Mathur, Somesh Kumar (2007): Indian IT industry: a performance analysis and a model for possible adoption.
Download (821Kb) | Preview
India's software and services exports have been rising rapidly. The annual growth rate ranges between 20 -22% in IT services and nearly 55 % in IT-enabled services (ITES), such as call centres, Business Process Outsourcing ( BPO) and other administrative support operations. Together they are predicted to grow at 25% pa till 2010.The IT industry is highly export oriented and the exporters are predominantly Indian. The Indian BPOs (ITES) are moving up the value chain, handling high end data for airline information, insurance, banking sector and mortgage companies, enterprise resource planning, among others. Some of the companies have already moved into significantly higher value added segments such as mission- critical applications, development and support, product design, HR Management, knowledge process outsourcing for pharmaceutical companies and large complex projects. Software exports make up 20 % of India's total export revenue in 2003-04, up from 4.9 % in 1997.This figure is expected to go up to 44% of annual exports by 2010. Though India accounts for just about 3 % of the world market for information technology services, this sector has been growing at a scorching pace, helped by a large pool of English-speaking workers, nearly 4 million engineers and the increasing tribe of tech-savvy entrepreneurs in the country. The Information Technology industry currently accounts for almost 4.8 % of India's GDP. It will account for 7 % of India's GDP by 2010. Software and IT enabled services have emerged as a niche sector for India. This was one of the fastest growing sectors in the last decade with a compound annual growth rate exceeding 50 per cent. Software service exports increased from US $ 0.50 million in 1990 to $5.9 billion in 2000-01 to 23.6 billion dollars in 2005-06 recording a 34% growth. A compound annual growth of over 25% per annum is expected over the next 5 years even on the expanding base. The impact on the economy of projected software and IT enabled service exports of $ 60 billion by 2010 is likely to be profound. One manifestation is that India notched up a current account surplus in 2001-02, for the first time in 24 years. India further needs an open environment under GATS to promote exports of services through outsourcing and off-shoring .
The present study examines the growth performance of India’s IT industries, with particular attention paid to the role of policy in this process. The study recognizes that emergence of a strong Indian IT industry happened due to concerted efforts on the part of the Government, particularly since 1980s, and host of other factors like Government-Diaspora relationships, private initiatives, emergence of software technology parks, clustering and public private partnerships. In this study we further look at the major parameters of the Indian IT and ICT industry in global context and give justification for including the main factors responsible for the IT boom in India. The study has looked into the past and present trends of the Indian IT industry and has considered further needs of IT sector to act as a catalyst of growth and development. The study has examined whether the Indian IT growth does have enough lessons for other countries to model their IT policy which may help them to shape their IT industry as driver of growth and development. IT firms were actually required to export software in the early days of the industry. This arose in the context of a shortage of foreign exchange in India in the 1970s and early 1980s.Software firms that needed imported inputs were required to earn foreign exchange themselves through export of software. This enabled them to get an idea of global markets very early. Besides formulating the national vision to promote software industry in India in the early 1980s by the government, there were deliberate attempt by the companies to promote software production like compilers, device drivers and operating system to cater to the domestic hardware sector. The high tariffs for the hardware sector had meant that the production of domestic hardware segment (including PCs which were introduced in the same period) had to be sustained requiring necessary software’s like operating system and drivers. Subsequently by mid 1980s, software started coming up unbundled with the hardware. This further gave fillip to the software industry and exports. The 1990s and early 2000 saw the rise of Software Technology Parks and formation of the Ministry of Information Technology, respectively. Despite liberalization of the 1991, the software industry flourished signifying the inherent strength that it developed due to benign and enabling environment provided over a period of time and also the fact that the 1990s saw the dramatic decline in telecommunication costs (government explicit intervention) and the commercialization of the internet along with the Y2K “problem”. The Data Envelopment Analysis (DEA) model is used to work out technical efficiency of Information and Communication Technology ( ICT) Industry in host of countries which are front runners as far as ICT is concerned. India lags behind the most as far as ICT (not IT) is concerned. However, information and Communication technology industry has brought revolution in India because it has reduced intermediation in business and society, provided solutions across sectors and is increasingly becoming an important tool for national development. DEA is also applied to benchmark the performance of the 92 Indian Software Companies for 2005- 2006. The impact of various determinants on technical efficiency of the Indian Software companies is worked out using tobit regression. The impact of the explanatory factors on net exports of 92 software firms in 2005-06 is also worked out using simple regression exercise. The study also works out technical efficiency of 36 telecommunication firms in India and examines the determinants for new technology adoption by such industries. The study uses a Malmquist index to estimate total factor productivity changes decomposed into efficiency change( catching up to the frontier technology) and technical change( movement of the frontier) for the common software firms existing between 1996 and 2006 E-government is the application of Information and Communication Technologies (ICT) by government agencies. Its use promises to enhance the effectiveness and efficiency of government and alter its relationship with the public. The study outlines E-Governance models for effective governance and for higher agricultural growth and development. E-Commerce primarily refers to buying, selling, marketing and servicing of products or services over internet and other computer networks. E-Commerce in India is just taking off with the advent of Railway and Online Air bookings and Net banking. The business is likely to grow to Rs 2300 crore by 2007 .Electronic commerce allows efficient interactions among customer, suppliers and development partners cutting down on transaction time and reducing the costs of doing business. The role of government is to facilitate the development of E-Commerce. For promoting South-South Cooperation and making it meaningful, the governments of the member countries need to pool resources and capabilities in R&D and human resource development for harnessing the fruits of Information and Communicating technologies. The study spells out in detail a number of examples where ICT has been used by rural communities for their benefit and for policy and development goals of the government in general. Web based software development and software product development (like device drivers) is necessary for providing complete business and consumer oriented solutions. These are also areas of interest for the Indian IT entrepreneurs to work upon in times to come. India’s relatively unsafe e-security environment is costing the BPO/ITES industry. The new IT Act (2000) needs to crucially define cyber harassment, phishing and cyber stalking to take care of cyber crimes in India. With the Indian IT/BPO exports to reach $60 billion by 2010, such companies need to invest in upgrading security measures for sustaining competitiveness. Organizations are not obliged under the IT Act to implement data security measures to protect consumers and clients. All this makes it obvious that qualitative progress cannot be made without enacting comprehensive data protection legislation. The Information and communication technologies (ICT) indicators of India are 13 million PCs, 40 million internet users- country with the fifth-largest number of Internet users,143 million mobile phones and 60 million subscribers for fixed lines in 2006. These are modest figures in comparison with the ICT penetration indicators achieved by the front runners like Taiwan, South Korea, Japan, UK, US, Nordic countries in Europe, among others (see the text for our strength and weaknesses in the ICT infrastructure in comparison with some other front runner countries). India’s Strengths lies in its availability of pool of scientists and engineers and quality of maths and science education along with quality of business schools. We are also ranked quite high in terms of cluster development, foreign technology licensing and Government prioritization of ICT. The weaknesses are the telecommunication infrastructure and speed of new business registration. However, Information and communication technologies(ICT) has brought about revolution in India particularly since 1990s .This is because it has reduced intermediation in business and society, reduced mobile and fixed telephony rates(because of concerted policy interventions by the government), provided solutions across sectors, provided both CDMA and GSM mobile technologies (and now Wi-Max technologies for internet access at different public places using PC), re-organizing firm level behavior, empowering individuals by providing them with more information and is increasingly becoming an important tool for national and rural development through E-governance, E-Banking and E- Commerce programmes. In addition, the success of the Information Technology industry in India is intertwined with information and communication technologies as most of the Information technology enabled services use such technologies for providing their services. The quantitative results of the paper answers the following- what orientations in inputs should be done by inefficient software and telecommunication firms and ICT Industry in general to reach the ‘ best practice frontier’( and have operational excellence), examines the relationship between technical efficiency and net exports of software firms along with the impact of host of explanatory factors like size of firms in terms of sales and total cost, among others on technical efficiency and net exports for cross section of software firms using tobit analysis, gives some reasons for relatively low ICT penetration in India and what can be done to transform India’s relatively good ICT readiness and ICT environment into higher ICT usage, answers why telecommunication firms are adopting new technologies and estimates total factor productivity changes in software firms which can be further used to model wage and price estimation of products and services offered by software firms over time. The paper confirms the improvements in productivity, efficiency change and technical change of the Indian Software industry from 1996 to 2006.
Synopsis Chapter Wise Chapter one describes the major parameters of the Indian Information Technology (IT) Industry in India today and in the immediate past. The chapter further analyzes the reason for the ‘boom’ in the Indian IT sector. We also outline an electronic governance Model which can become a tool for effective governance. DEA is applied to benchmark the performance of the 92 Indian Software Companies for 2005- 2006. The impact of various determinants on technical efficiency of the Indian Software companies is worked out using tobit regression. The impact of the explanatory factors on net exports of 92 software firms in 2005-06 is also worked out using simple regression exercise. . Further this chapter uses a Malmquist index to estimate total factor productivity changes decomposed into efficiency change and technical change for the common software firms existing between 1996 and 2006. Chapter two gives an account of the position of the Indian Information Technology (IT) Industry and the Indian Information and Communication Technology (ICT) Industry in the global context and analyzes the strengths and weaknesses of ICT Infrastructure across some countries. Technical Efficiency of the Indian ICT sector is worked out using the mathematical model of Data Envelopment Analysis. The study also works out technical efficiency of 36 telecommunication firms in India and examines the determinants for new technology adoption by such industries. Chapter Three describes why and how the Indian IT industry can act as a catalyst of growth and development. An account of an effective electronic governance model for Agriculture Sector is also given. Chapter Four looks at the past of IT industry since 1960s keeping policy in mind. This chapter also outlines an export success model . Such models can be emulated by other countries. Chapter five describes the hurdles and constraints faced by the India IT industry and give an account of the policies and strategies which can be adopted to address the hurdles and concerns of the ICT sector. The last Chapter gives the conclusions, suggestions and policy advice for making IT as a tool for addressing some core inadequacies in the system like poverty, inequality, healthcare and education, among others.
|Item Type:||MPRA Paper|
|Original Title:||Indian IT industry: a performance analysis and a model for possible adoption|
|Keywords:||IT; ICT; ITPOLICY; OUTSOURCING; DEA ANALYSIS; TECHNICAL EFFICIENCY; TOBIT; NETEXPORTS; MALMQUIST INDEX; TOTAL FACTOR PRODUCTIVITY CHANGE; EFFICIENCY CHANGE; TECHNICAL CHANGE|
|Subjects:||L - Industrial Organization > L8 - Industry Studies: Services > L86 - Information and Internet Services; Computer Software|
|Depositing User:||Somesh Kumar Mathur|
|Date Deposited:||26. Mar 2007|
|Last Modified:||13. Feb 2013 01:25|
Arora A.,V.S.Arunachalam,J Asundi and F.Ronald(2001),”The Indian Software Service Industry”, Research Policy, Volume 30,pp1267-1287
Arora,A and S .Athreye(2002),”The Software Industry and India’s Economic Development”, Information Economics and Policy,14,pp 253-273
Baru, Sanjaya (2006),”IT and the E-Economy: The Balast for India-US Relations”,in his book entitled Strategic Consequences of India’s Economic Performance, Academic Foundation, New Delhi
Balakrishnan ,Pulapre( 2006),” Benign Neglect or Strategic Intent? Contested Lineage of Indian Software Industry ,EPW, Vol 41 No 36 September 9, 2006
Coelli, T., D.P. Rao, and G. Batteese (1998). An introduction to efficiency and productivity analysis. London, Kluwer Academic Publishers. 1998.
Caves, Doglas., Christensen, Laurits R. and Diewert , W Erwin(1982 a),” Multilateral Comparisons of Output, Input and Productivity Using Superlative Index Numbers”, Economic Journal, March, 92(365), pp73
Caves, Doglas., Christensen, Laurits R. and Diewert , W Erwin (1982b), “The Economic Theory of Index Numbers and the Measurement of Input, Output and Productivity”, Econometrica, November,50(6), page 1393- 1414
Charnes, A., Cooper, W.W(1962) ,”Programming with Linear Fractional Functions”, Naval Research Logistic Quarterly, vol. 9,no. 304,pp 181-186
Charnes, A., Cooper, W.W., and Rhodes, E(1978) ,” Measuring the Efficiency of Decision Making Units”, European Journal of Operational Research, volume 2, no 2, pp 429-444
Cooper, W W., K.S.Park and J.T.Pastor(1999),” RAM : Arrange adjusted measure of efficiency”, Journal of Productivity Analysis, Volume 11, page 42-50
Chauvin,S and Lemoine Francoise(2003),”India in the World Economy: Traditional Specializations and Technology Niches”,CEPII Report, France
Dedrick, J and Kraemer, K.L.(1993),”India’s Quest for Self Reliance in Information Technology: Costs and Benefits of Government Intervention”, Centre for Research on Information Technology an Organizations, Univerity of California,Irvine
Drishtee (2002),”Drishtee:connecting India village by village “,www.drishtee.com
Farell, M.J (1957) ,”The measurement of production efficiency “, Journal of the Royal Statistical Society, series A, Volume 120, no. 3, pp 253-90
Fare, R., S. Grosskopf, and C.A.K. Lovell (1994). Production frontiers. New York, Cambridge University Press. 1994
Fare, R., Grosskopf S Grifell-Tatje, and C .A. Knox –Lovell(1997), “ Biased Technical Change and the Malmquist Productivity Index”, Scandinavian Jornal of Economics 99:1, 119-127
Global Information Technology Report (2006),World Economic Forum, Geneva
Heeks, R., (1996). India’s Software Industry: State Policy, Liberalization and Industrial Development, New Delhi: Sage Publications.
Heeks, Richard and Brian Nicholson(2002),”Software Export Success Factors and Strategies in Developing and Transitional Economies”, Institute for Development Policies and Management Development Informatics Working Paper no. 12,University of Manchester ,UK
India,(1985),”New Computer Policy”, The Gazette of India,31 August, pp 679-681
India,NTITSD,1998.IT Action Plan(three volumes),New Delhi, National Taskforce on Information Technology and Software Development
India, MIT,(2000),”Action taken Report of the National Task Force on Information Technology and Software Development”, IT Action Plan: Part I, Ministry of Information Technology, New Delhi
Joseph, K.J (2006) Information Technology, Innovation System and Trade Regime in Developing Countries, Palgrave Macmillan ,New York
Joseph, K.J(2002),”Growth of ICT and ICT for development: Realities of the Myths of Indian Experience”, Discussion Paper, No 2002/78,WIDER-UNU,August
Joseph, K.J and K.N.Harilal(2001),”Structure and Growth of India’s IT Exports: Implications of an Export-Oriented Growth Strategy”, Economic and Political Weekly, volume 36,No.34,pp3263-3270 Kumar, Nagesh and Joseph,K.J(2004),”National Innovation Systems and India’s IT Capability: Are there Any Lessons for ASEAN New Comers?” ,RIS Discussion Paper No 72/2004,RIS,New Delhi
Kumar, Nagesh and Joseph,K.J(2005),”Export of Software and Business Process Outsourcing from Developing Countries: Lessons from the Indian Experience, Asia Pacific Trade and Investment Review, Volume 1,No.1,April 2005
Kumar, Nagesh (2000a). ‘New Technology Based Small Service Enterprises and Employment: The Case of Software and Related Services Industry in India’, paper presented at the National Seminar on Strategic Approach to Job Creation, February 2000, organized by ILO-SAAT and Ministry of Labour, at Suraj Kund, Haryana.
Kumar, Nagesh (2000b). Developing Countries in International Division of Labour in Software and Service Industries: Lessons from Indian Experience, background paper for World Employment Report 2001, Geneva, ILO
Kumar, Nagesh (2001). National Innovation System and the Indian Software Industry Development, Background Paper for World Industrial Development Report 2002, Vienna: UNIDO.
Kumar, Nagesh (2001). National Innovation System and the Indian Software Industry Development, Background Paper for World Industrial Development Report 2002, Vienna: UNIDO.
Kumar,Nagesh and Ramgopala Agarwala(2006),”NAM More Relevant than Before, The Hindu, September 15,2006
Mathur, Somesh K(2007) Perspective of Economic Growth and Convergence in Selected South Asian and East Asian Economies, E-Book published by ideaindia.com( www.ideaindia.com), London. Mathur ,S.K.(2006),”Indian Information Technology Industry: Past ,Present and Future and a Tool for National Development”, Journal of Theoretical and Applied Information Technology, August 2006,Volume 2,No 2
Malmquist, Sten(1953), “ Index numbers and Indifference Curves”, Trabajos de Estatistica, 4 (1),pp 209-42
Nagala, Sarla V(2005),”India’s Story of Success: Promoting the Information Technology Industry”, Stanford Journal of International Relations, Volume 6,Issue 1
Nasscom website (www.nasscom.in) for NASSCOM Strategic Review for various years
NASSCOM. 2004. Indian ITES-BPO Industry Handbook 2004. New Delhi: National Association of Software and Service Companies.
Nirvikar Singh(2003),”Information Technology as an Engine of Broad Based Growth in India” in edited book entitled The Knowledge Economy in India by Frank-Jurgen Richter and Parthasarathi Banerjee
OECD (2006), OECD’s Information Technology Outlook 2006, Paris
Parthasarthy, A and K.J.Joseph(2002),”Limits to Innovation Set by Strong Export Orientation: The Experience of India’s Information and Communication Technology Sector”, Science, Technology and Society, volume 7,no.1,pp13-49 Magazines-Dataquest
RIS(2006),”Seizing New Opportunities for South South Cooperation:Some Proposals for the 14 NAM Summit, RIS Policy Brief no 27,August 2006
RBI (Reserve Bank of India) (2000), Annual Report 1999-2000, www.rbi.org.
RBI(1999) Technology Upgradation in the Banking Sector, Report, May 1999 Ruggiero, J (2001) ,” Determining the base cost of education: An Analysis of Ohio School Districts”, Contemporary Economic Policy, 19, 268-279
Ruggiero , J(2004),” Performance Evaluation in Education: Modeling Educational Production, Chapter 12, Handook on DEA, Kluwer Academic Publishers: Boston/ Dordrecht/ London.
Rouuatt, S.,(2003), “ Two stage evaluation of bank branch efficiency using DEA”, MaSc dissertation, Centre for Management of Technology and Entrepreneurship
Stavarek, Daniel (2005) , Efficiency of Banks in Regions at Different Stage of European Integration Process, Economics Working Paper Archive Econ WPA
Sherman, H.D (1984) ,” Hospital Efficiency measurement and evaluation”, Medical Care, 22, no 10, 922-928
Schware, R(1987),”Software Industry in the Third World:Policy Guidelines,Institutional Options and Constraints” ,World Development, Volume 15,No 10/11,pp 1249-1267 Srinivasan,T.N(2005) ,”Information Technology Enabled Services and India’s Growth Prospects”, Yale University. Brookings Trade Forum 2005
Sen.P(1995),”Indian Software Exports:An Assessment”, Economic and Political Weekly, volume 30,No 7& 8,pp 2053-2058
Subramaniam, C R(1992):India and the Computer, Oxford University Press, New Delhi. Financial Times, Various Issues
Taneja, V(2007), Inaugural Speech at the ELITEX2007 organized by the Ministry of Communications and Information, January 10-11,2007. Telecom Regulatory Authority of India (2006),” Study Paper on Financial analysis of Telecom Industry of China and India” Press Release No59/2006
Vassiloglou, M and Giokas,D.,(1990) ,” A Study of the relative efficiency of the bak branches: An application of Data Envelopment Analysis”, Journal of Operational Research Society, Volume 41, no 7, pp 591-597
Yechury, Sitaram (2006),”Real or Virtual Reality”, Editorial page, Hindustan Times, August 31
World Bank World Development Indicators on CDROM, Various Years World Bank,2006 Doing Business 2007: How to Reform ,The World Bank, Washington Zenios, CV., Zenios , S.A., Agathocleous K. and Soterioou, A.C., (1999) ,” Benchmarks of the efficiency of bank branches”, Interfaces, volume 29, no 3, pp 37-51
IDC Press Releases through website(www.idcindia.com)
Dataquest various issues
Hindustan Times(National Daily)