India's IT Lessons

India's experience in developing its IT sector is worth to be examined

The coming decade will see India become the premier global IT hub, overtaking the US Silicon Valley. Already now, 75 per cent of all programmers on the planet are Indians. The country's information technology sector demonstrated its best performance in a decade, earning almost USD 230 billion in one year. The industry has been growing at an average rate of 15% per year. If the trend continues, its earnings could reach the USD 350 billion mark by the middle of this decade. However, it's fair to mention the growth has been primarily driven by the country's top-3 tech giants: Tata Consultancy Services, Infosys, and Wipro.

India's overseas sales of information technology services, which generated just USD 8.5 billion in 2000, reached a whopping USD 180 billion last year. This accounts for more than half of India's exports and is more than what Saudi Arabia has been earning from selling its crude. The largest buyers of Indian IT services include the United States (USD 87 billion), the EU (USD 40 billion) and the United Kingdom (USD 23 billion).

These rapid growth figures may look like a miracle to an inexperienced observer. However, such impressive advances were backed by committed and consistent efforts by the Indian government and its business community that had taken several decades before they started to pay off.

It can be taken as a perfect example of how a nation can develop its information technology industry. There is no place for one-size-fits-all recipes in economics, of course, however, the Indian insights are worthy of a closer examination.

The country's government adopted India's first programme to prompt the development of its information technologies as far back as the early 1970s. The programme also included establishing a special economic zone in Mumbai to accommodate software development companies and providing them with subsidies, low-interest loans, and various customs preferences. Such a policy, propped up by a huge untapped domestic market where innovations could be tested, started to pay off quickly.

Founded in 1968, India's first IT company, Tata Consultancy Services (TCS), started selling its software to Swiss banks and companies in North America and Africa in 1975. Today, TCS's market capitalization amounts to USD 200 billion. The continued expansion into the global markets was facilitated by a software development and export programme launched by the government in 1986.

India's IT lessons
Headquartered is Tata Consultancy Services Limited (TCS) in Mumbai. photo:

Then the booming IT industry needed more workforce, prompting the government to implement an intensive training programme for computer professionals. As a result, compared to the early 1990s, when only a few thousand programmers were in the industry, this number now exceeds 5 million.

At first, the education programmes favoured speed and quantity over quality. But in the end, quantity resulted in a new quality, providing India with its most important competitive advantage: millions of professionals willing to work for little more than just food. Interestingly, some started coding after two weeks of programming classes, producing incredibly complex and convoluted codes that miraculously worked against all odds.

Since then, Indian programmers have evolved into much more sophisticated coders, but they are still willing to do their work for a fraction of what their European counterparts expect to be paid. On average, an IT professional in India earns USD 5,000 yearly, which is a monthly salary in the United States. Of course, this ratio is bound to change in the coming years as the Indians will start to ask for more eventually. Over the last year alone, the salaries have grown by a third. Still, India successfully continues to retain its competitive edge.

Another important factor fueling the development of India's IT industry is the country's advantageous position geographically. Executives of major European companies may not have realized right away what a huge advantage it was to have millions of cheap programmers who could keep toiling away. At the same time, Europe and America are still asleep. But when they did, they immediately started actively involving Indian professionals in their activities, thus enabling their companies to operate around the clock without interruption.

In addition to providing the US and European companies with a solid competitive advantage, this kind of outsourcing has the side effect of helping boost their positive public image. By hiring Indian nationals, these corporations demonstrate their commitment to inclusivity and diversity. This is particularly useful considering that over a third of India's IT workforce are women. Besides, the IT industry in India largely ignores any clan, caste or religious differences when deciding to hire someone. As a result, India's computer industry has created 5 million relatively well-paid high-tech jobs elevating the country to a major player in the global market of IT outsourcing.

That said, this success story had its share of good fortune. But, after all, you have to be ready for good luck to exploit your chances to the fullest. The true break for India's high-tech industry came along in the form of the Y2K problem. At the time, many programmes represented four-digit years with only the final two digits. With the arrival of the new millennium on the horizon, there was a potential that the year 2000 would look indistinguishable from 1900, or 0. This could lead to disruptions or the risk of bringing down infrastructures. To prevent this, millions of lines of code had to be rewritten, which was precisely why Indian programmers were hired. They ultimately saved the world from chaos and established themselves quite a reputation along the way.

India has learned to make money out of crises ever since. Having successfully handled the Year 2000 crisis, Indian IT companies then took advantage of being involved in mitigating the dot-com bubble crisis and the 2008 financial meltdown. While remaining relatively profitable, they could attract investments and secure lucrative orders despite the turmoil. The coronavirus pandemic, too, has provided India's IT industry with huge gains. India managed to use several global trends brought to life by the pandemic.

COVID-19 forced companies to go digital, take their operations to the cloud, and introduce teleworking for their staff. And this is where India's IT sector again proved to be a godsend. In response to these challenges, India's top three IT corporations, Tata Consultancy Services, Infosys and Wipro, and thousands of smaller companies are set to create another 5 million jobs over the coming decade. But to make this happen, India's government will need to work with the country's business community to increase investment in education. To maintain the double-digit growth, IT companies will have to go beyond cloud technologies and start tapping into new promising areas such as AI, machine learning, robotics, and cybersecurity. Judging by the fact that major global players continue investing in India's information technologies, they seem confident that Indian companies and the Indian government is ready for the challenge.

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Indian software manufacturer Infosys. Photo: Shutterstock.

Meanwhile, other Asian countries follow in India's footsteps, trying to turn their IT industries around. Bangladesh and Pakistan, in particular, are playing an increasingly important role in global IT outsourcing. But unlike India, they are just at the very beginning of their journey.

Main photo: Bangalore - Silicon Valley of India.⁠⁠

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