IT Trends : Behind the Hype

 
Jul 25th 2000

The dramatic expansion of India's Information technology (IT) sector during the 1990s, albeit from a low base, is widely seen as heralding India's emergence as a global IT and software powerhouse. This 'popular' perception has underlying it a less pervasive but more sophisticated argument. According to that argument, there are certain defining features of the information technology industry which provide a new digital opportunity to countries with the requisite knowledge- and skill-base and with the appropriate policy regime. And as nations like India exploit that digital opportunity, it is expected, that the wide, persisting and even growing technology, productivity and income gaps between the developed and developing countries would shrink, creating a whole new international economic order.
 
The new optimism generated by the IT 'revolution' stems in part from the rapid proliferation of an almost borderless industry. The two main sources of information on the IT sector in India are IDC (India) and the National Association of Software and Service Companies (NASSCOM). According to IDC (India), the annual rate of growth of IT spending in India was well above 20 per cent in most years during the 1990s, with growth peaking at a remarkable 59 per cent in 1994-95. NASSCOM's figures too reflect a rapid growth of the IT market in India from Rs. 32.3 billion in 1993-94 to Rs. 135.7 billion in 1998-99 (Chart 1). The turnover of the IT industry was, however, much larger than this, given the rapid increase in software exports. Software exports have risen at a remarkable rate, from an estimated $150 million at the beginning of the decade to close to $4 billion in 1999-00. According to NASSCOM, software exports rose by 57 per cent in 1999-00.
Chart 1 >> Table 1 >>
 
The current size of the domestic IT industry can be gleaned by combining figures from IDC and NASSCOM. Domestic IT spending is estimated at Rs. 16,538 crore in 1999-00 by IDC. Add to this NASSCOM's estimate of software exports to the tune of Rs. 17,150 crore in that year, and we are speaking of an industry with a turnover of around Rs. 35,000 crore a year. NASSCOM estimates that the IT industry grew from about Rs. 6345 crore ($2.04 billion) in 1994-95 to Rs.24,781 crore ($6.04 billion) in 1998-99 (Chart 2).
Chart 2 >>
 
At the core of the industry's expansion worldwide and in India lies the dramatic increase in computing power being delivered at ever-decreasing costs by the emergence and rapid transformation of microprocessor technology. The consequent ability to process and execute a huge number of instructions in imperceptible time spans has had revolutionary implications. First, it has created an industry which produces the hardware and software needed to allow individuals, organisations, small businesses and corporations to directly exploit the benefits of such computing power. Second, it has substantially transformed other industries, which can now use the capacity to store information and execute instructions to automate and change the manner in which they conduct and manage their processes and operations. Information technology is in part revolutionary because it ensures and necessitates the transformation of productive capacity in almost all sectors. Finally, it leads to a dramatic expansion of the size and scope of the services sector (across a wide spectrum including finance, banking, trade, entertainment and education). This results partly from associated technological developments that find new uses for the massive computing power that is cheaply available, partly from the huge market that developments in communications and networking technology create, and partly from the fact that the increasingly ubiquitous PC becomes the vehicle to deliver a range of services, besides being a device in its own right. The microprocessor is not just the core of the IT revolution, but stands at the centre of the convergence of the information, communication and entertainment sectors.
 
But it is not just this remarkable and wide-ranging expansion of the information technology sector that generates the new optimism with regard to the prospects for developing countries within the current world order. That optimism also stems from the understanding that, unlike the 'routinised' technologies which dominated development during the immediate post-World War II years, the new 'entrepreneurial' technologies driving the IT sector are seen as being characterised by a knowledge-base for innovation, which is more rapidly transmitted across the globe, and levels of investment that are much lower and often easily afforded by even private investors in developing countries. This facilitates entry by small players from developing countries into a rapidly expanding segment of the global economy. Further, since much of IT production from assembly to software generation is skilled-labour intensive, the availability of cheap skilled labour in countries like India is seen as giving them a decisive edge in the international competitive battle in this sector.

 
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