such as Unix and is also likely to entail
a language change. For example, C is upgraded to C++ or unstructured
Cobol in upgraded to Object Cobol. H.M. Sneed, Planning
the Reengineering of Legacy Systems, IEEE Software,
Schware, Software Industry Entry Strategies for Developing
Countries: A Walking on Two Legs Proposition,
World Development, 20,2(1992):143-164; Peter B. Evans,
Embedded Autonomy: States and Industrial Transformation,
(Princeton, NJ: Princeton University Press, 1995), and Heeks,
V. Banerjee and Esther Duflo, Reputation Effects and
the Limits of Contracting: A Study of the Indian Software
Industry, Quarterly Journal of Economics, 115,3(2000):989-1017.
Association of Software and Service Companies (NASSCOM), Indian
IT Software and Services Directory, 1999-2000, (New Delhi:
five-stage model was originally developed to assist the U.S.
Department of Defense in software acquisition. The 5 stages
are: (i) initial - process is ad-hoc or even chaotic with
few codified practices; (ii) repeatable - basic project management
procedures track cost, schedule and functionality that permits
repetition of successes in projects with similar applications;
(iii) defined - documented and standardized engineering and
management processes in place that are followed by all software
development and maintenance projects; (iv) managed - software
process and product quality understood and controlled with
detailed quantitative measures; (v) optimizing - continuous
feedback based on quantitative feedback from process. Mark
C. Paulk, How ISO 9001 Compares with the CMM,
IEEE Software, 12,1(1995):74-83.
Arora and Jai Asundi, Quality Certification and the
Economics of Contract Software Development: A Study of the
Indian Software Industry, Working Paper No.7260, (Cambridge,
MA: National Bureau of Economic Research, 1999).
[end of page 36]
interview with industry representative, Bangalore, 30 July
Annalee Saxenian (with Yasuyuki Motoyama and Xiaohong Quan),
Local and Global Networks of Immigrant Professionals in
Silicon Valley, (San Francisco: Public Policy Institute
of California, 2002); Annalee Saxenian, Silicon Valleys
New Immigrant Entrepreneurs, (San Francisco: Public Policy
Institute of California, 1999) and Rafael G. Alarcon, The
Migrants of the Information Age: Foreign Born Engineers and
Scientists and Regional Development in Silicon Valley,
Ph.D. Dissertation, 1998, University of California, Berkeley
for a study of the impact of changes in U.S. immigration laws
and the role that immigrant engineers play in the advanced
technology sectors of Silicon Valley, arguably the most important
center for the US IT industry. The studies also show the importance
of immigrants for entrepreneurship in the Valley and how immigrant
engineers use their social networks to promote investment
and economic development in their home countries.
with industry representative, Bangalore, 30 July 1996.
is another way of referring to India and bundh is a
Hindi word meaning, to shut. Bharath bundhs,
then, are calls given to shut down business in the country,
usually for a day, as a form of protest. Typically, political
parties call bundhs. Though the response to a bundh
call in any region depends on the political influence of the
caller, bundhs are a regular feature in India, which
make costly disruptions to regular life.
interview with industry representative, Bangalore, 30 July
with industry representative, Bangalore, 14 May 1996.
interview with TI representative, Bangalore, 30 July 1996.
Sims, Motorola Self-Assesses at Level 5, IEEE
interview with industry representative, Bangalore, 30 July
A. Egan, The Spatial Dynamics of the U.S. Computer Software
Industry, Ph.D. dissertation, 1997, University of California,
the value of a product to one user depends on how many other
users there are, the product is said to exhibit network externalities.
For more on this see Carl Shapiro and Hal Varian, Information
Rules: A Strategic Guideto the Network Economy, (Boston:
Harvard Business School Press, 1999).
[end of page 37]
was despite some large scale and widely acclaimed efforts
such as the railway passenger reservation project. For details
of the railway reservation project and similar efforts, see
Ashok Parthasarathi, The Development of Technology in
Electronics: Some Case Studies, Electronics Information
and Planning, 19,10(1992):545-562.
from International Data Corporation. Asia Pacific refers to
the following countries: Australia, China, Hong Kong, India,
Indonesia, Japan, Malaysia, New Zealand, Philippines, Singapore,
South Korea, Taiwan and Thailand.
Information Technology Outlook: ICTs, E-Commerce and the Information
Society, (Paris: OECD, 2000).
[end of page 38]
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