Information Technology In India

INFORMATION TECHNOLOGY IN INDIA Ishtyaque Ajmeri, Shashank Saxena, Shubham Kaushik, Sachin Mahajan, Rakesh Kumar Goyal, Suraj Bhan

INTRODUCTION It has grown from US $ 150 million in 1991-92 to US $ 64 billion in year 2008. India’s GDP has grown significantly from 1.2% in 1999-2000 to cross 5.5% in FY08. The sector has been growing at an annual rate of 28% per annum. IT Exports is account for 35% of the total exports from India.

Market Structure

Revenue Earned by Export of Software and Hardware (32%)

(16%)

(35%)

Market Share

Policies for IT Industry IT Policy in India can be divided into two distinct periods From the mid-1960s through the early 1990s •1960s and 1970s: Indigenization and self-sufficiency •1980s: Partial liberalization and industry promotion From 1990s to present: liberalization and promotion of IT industry in India

1960s and 1970s:

•IBM’s entry and exit. •In 1971, formation of the Department of Electronics (DoE) and a new Electronics Commission •In 1975, in a landmark development, the US computer maker, Burroughs, entered into a joint venture with Tata Consultancy Services •Computer Maintenance Corporation (CMC)

1980s: Partial liberalization and industry promotion India’s IT policies in the 1980s were aimed at modernizing an industry. Exports of software and peripherals were now promoted and the import of mainframes and supercomputers was encouraged under certain conditions. Computer policy of 1984 (Hardware policy) 1986 Software Policy In 1988, the National Informatics Center set up NICNET. After the 1984 Computer Policy announcement, production shot up by 100% while prices declined by 50%.

Liberalization in IT Industry Change in industrial policy transformation of IT industry.

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Post 1990, a 100% income tax exemption was extended to profits from software exports, and the double taxation of software imports was eliminated. The duty for software imports was reduced to 110% in 1992, 85% in 1993, split in 1994 to 20% for applications software and 65% for system software, and then reduced to 10% for both categories in 1995. DoE was reorganized and copyright act was renewed.

STPI was created to facilitate growth of software industry. In 1996 internet services was started in India by VSNL a public sector company. Multiple technologies were started evolving due to development of IT industry. Various steps had been taken towards a stronger infrastructure and reduced cost base.

Policies in IT Hardware Industry Peak rate of basic customs duty is 10%. Customs duty on specified raw materials and inputs used for manufacture of electronic components and optical fibers / cables is 0%. The mean rate of excise duty (CENVAT) is 8%. Microprocessors, Hard Disc Drives, Floppy Disc Drives, CD ROM Drives, DVD Drives/DVD Writers, Flash Memory and Combo-Drives are exempted from excise duty. Central Sales Tax (CST) has been reduced from 3% to 2%.

Porter 5 Forces Model

BUDGET 2009-10 Actual: Removed Tax holiday under STPI scheme extended by one year. Fringe Benefit Tax abolished. 8 per cent excise duty on packaged software which was 12% earlier. Impact: Bottom line of IT companies to stay healthy with lesser tax outgo. Will help companies do away with administrative costs and offer stock option as tool to retain employees. Packaged software to become cheaper with removal of duty.

Other Remittances

100% FDI allowed in IT sector Industrial Licensing has already been abolished except defense and aerospace sector. Specified parts to be used in hardware industry are exempted from customs duty.

Information Technology and India’s Economic Development

India’s IT success represents the emergence of another elite enclave, with increased inequality the result. The IT sector can be an important source of growth for India if the global demand for these products and services is likely to grow rapidly. If the growth of the sector has positive spillover benefits to the rest of the domestic economy.

Cont.… Since Indian software firms can compete successfully abroad, they should also be able to succeed in their own backyard. In fact, they have advantages in the domestic market, knowing their customers better, and being closer to them. On the other hand, a poor domestic infrastructure, dependence on imported hardware, late mover disadvantages, and lack of economies of scale and learning by doing, can all reduce or eliminate any advantage that Indian software firms might have over foreign competitors.

Cont…. Reputation and experience effects, on the other hand, enhance the importance of economies of scale and scope. Internet access is probably the most attractive use for many potential consumers of IT in India. The possibility of designing and building lower-cost access hardware in India may represent an opportunity for the domestic IT industry.

Direct impact of IT industry – On Indian economy The sector is proving to be the major growth pole within the services sector, which in turn drives several economic indicators of growth in the country. A few key indicators of direct contribution are: Growing share of the country’s GDP Boosting the foreign exchange reserve of the country Employment generation

Indirect impact of IT industry – To Indian economy. Additional employment generation Driving growth of other sectors of the economy Encouraging balanced regional development Spurring first generation entrepreneurship Improving the product/service quality level Front runner in practicing good corporate governance Boosting the image of India in the global market

Core competencies of IT Industry of India

Availability of Large Human Resources Indian Education System Quality Manpower Government Policies Cost of Labour and resources

Role of NASSCOM Foundation

Providing hand holding support and advisory services Dissemination of information on best practices, international benchmarks and monitoring mechanisms Identify sector specific investment opportunities Initiate award/recognition system for socially relevant community activities Capacity building of NGOs

Future overview The Indian IT-ITeS industry is expected to grow at a CAGR of 15.6% to reach Rs 4,582.28 bn during 2008-2011. The domestic ITeS market is expected to reach Rs 362.38 bn by 2011, at a CAGR of 264% during 2008–2011.

CONCLUSION The Indian IT / ITES industry has been one of the great success stories of modern India. The power of middle class, first generation entrepreneurship in India. The Indian IT/ITES industry has contributed significantly to Indian economic growth in terms of GDP, foreign exchange earnings and employment generation.

Cont…. A few key indicators of direct contribution are: Growing share of the country’s GDP: GDP has been steadily increasing from a share of 1.2% in FY98 to 5.8% in FY09. Boosting the foreign exchange reserve of the country: IT-BPO exports (including hardware exports) reached USD 47.3 billion in FY2009. Employment generation: Direct employment in the sector 1.6 million by end of FY08.

“The success of Infosys, Wipro, Tata Consultancy Services and other companies had changed the lives of millions of Indians and propelled the country's economy to a record-breaking growth ” “The growth should not be measured in Dollars alone, but in the difference it makes in transforming a society for the better.” Sonia Gandhi

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