OBJECTIVE OF STUDY This paper discusses the possibilities for broad-based IT-led economic growth in India, including increasing

value-added, using better telecom links to capture more benefits domestically through offshore development for developed country firms, greater spillovers to the local economy, broadening the IT industry with production of telecom access devices, improving the functioning of the economy through a more extensive and denser communications network, and improving governance RESEARCH DESIGN Research design is important because of the increased complexity in the market as well as marketing approaches available to the researchers. In fact it is the key to the evaluation of successful marketing strategies and programmers. It is an important tool to study buyer`s behavior, consumption pattern, brand loyalty and focus market change. A research design specifies the methods and procedures for conducting a particular study. According to Kerlinger, Research design is a plan, conceptual structure, and strategy of investigation conceived as to obtain answers to research questions and to control variance. A research design is a detailed blueprint used to guide a research study towards its objectives. The process of designing a research study involves many interrelated decisions. The most significant decision is the choice of research approach, because it determines how the information will be obtained. To design something also means to ensure that the pieces fit together. The achievement of this fit among objective, research approach, and research tactics is inherently an iterative process in which earlier decisions are constantly reconsidered in light of subsequent decision DATA COLLECTION The task of data collection begins after problems have been identified. While deciding ambitious the method of data collection to be used for the study the researcher should keep in mind two types of data viz, primary data and secondary. The primary data are those, which are collected afresh and for first time and thus happen to be original in character. The secondary are those which have been collected by someone else and which have already been passed through statistical process. The researcher would have to decide which sort of data he would be using for his study. The method collecting primary and secondary data differ since primary data are to be originally collected while in case of secondary data the nature of data collection work is merely that of compilation. There are several ways of collecting primary data. They are as follows: 1. Observation method 2.Interviewmethod 3.Throughquestionnaires 4. Through schedules

OBSERVATION METHOD Observation becomes a scientific tool and the method of data collection for the researcher when it serves a formulated research. Purpose is systematically planned and recorded and is subjected to checks and controls on validity and reliability. Under the observation method the information is sought by way of investigators own direct observation without asking from respondent Survey (questionnaire to public) Surveys are concerned with decribing, recording, analyzing, and interpreting conditions that exist or existed. The researcher does not manipulate the variable or arrange FOR EVENTS TO happen. Surveys are only concerned with conditions or relationships that exist., opinions that are held, process that are going on, effects that are evident or trends that are developing. They are primarily concerned with present but at times do consider past events and influences as they relate to current conditions. 1) surveys type research usually have larger samples because percentage of responses generally happen to be low ,as low as 20% to 30% ,especially in mailed questionnaire studies thus, the survey method gathers data relatively from the larger number of cases at a peculiar times. 2) Surveys are the example of field research and are concerned with hypothesis formulation and testing analysis of the relationships between non-manipulated variables. 3) Surveys may either be census or sample surveys they may also be classified as social surveys, public opinions surveys. COLLECTION OF SECONDARY DATA Secondary data means that are already available that is they refer to the data, which have already been collected and analyzed by someone else. When the researcher utilizes secondary data, then he has to look into various sources from where he can obtain them. In this case he is certainly not confronted with the problems that are usually associated with the collection of original data. Secondary data may be either published or unpublished data. Reports prepared by various scholars universities economists etc in different field. Public records and statistics, historical documents and other sources of publish information. The sources of unpublished data are many; they may be found in diaries, letters unpublished biographies and autobiographies and also may be available with scholars research workers. Trade organization, labor bureaus and other public/private organizations. This report is based on secondary data. I have collected data from various personnel from IT industries ex. TCS,INFOSYS,WIPRO. I have collected data from various article OECD digital economy papers, OECD development centre working paper,various websites including NASSCOM AND IBEF. I also referred various news paper to collect recent information.
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Literature review
IT by now has become an integral part of peoples everyday lives, including the economic sphere. Hence, IT has been subject to a plethora of studies on how exactly IT is changing the economy. While on the one hand this helps illustrate the various aspects of how IT affects production processes, efficiency and output growth, the abundance of studies also causes confusion arising from a broad literature at different levels of aggregation, studying different IT products and using different methods. Further, many of the studies have contradictory findings both at the qualitative (e.g. finding different answers to the question of whether IT is a General Purpose Technology) and the quantitative (e.g. obtaining different point estimates for the output elasticity of IT investment) level. In his meta-analysis, Stiroh (2005) summarises the effects of IT on productivity and output by estimating them econometrically. He shows that the inclusion of fixed effects or estimation in first differences tends to lower the estimated IT elasticity, while more aggregated data or utilisation of more recent data revisions tends to raise it. According to Brynjolfsson and Yang (1996), who surveyed more than 150 studies, there were neither robust findings on the link between IT and productivity during the 1980s and early 1990s, nor was it possible to measure this accurately due to lack of data and use of inadequate analytical methods. By contrast, Melville et al. (2004) conclude that IT investments indeed provide value, but the impact of IT spending depends on levels of complementary resources, competitive climate, and the general macroeconomic environment. Moreover, synergies between technical and human IT resources only provide short-lived competitive advantage. In their survey on broadband and its contributions to economic growth Holt and Jamison (2009) suggest that broadband has had a positive impact overall, but the quantitative impact could not be measured with great precision. The review by Oz (2005) highlights the challenges researchers face and proposes a simple theory to explain the diminishing contribution of IT.

According to Kenneth Keniston government action, and equally important, action on the part of the successful profit-making IT firms, is of great importance for economic developement of india .The challenge is to learn whether, if, when, and how information technologies of all kinds can be the most cost-effective means to help ordinary people meet their basic needs and claim their fundamental rights.

INTRODUCTION Information Technology Association of America (ITAA) defined IT as: "The study, design, development, implementation, support or management of computerbased information system, particularly software applications and computer hardware. IT deals with the use of electronic computers and computer software to convert, store, protect, process, transmit, and securely retrieve information. Information technology is a general term that describes any technology that helps to produce, manipulate, store, communicate, and/or disseminate information

IT SECTOR CLASSIFICATION: 1.IT- Software These companies help in developing and implementation of different software for their clients worldwide. These software could be for documentation, security services, banking softwares etc. 2. ITeS Business process outsourcing (BPO) Major Corporations across the world outsource their back-office operations to some companies. E.g. Employee payroll for a US companys global workforce is maintained by an Indian BPO. Slowly the definition is expanding to Human resources, accounting, logistics, legal processes etc. 3. IT- Hardware and peripherals - The stuff you can actually see and touch, and would likely break if you threw it out a fifth-story window, is hardware. This would include laptops, desktops, Storage devices, Networking devices, LCD, printers etc. 4. IT- Education This segment provides training for employment in the other segments. This would include companies providing various certification courses, like Java, Oracle etc. These companies also provide training for employees in corporate sector. Recently, some companies have also expanded this service to cater to schools and colleges. This sector has made significant contributions to Indias economic growth in terms of GDP increase, foreign exchange earnings as well as employment generation. Its contribution to GDP has increased tenfold in last decade, from 0.6% to 6% till 2009-10. The sector has helped India transform from a rural and agriculture-based economy to a knowledge-based economy. Besides this, the lives of people have been positively influenced by direct or indirect contribution of IT sector to various parameters such as employment, standard of living, per-capita income etc.The computer systems design and related services industry is among the economy's largest and fastest sources of employment growth. Employment increased by 616,000 over the 1994-2004 period, posting a staggering 8.0-percent annual growth rate. The projected 2004-14 employment increase of 453,000 translates into 1.6 million jobs, and represents a relatively slower annual growth rate of 3.4 percent as productivity increases and offshore outsourcing take their toll. ("Industry output and employment projections to 2014" by Jay M. Berman, Bureau of Labor Statistics)
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However, the main growth catalyst for this industry is expected to be the persistent evolution of technology and business' constant effort to absorb and integrate these resources to enhance their productivity and expand their market opportunities. The growth of the Indian software industry has been primarily due to the offshore outsourcing of IT requirements, especially software services, by corporations in the US. It is advantageous for corporations in the US and other western countries to outsource their IT requirements to India (and other developing countries), due to: 1. The large availability of highly skilled technical manpower at a low cost. 2. The time difference with respect to the US and other developed markets (which enables companies to offer a 24-hour development cycle) 3. High quality of work. Employment of computer and information systems managers is expected to grow between 18 to 26 percent for all occupations through the year 2014. (Career Guide to Industries 2006-07) The Indian IT sector is growing rapidly and it has already made its presence felt in all parts of the world. IT has a major role in strengthening the economic and technical foundations of India. Indian professionals are setting up examples of their proficiency in IT, in India as well as abroad In India Electronics and Information Technology is still the fastest growing segment both in terms of production and exports. With complete delicensing of the electronics industry with the exception of aerospace and defence electronics, and alongwith the liberalization in foreign investment and export-import policies of the entire economy, this sector is not only attracting significant attention as a enormous market but also as a potential production base by international companies.

The Indian Information Technology sector has shown remarkable resilience in the year 2008. Continuing on its established track record, the overall Indian IT-BPO revenue aggregate is expected to grow by over 33 per cent and reach US$ 64 billion by the end of the current fiscal year 2008-09as compared to US$ 48.1 billion in fiscal year 2006-07. Industry performance was marked by sustained double-digit revenue growth, steady expansion into newer service-lines and increased geographic penetration, and an unprecedented rise in investments by Multinational Corporations (MNCs) - in spite of lingering concerns about gaps in talent and infrastructure impacting India's cost competitiveness.

The Indian IT-BPO sector has built a strong reputation for its high standards of service quality and information security - which has been acknowledged globally and has helped enhance buyer confidence. The industry continues its drive to set global benchmarks in quality and information security through a combination of provider and industry-level initiatives and at strengthening the overall frameworks, creating greater awareness and facilitating wider adoption of standards and best practices. The Data Security Council of India (DSCI) was launched in 2008 to institutionalize efforts to further enhance the information security environment in India. High offshore component of delivery and superior execution in multi-location delivery continue to be key differentiators. Broad-based industry structure; IT led by large Indian firms, BPO by a mix of Indian and MNC third-party providers and captives, reflects the depth of the supply-base. While the larger players continue to lead growth, gradually increasing their share in the industry aggregate; several high-performing Small and Medium Enterprises (SMEs) also stand out. Today, India leads the world in terms of the number of quality certifications achieved by centres in any single country. As of December 2008, over 498 Indiabased centres (both Indian firms as well as MNC owned captives) had acquired quality certifications with 85 companies certified at Software Engineering Institute (SEI), Carnegie Mellon Capability Maturity Model (CMM) Level 5 - higher than any other country. The US and the UK remain the key markets for Indian IT-BPO exports (excluding hardware), accounting for nearly 80 per cent of the total exports. This comes as no surprise as these two markets account for the largest share of worldwide technology spends. With a large pool of skilled manpower - chartered accountants, doctors, MBAs, lawyers, research analysts - India would be able to add value to the global KPO business and its high-end processes like valuation research, investment research, patent filing, legal and insurance claims processing, online teaching, media content supply, among others. Skilled manpower and multi lingual capabilities combined with the advantages of lower costs can help the country to emerge as a frontrunner in KPO, globally. Increasing adoption of technology in the domestic industries is already beginning to reflect in their enhanced performance and competitiveness.

Policies for IT Industry IT Policy in India can be divided into two distinct periods. 1. From the mid-1960s through the early 1990s, policies were aimed at achieving technological self-sufficiency through state production and regulation of private production. 2. The second period, from 1990s, saw a shift in focus to extensive liberalization and promotion of IT industry in India. Period from mid 1960 to early 1990 further divided into 1960s and 1970s: Indigenization and self-sufficiency India was motivated to develop self-sufficiency in computers and electronics largely by national security concerns related to border conflicts with China and Pakistan. The government created an Electronics Committee to devise a strategy for achieving selfsufficiency in electronics. The main vehicle chosen to gain access to advanced computer technology was negotiation with multinationals, primarily IBM, which accounted for 70% of all computers installed in India from 1960 to 1972. In an attempt to satisfy the governments interest in developing domestic production, both IBM and the British owned ICL (International Computers Limited) began to refurbish used computers in Indian plants and sell them to Indian customers. IBM felt that India should evolve technologically from one level of sophistication to the next. A 1966 report by the Electronics Committee objected to stepby-step technological evolution and recommended that India should leap ahead to the latest technologies. The government, however, failed to impose its will on IBM

due to the companys strong position with users and export earnings. The governments early attempts to regulate the IT sector worsened the degree of technological backwardness.

In 1966, the responsibility for implementing the Electronics Committee report strategies was given to the Department of Defense Supplies, with monitoring by a new agency, the Electric Committee of India. In 1971, the government announced the formation of the Department of Electronics (DoE) and a new Electronics Commission, responsible for policy formulation and overseeing the day to day implementation of policies. In 1975, the DoE was given power over the licensing of computer imports. The first step it took was the establishment of Santa Cruz Electronics Export Processing Zone (SEEPZ) near Bombay, followed by the creation of the state-owned ECIL (Electronics Corporation of India Ltd.) as a national champion in minicomputer production. In 1975, in a landmark development, the US computer maker, Burroughs, entered into a joint venture with Tata Consultancy Services to export software and printers from SEEPZ. In the same year, the government established the Computer Maintenance Corporation(CMC) with alegal monopoly on the maintenance of all foreign computer systems in the country, reducing the advantage that IBM had with computer users. In 1978, due to increasing political pressure, IBM quit India. This was a seminal event, illustrating the extent of governments ability to exert its power over multinational corporations and to direct the IT development in India. One effect of IBMs departure was to open the market to a number of competitors, including ECIL, ICL and Tata Burroughs.

1980s: Partial liberalization and industry promotion Indias IT policies in the 1980s were aimed at modernizing an industry estimated to be about 15 years behind the current frontiers of research and production. In a departure from the import substitution approach of the past, exports software and peripherals were now promoted and the import of mainframes and supercomputers was encouraged under certain conditions. The new computer policy of 1984 The new computer policy of 1984 announced by DoE (Government of India Department of Electronics, 1984) was aimed at promoting the manufacturing of computers, based on the latest technology, at prices comparable to international levels and with progressively increased indigenization. An important policy change was the liberalization of imports to foster domestic hardware. Duty levels were lowered on components needed by computer manufacturers, and companies producing CPUs, peripherals and subsystems were permitted liberal imports of know-how with a low excise duty. 1986 Software Policy - Following up on the 1984 hardware policy, the DoE announced the 1986 Policy on Computer Software Export, Software Development and Training (Government of India Department of Electronics, 1986). The main objectives of the policy were to promote the integrated development of software in the country for domestic as well as export markets, to promote the use of computers as tools for decision making, and to promote appropriate applications that would catalyze economic development software imports. Though Indias IT Policies have focused heavily on regulation of foreign as well as domestic producers and on protection of the domestic market, the 1984 and 1986 policies consisted

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mostly of loosening of the existing regulations. A number of programs, initiatives and institutions have been established to implement policy and promote various aspects of IT.

In 1988, the National Informatics Center set up NICNET, a satellite-based computer communication network connecting 439 cities and towns to support computerization of governments at the central, state and district levels. A Computer Aided Design project was set up with links to five centers, and a Computer Aided Management Infrastructure has been established with feeder centers in four cities. A number of projects have been undertaken to promote IT use in public and private sectors and to mobilize a favorable bias towards its use. The governments attempts to spur the development of an indigenous IT industry have been quite successful. After the 1984 Computer Policy announcement, production shot up by 100% while prices declined by 50%. A boom in minicomputer sales began when HCL dropped its prices dramatically, starting a price war that greatly increased the affordability of PCs. Period from 1991 After Liberalization in IT industry During this period, the IT policy was greatly affected by changes in industrial policy. In 1990, a 100% income tax exemption was extended to profits from software exports, and the double taxation of software imports was eliminated. Information Technology Business in India from a small sector to a large and growing industry. This change in status is leading to a major shift in paradigm.

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MAJOR IT PLAYERS

TCS Tata Consultancy Services Limited (TCS) (BSE: 532540, NSE: TCS) is an Indian multinational information technology (IT) services, business solutions and outsourcing services company headquartered in Mumbai, Maharashtra. TCS is a subsidiary of the Tata Group and is listed on the Bombay Stock Exchange and the National Stock Exchange of India. It is one of India's most valuable companies and is the largest Indiabased IT services company by 2012 with revenues of 10.17 billion US$. TCS had a total of 238,583 employees as of 31 March 2012, of whom 220,835 were based in India and 17,748 in the rest of the world. TCS is one of the largest private sector employers in India, and the second-largest employer among listed Indian companies (after Coal India Limited). In the 2011/12 fiscal year TCS recruited a total of 70,400 new staff, of whom 61,055 were based in India and 9,345 were based in the rest of the world. In the same period a total of 30,431 staff left employment with TCS, leaving a net increase of 39,969, of whom 36,232 were based in India and 3,737 in the rest of the world. TCS has announced plans to recruit 60,000 graduates in the 2012/13 fiscal year.

INFOSYS Infosys Limited (formerly Infosys Technologies Limited) is an Indian multinational provider of business consulting, technology, engineering, and outsourcing services. It is headquartered in Bangalore, Karnataka. Infosys is the third-largest India-based IT services company by 2012 with revenues of 7 billion US$. WIPRO Wipro Limited (formerly Western India oilment Limited) (NYSE: WIT, BSE: 507685) is an information technology (IT) consulting and outsourcing service company located in Bangalore, Karnataka, India. As of 2012, the company had 140,000 employees in 54 countries.Wipro is the second largest IT services company in India. Its subsidiary, Wipro Enterprises Ltd., offers consumer care, lighting, healthcare, and infrastructure engineering. Wipro entered into the technology business in 1981 and has over 130,000 employees and clients across 54 countries today. IT revenues stood at $ 5.9 billion for the year ended March 31, 2012 with a repeat business ratio of over 95%.

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SWOT ANALYSIS
Strengths

Weaknesses Absence of practical knowledge Dearth of suitable candidates Less Research and Development Contribution of IT sector to Indias GDP is still rather small. Employee salaries in IT sector are increasing tremendously. Low wages benefit will soon come to an end.

Highly skilled human resource Low wage structure Quality of work Initiatives taken by the Government (setting up Hi-Tech Parks and implementation of e-governance projects)

Many global players have set-up operations in India like Microsoft, Oracle, Adobe, etc.

Following Quality Standards such as ISO 9000, SEI CMM etc.

English-speaking professionals Cost competitiveness Quality telecommunications infrastructure

Indian time zone (24 x 7 services to the global customers). Time difference between India and America is approximately 12 hours, which is beneficial for outsourcing of work.

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Opportunities

Threats

High quality IT education market Increasing number of working age people

Lack of data security systems Countries like China and Philippines with qualified workforce making efforts to overcome the English language barrier

India 's well developed soft infrastructure

IT development concentrated in a few cities only

Upcoming International Players in the market

Opportunity segments with IT services

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MICHAEL PORTERS FIVE FORCES MODEL

Michael porters five forces model provided a framework that models an industry as being influenced by five forces. The strategic business manager seeking to develop an edge over rival firms can use this model to better understand the industry context in which the firm operates. The elements of each of the forces and the extent and /or effect of each element in the context of the software industry have been analyzed and enumerated below.

1. INTENSITY OF RIVALRY (HIGH) The intensity of rivalry competitors in an industry refers to the extent to which firms within an industry put pressure on one another and limit each others profit potential. According to porters 5 forces industry analysis framework, the intensity of rivalry among existing firms is one of the forces that shape the competitive structure of an industry.

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Competitors Rivalry Factors No of competitors Industry growth Degree of differentiation Exit Barriers Clients switching cost High Medium Low Attractiveness High High Low Low Low

No of competitors Software industry consists of numerous players, because of the rivalry will be more intense. Presence of a large number of players in industry leads to competition and rivalry among companies. Threat from rivalry and competition poses a threat to domestic companies. Industry growth Indian software industry has registered a strong rate in the past few years. Outsourcing has played a major role in the growth of Indian software industry. Software export has registered a very strong annual average growth rate of 45% during past years. Software industry is one of fastest growing industry in India. Degree of differentiation Industrys offerings are undifferentiated which leads to high rivalry. Industry players are providing equivalent after sales services, which includes installation, training etc. Exit barriers Exit barriers for existing software companies are low as the initial capital requirement is low in software industry. Clints switching cost When clients switching cost is low, industry rivalry is more intense. Clients are articulate for their need and generally ask for customized product. So switching from one product to another is not taken place generally and if they switch, they generally
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go for the software which suits to their current platform and configuration and prefer the same vendor. So, for customized software, clients switching cost is low.

2.BARGAINING POWER OF SUPPLIERS (LOW) Factors High Availability of vast talent poolexperience Skill differentiation Buyers concentration Low High fresher and Suppliers power Medium Low Attractiveness High

Availability of vast talent pool Software professional are widely present across the globe, including fresher and experience which provide employers high benefit to recruit at competitive salary package. There is a large supply of trained and educated professionals. Skill differentiation There is a low skill differentiation among the software professionals which makes the employers able to switch human resources. Buyer concentration When buyers concentration is high, suppliers power is low, employer are more concentrated & focused for their required human resource skill. Other factors which make the suppliers power low are due to slow down, job cuts and layoffs.

3.Bargaining power of customers (High) Buyers Power Factors Buyers switching High Medium Low Low Attractiveness

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cost Buyers concentration Buyers sensitivity Buyers information availability

Buyers switching cost When clients switching cost is low, buyers power is higher. Clients are articulate for their need & generally ask for customized product. So switching from one product to another is not taken place generally and thus buyers switching cost is low where as it is high for buying products at the organization level as it requires high investment in terms of money as well time. Employees do not accept the change easily which affects their productivity. Buyers concentration If buyers are concentrated compared to sellers, if there are few buyers and many sellers buyer power is high. Generally buyers go for customized software, on time investment, which makes them more concentrated & focused for their required human resource skill.Other factors which make the suppliers power low are due to slow down, job cuts and layoffs. Buyers price sensitivity If the consumer is price sensitive & well educated regarding the product, the buyer power is high. Market is highly price conscious & promotion driven. Outsourcing has major role in Indian software industry; international clients are more prices sensitive. Buyers information availability As the software products are developed based on clients requirements, buyers are well informed about the software products. Other factors affecting

High

price

High

High

1. Threats of new entrants (High)

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Threat of New Entrants Factors Differentiation Brand establishment Initial investment Clients cost Economies of scale
Differentiation

Attractiveness

High

Medium

Low Low Low

capital

Low

switching

Low

Moderate

Highly differentiated products or well known brand names are both barriers to entry that can lower the threat to new entrants. Differentiation can be done in many ways but its costly for the company. Industry offerings are undifferentiated which leads to high rivalry. Industry players are providing equivalent after sale services, which includes installation, training etc. Brand establishment In software industry, branded products do not have any impact on clients requirement. Thus, brand establishment is low & which makes low barrier for new entrants. Initial capital investment Initial capital investment is low in establishing new company in software industry. Software industry is based on intellectual property & thus it does not require higher capital investment.
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Economies of scale Due to financial crisis, many companies share their human resource skill to

handle more than one project. By resource sharing they develop more software products. Thus an economy of scale is moderate. Another reason for high threat of new entrants are favorable government policies. Location is one of the favorable factors as such location does not have any major impact on soft ware development & target market. Threat of substitutes There is no close substitute of software.

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COMPETITIVENESS OF THE INDIAN ECONOMY Competitiveness rankings India and China are major global economies, and other non-OECD countries are rapidly joining them. The changing business landscape is a major challenge for multinational firms, including IT firms, to use these economies as export bases and to access their markets. One dimension of this changing business landscape is captured in international competitiveness rankings, which clearly show that despite their high growth rates these countries still have some way to go before they become competitive bases and markets for global firms. For example, before the global recession, international rankings such as the Global Competitiveness Report, 2007 (World Economic Forum), ranked India as 48th amongst 131 countries. China, Russia and Brazil were 34 th, 58th, and 77th respectively.6 Similarly the IMD World Competitiveness Yearbook 2007 and 2008 provide rankings by: economic performance, government efficiency, business efficiency and infrastructure. This ranked India 29 out of 55 countries, while China was 17 th in 2008 (Table 1). India ranked 44th out of 122 countries in the networked readiness index of 2006-07, and Chinas position was 59th based on the Global Information Technology Report (WEF, 2006-07). Other driving factors for India are cost effectiveness, quality assurance, supply of technical graduates, availability of an adequate telecommunication infrastructure and a favourable time zone relative to the United States and Europe. While multinationals such as IBM, Accenture, Electronic Data Systems and Deloitte are rapidly expanding in India using its low-cost, high quality labour force, Indian firms, providing high-end consulting services, are growing in the United States and Europe. These competitiveness reports illustrate Indias comparative advantage in various areas and its importance in the world market.
Table 1. IMD World Competitiveness Scoreboard, 2007-08

Score 2008

Country

100 99 95 84 84 90 80 82 74 61 66 46 49

United States Singapore Hong Kong, China Luxembourg Denmark Switzerland Netherlands Sweden China India France Russia Brazil

Rank 2007 (Total 55 countries) 1 2 3 4 5 6 8 9 15 27 28 43 49

Rank 2008 (Total 55 countries) 1 2 3 5 6 4 10 9 17 29 25 47 43

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Source: IMD World Competitiveness Year Book, 2007 and 2008.

As to the future, India has a very large pool of high quality manpower compared with other countries. The competitive advantage in skilled, low cost, highly productive workers is reflected in a projection for 2020 (Figure 1). India is ahead in supplying a quality labour force compared with countries such as Mexico, the Philippines, Israel, Ireland and Brazil. In recent years, the emergence of these alternative locations and maintaining the supply of quality human capital to meet increasing demand have been seen to be the key challenges in maintaining Indian IT sector competitiveness.
Figure 1. Indias competitive advantage vis--vis other nations

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GROWTH OF THE IT INDUSTRY

The majority of IT / ITeS activities are concentrated in seven Indian cities/clusters. Bangalore has been saturated owing to the infrastructure limits (transport and utilities, especially electricity, a common problem throughout India) and the scarcity of land. Hyderabad and Chennai are now alternative locations in the south. The geographical spread of IT / ITeS activity is gradually expanding to cover cities such as Ahmedabad, Bhubhaneswar, Chandigarh, Coimbatore, Jaipur, Kochi, Madurai, Mangalore, Mysore and Trivandrum.

Stages of development The government of India initiated a series of software export policies from the late 1960s7 (Schwere 1987, 1992; Sen 1995; Heeks 1996; OECD Information Technology Outlook 2000; Kumar and Joseph 2005; Mathur 2007a, b). Nevertheless, various policies during the 1970s and 1980s protected domestic hardware and restricted competitiveness and growth.8 In 1986, the government announced a new policy to develop a strong software sector, followed in 1988 with the World Market Policy and the establishment of the Software Technology Park from India (STPI) scheme. The National Taskforce on Information Technology and Software Development (NTITSD) was established in 1998 to formulate long-term plans and remove impediments to the growth of the IT sector. In 2000, the formation of the Ministry of Information Technology was another step in promoting these initiatives. A Task Force on Human Resource Development was established to develop long-term strategies to increase the number of well-trained IT professionals. More recent initiatives include upgrades to the Education and Research Network (ERNET) connecting various universities and regional engineering colleges (RECs), lowering customs duties on IT products, allowing 100% foreign investment and passing the Information Technology Act, 2000. The growth path The Indian IT sector has grown at a remarkable rate over the last decade. The growth is predominantly in IT services, but the hardware has also grown in recent years. Figure 3 presents the performance of the industry in both domestic and export markets in the period 1998-2007. In 2008-09, 9 total revenue was USD 72 billion; the industry employed 2 million people and contributed 5.8% to GDP. The NASSCOM-Crisil report (2007) calculated that: Every rupee spent by the IT-ITeS sector (on domestically sourced goods
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and services) translates into a total output of INR 2 in the economy. Also for every job that is created in this sector, four jobs are created in the rest of the economy. In this section we first focus on the software, services and Business Process Outsourcing segment, followed by a discussion of the hardware and electronics segments for both domestic and external sectors.

Domestic demand The domestic market in IT has started to emerge from the shadows of the export segment. The overall size of domestic demand, comprising hardware, software and services (IT-BPO), grew by 29% in 2005-06, and was USD 15.9 billion in 2006-07. Spending on software and services (IT-BPO) was greater than total spending on hardware for the first time in 2005-06 and is expected to continue increasing its share in 2006-07.10 Banking, financial, services and insurance (BFSI), manufacturing, railways, telecom, and government are the key vertical markets driving growth in domestic IT spending across categories which include hardware systems, networking, storage, security, enterprise application products and related services. Software and services Domestic demand has shifted from hardware towards a solutions-oriented approach, with a growing emphasis on services. In the early years, software firms were mostly software solution providers. Manufacturing of packaged products with high value-added along with sustained improvement in quality, investing in manpower and a competitive R&D environment has helped them gradually move up the value chain both in the domestic and export sectors.

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Business process outsourcing (BPO) The demand for BPO has shown noticeable growth in the domestic sector over the past few years. BFSI, telecom and consumer durables have been early domestic adopters of BPO services and currently account for about three-quarters of this market. An increasing number of Indian brands such as Infovision, HTMT Global Solutions and Bharti Airtel are investing in quality customer care and gradually adopting global best practices in the booming domestic market. Education, retail and healthcare have started contributing to growth in this sector, and increasing competition and growing emphasis on customer satisfaction is also driving public sector organisations towards BPO. For example, Air India outsourced its domestic customer service operations to third-party providers and Indian Railways announced its plans to establish Railway Enquiry Franchisees across the country. The success of these early initiatives by the public sector is of critical importance to the domestic BPO sector. Hardware and consumer electronics The Indian hardware segment mostly caters for the domestic market. Hardware accounted for about 49% of total domestic IT-BPO spending with revenue growing at approximately 17%, and personal computers, notebooks, and servers leading hardware spending. In the hardware segment, many multinationals are establishing plant in India. In this respect, India has started competing with China as a hub for original equipment manufacturers (OEMs). Various initiatives have been introduced to improve the investment climate and remove bureaucratic delays in hardware exports in the current five-year plan.

Exports of software and services During 2008-09, electronics and IT exports were estimated by NASSCOM to be around USD 47 billion, compared with USD 41 billion in 2007-08. Tata Consulting Services (TCS), Infosys and Wipro are the top three exporters, and only six of NASSCOMs Top 20 IT software and services exporter are MNE affiliates. There are many examples of advanced software products from top firms. TCS has launched packaged software for the banking, insurance, securities, accounting and health care industries. Banking software from Infosys (Bankaway, Financle and Payaway) has been widely adopted. Wipro Technologies has introduced Teleprodigy, a billing system for ISPs, and WebSecure, an Internet security package. Many smaller, highly specialised Indian firms are developing software in banking, financial and accounting in the United States, the United Kingdom and Europe. While the United States and the United Kingdom remain the dominant markets for IT-ITeS exports, other markets are growing. Leading multinational firms also have extensive operations in India.

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Exports of Business Process Outsourcing (BPO) In the last decade, India has been the leading source for offshore service supply, and is estimated to account for 65% of the global industry in offshore IT and 46% of the global BPO industry. BPO exports were estimated to be around USD 8.3 billion in 2007. The United Kingdom is the major market within the EU, particularly for finance and accounting (F&A) services, customer interaction services, human resource administration (HRA) and a wide range of other specific services. The Indian BPO firms include 3iInfoTech, Mindtree Consulting, NIIT SmartServe, Perot Systems, Hewitt Associates, and Infinite Computer Solutions. Knowledge Processing Operations (KPO) is also becoming a significant market. MNCs are setting up third party captive units of data analysis, data modeling. Indias share in global KPO revenues is estimated to be 60-70%, Call centres, insurance claims processing, legal databases, digital content development, online education, medical transcription, data digitisation, payroll/HR services and web services are other products where India has started specialising in the world market.
. Emerging economies trade in ICT goods, 1997-2007 (USD millions, current prices)

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Export revenues (including Hardware) estimated to reach USD 69.1 billion in FY2012 growing by over 16 per cent; Domestic revenues (including Hardware) at about USD 31.7 billion, growing by over 9 per cent.

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Information Technology and Indias Economic Development The success of Indias software industry on the global stage has captured the imagination of Indians in a way that only cricket and hockey successes could in the past. Indians (or people of Indian origin) have become leaders of, as well as contributors to, the information technology (IT) revolution in the United States, reinforcing the impression that India is world class in IT. At the same time, India remains a developing country, with levels of human development for the masses that put it in the same league as sub-Saharan Africa. From this perspective, Indias IT success represents the emergence of another elite enclave, with increased inequality the result. IT and Development The IT sector can be an important source of growth for India if the country has a comparative advantage in providing certain kinds of IT-related products and services, if the global demand for these products and services is likely to grow rapidly and The first two of these conditions seem to be well established, though they merit some discussion of future possibilities, particularly with respect to the reasons for and the dynamics of Indias comparative advantage in this sector. One of the most interesting issues, which we wish to emphasize here, is the third condition, of spillover benefits. This is the area where the IT sector may be special, and not just another export enclave. The Domestic Market The domestic market for IT products and services independent of the export market. is not

The nature of information goods in general is that they involve high fixed costs of production and low marginal costs. While customization and service provision mitigate this property, they do not negate it.

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 Reputation and experience effects, on the other hand, enhance the importance of economies of scale and scope. Hence it is important for Indian software firms to compete simultaneously in domestic and export markets, in order to take advantage of these economies. This is true even though the product-service mix that is being sold in different markets is going to be somewhat different. 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. Two mitigating factors operate on potential disadvantages of Indian firms. First, some of the problems are faced by all firms, irrespective of location: for example, entering the market for desktop operating systems in the face of Microsofts dominance is difficult, if not impossible, for any firm anywhere in the world. `Second, the boundary lines between domestic and foreign can be blurred when multinationals have Indian subsidiaries, particularly for IT or IT-enabled services. In such cases, the effects on the local economy are not that different from when these services are provided by Indian firms. Two differences in the case of multinationals, however, are in profit repatriation and the creation of another brain drain channel, if Indian employees of multinationals can be assigned to other countries. At the level of business software and software services, therefore, It seems that issues for the domestic market boil down to the same concerns as for export markets. These are availability of the key inputs, namely various types of skilled IT personnel and managerial and marketing skills.
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right combination of people, knowledge, experience and reputation to compete successfully. Location and ownership are not of direct importance, but are only proxies for whether the IT software and services provider has the Hardware may offer additional opportunities to Indian IT firms in the domestic market. In developed countries, the establishment of the PC market took place before the Internet took off. In a good example of complementarities, however, the growth of the Internet has increased the demand for PCs and other access devices.

Internet access is probably the most attractive use for many potential consumers of IT in India but Internet penetration may not go far enough with hardware designed for developed countries. While Internet use is beginning to grow rapidly, the number of subscribers remains minuscule, estimated at 1.8 million in December 2000. The main reasons for this backwardness have been the government long-standing monopoly, through VSNL, of the countrys Internet gateways, as well as the general poor state and high cost of the telecoms infrastructure. The removal of the VSNL monopoly in 2002 marks a process that began a few years earlier, with NASSCOM lobbying resulting in private ISPs being allowed to set up their own international gateways starting in 2000. The possibility of designing and building lower-cost access hardware in India may represent an opportunity for the domestic IT industry. While India has tried to develop a domestic hardware industry since the 1980s, it has not succeeded in establishing an
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industry that is efficient and globally competitive. We note once more that Dell is a profitable company because it serves targeted markets efficiently, not because it manufactures sophisticated components. Instead, management and infrastructure are the key inputs that are required. Internet access is probably the most attractive use for many potential consumers of IT in India but Internet penetration may not go far enough with hardware designed for developed countries. While Internet use is beginning to grow rapidly, the number of subscribers remains minuscule, estimated at 1.8 million in December 2000. The main reasons for this backwardness have been the government long-standing monopoly, through VSNL, of the countrys Internet gateways, as well as the general poor state and high cost of the telecoms infrastructure. The removal of the VSNL monopoly in 2002 marks a process that began a few years earlier, with NASSCOM lobbying resulting in private ISPs being allowed to set up their own international gateways starting in 2000. The possibility of designing and building lower-cost access hardware in India may represent an opportunity for the domestic IT industry. While India has tried to develop a domestic hardware industry since the 1980s, it has not succeeded in establishing an industry that is efficient and globally competitive.

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Quality Aspects
Software companies in India improved their quality tremendously in the last few years. Today they are known for the quality of their software services. India has one of the largest numbers of quality Certified software companies in the world. The increasing quality perception will help India transcend the cost barrier and increase margins in offshore business. There are several quality standards, which a software company can obtain. There are about 170 software companies in India with quality certification. 15 Indian companies now have the SEI CMM Level 5 certification (out of 23 worldwide). Apart from global recognition and quality assurance, government policy also tends to be favorable to companies holding quality certificate. According to EXIM policy software companies with ISO 9000 series or equivalent certification are eligible for grant of Special Import Licenses (SILs).

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Core competencies of IT Industry of India 1. Availability of Large Human Resources Every year, approximately 19 million students are enrolled in high schools and 10 million students in pre-graduate degree courses across India. Moreover, 2.1 million graduates and 0.3 million postgraduates pass out of India's non-engineering colleges. While 2.5-3 percent of them find jobs in other fields or pursue further studies abroad, the rest opt for employment in the IT industry. 2. Indian Education System The Indian education system places strong emphasis on mathematics and science, resulting in a large number of science and engineering graduates. Mastery over quantitative concepts coupled with English proficiency has resulted in a skill set that has enabled the country to take advantage of the current international demand for IT. 3. Quality Manpower Indian programmers are known for their strong technical skills and their eagerness to accommodate clients. In some cases, clients outsource work to get access to more specialized engineering talent, particularly in the area of telecommunications. 4. Government Policies IT is a part of government's national agenda and all policies are driven to achieve maximum benefit to their industry. The reforms have reduced licensing requirements and made foreign technology accessible. The reforms have also removed restrictions on investment and made the process of investment easier The government is actively promoting FDI, investments from NRIs (Non-Resident Indians) including Overseas Corporate Bodies (OCB's) owned by the NRIs. FDI can be brought in through the automatic route, based on powers accorded to the Reserve Bank of India. Till 1994, DOT was the sole provider of basic telecom services in India The new National Telecom Policy has opened the field for private participants. The IT Bill passed in 2000 provides a legal framework for the recognition of electronic contracts, prevention of computer crimes, electronic filing of documents, etc Amendments have also been proposed in the Indian Evidence Act,
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Indian Penal Code and the RBI Act. The IPR law in India.

5. Cost of Labour and resources The comparative cost advantage that India provides in terms of availability of cheap labour and resources as compared to the European or US market makes companies to outsource portion of their business to these destination. 6. Technological advances & Dot-Com bust Before the dot com boom, many multinational companies invested a large sum of money in laying the underline cables for inter-continental communication. But after the dot-com bust many of these companies went bankrupt leaving handing down the large network of communication lines at dirt cheap prices. This brought down the prices of inter-continental communication by a large factor. With availability of new communication technologies companies find it easier to manage their business spread across the globe. This also provided the companies to move a part of their non-core business to low cost locations like India and gain the cost advantage.

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Risk Factors
1. Manpower availability and cost India has more than 1,900 institutions from which about 70,000 software professionals graduate each year. This is further supplemented by private training centers which coach about 4045,000 students each year. With many students opting for further studies/ other employment streams and several overlap between students at institutions and training centers, it is estimated that India can supply about 75,000 software professionals each year. Despite this huge addition to the manpower base each year, the demand-supply situation is expected to remain tight during the next 3years. The excess of demand over supply will further push salary levels upward. Salary levels for experienced and qualified professionals are broadly at par with developed countries. The rising cost of manpower has already eroded India's position as a cheap source of labor to a large extent. This increases the risk of losing business to competing countries like China and Russia who have cheaper labor, if they would be able to match the quality Indian professionals offer. Moreover, to maintain profitability on the increased cost, software companies will have to increase productivity i.e. maximizes revenue/profits per employee. Till the time Indian software companies are able to move up the value chain to products and transcend the cost barrier, they carry a risk of Low profitability. 2. Manpower turnover It is essential that an organization keeps employee turnover to a minimum, so as to maximize on productivity. This is even more important if an employee has to undergo initial training to develop specific skills. Employee turnover occurs as employees show little respect for continuity with a single organization and even employers actively 'poach' from competing companies by offering more lucrative salaries. Most software companies have been providing various incentives and stock option schemes to retain talent, especially at senior levels. Organizations also have to provide better working facilities to motivate employees to put in their best.
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3. Skill and experience levels Indian programmers have a wide range of skills, with experience on legacy systems and on latest platforms as well. They have also displayed an ability to learn and adapt quickly to the changing environment. However, about 77% of the software professionals in India have a work experience of less of 7years. Corporate therefore need to continuously invest in training to improve skill levels further, especially in the area of functional domains. 4. Availability of infrastructure The current boom in the software sector can be sustained through an increase in offshore programming activity. This places special emphasis on availability of quality infrastructure facilities in the form of hardware/software, power and telecom links. India's power and telecom infrastructure is poor compared to many developing countries. On top of that power and telecom costs are among the highest in the world. One of the prime reasons for this has been the state monopoly over these sectors. The attempts at privatizing these institutions have not improved the situation in a significant manner. For software companies, investing in telecom infrastructure is an additional overhead, which few companies will be able to afford. 5. Poor government demand In most developed countries government/public sector enterprises constitute the largest consumers of IT. In India public sector companies are generally reluctant to introduce IT in a major way, as this would antagonize the trade unions. Public sector companies' policies also tend to be pro-labor. The software sector therefore receives negligible encouragement from the public sector unlike most of the leading IT countries in the world. 6. Government policies Government policies so far have been favorable to software companies. If tax exemption on exports is withdrawn it could affect software companies adversely.
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7. Financing Software companies require finance for setting up development centers, establishing communication links and other infrastructure and for working capital. Traditionally, lenders have been averse to project finance due to lack of tangible assets as security. The recent spurt in share prices of all the listed software companies reflects the confidence amongst investors. This should enable software companies to raise adequate finance in the form of equity. But government has to set machinery in place to provide

software companies with venture finance etc. 8. Quality

capital, project and lease

India has gradually moved into high quality but competitive cost bracket. Currently, many of the large companies hold quality certificates. However, there are various quality levels and standards. Moreover Indian companies need to pay more attention to Total Quality Management and not just Production process quality. 9. IPR Indian companies have to move up the value chain to become truly global companies. This requires a strong policy on IPR and strict enforcement procedures. Uniformity of IPR policies with the 'target countries' will also help Indian companies to improve export prospects.

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Direct impact of IT to Indian economy

The current and evolving role of IT/ITES industry in Indias economy is well established. 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 countrys GDP: The sectors contribution to the countrys GDP has been steadily increasing from a share of 1.2% in FY98 to 5.5% in FY11. Boosting the foreign exchange reserve of the country: Export earnings in FY11 stood at approximately USD 40.0 billion with a growth of 36%. Employment generation: Direct employment in the sector is expected to be 2.0 million by end of FY11, growing at a CAGR of 26% in the last decade, making it the largest employer in the organized private sector of the country.

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Indirect impact of IT industry to Indian economy

Additional employment generation: The indirect employment generated, at the rate of 4 additional jobs created in the economy for every 1 job created in the sector, is even more socially relevant as nearly 75% of the workforce employed in those additional jobs are SSC/HSC or less educated.

Driving growth of other sectors of the economy: Apart from contributing to the growing income of its direct stakeholders (promoters, shareholders and employees), the IT/ITES industry has had a multiplier effect on other sectors of the economy with an output multiplier of almost 2 through its nonwage operating expenses, capital expenditure and consumption spending by professionals. Study show that USD 15.85 billion spent by the IT/ITES industry in the domestic economy in FY06 generate an additional output of USD 15.5 billion. Encouraging balanced regional development: By gradually spreading their business operations to smaller Tier II/III cities, the IT sector (besides generating revenue and employment) is also assisting in improving the supply of talent pool and development of physical and social infrastructure, either directly by themselves or by spurring the Government to action. Fuelling the growth of PE/VC funding: The worldwide dot com boom and growth in the IT sector kick-started VC activity in India which led to the creation of first generation of India centric VC funds. Other sectors, such as healthcare, manufacturing and financial services have also benefitted from this phenomenon as these sectors are now also being able to access this source of funding. While IT/ITES continues to be the

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favourite sector with the largest share (28%) of PE/VC funding, other sectors now account for 72% share as compared to 34% in 2000. Spurring first generation entrepreneurship: Corporate India consisted of either large family owned businesses or multinational companies till the advent of the IT/ITES industry, and it was rare to see a first generation entrepreneur. The shift of focus from physical capital to intellectual capital and the advent of the PE/VC funding enabled a large number of first generation entrepreneurs with no wealth to try their hand at starting new enterprises. The demonstrated success of these entrepreneurs created an aspiration among the middle class and spurred them to exploit their potential with confidence. Improving the product/service quality level: The fact that IT/ITES companies cater to and compete with global players has led to their adopting the highest quality standards. This high quality of services and products has been the driver and sustainer of growth which has helped move India out of the mediocrity, low quality image and has in fact raised the bar for other industries as well. Indian exports had traditionally been restricted to low end, low-technology oriented products like gems and jewelleries and garments/apparels. It is with the advent of IT/ITES industry that the world began to recognize that Indian products and services could also compete and win against global competitors on quality parameters. India is now also emerging as a research and development centre for some of the large IT/ITES companies in the world, once again demonstrating that India now stands for quality. 30% of companies worldwide who have reached Level 5 of Capability Maturity Model Integration (CMMI) are Indian IT/ITES firms and nearly 75% of Fortune 500 and 50% of Global 2000 corporations source their technology related services from India with an increasing number of MNCs outlining their investment plans for setting up R&D operations in India.

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Front runner in practicing good corporate governance: The industry has been a front runner in practicing good corporate governance and their commitment to infuse it in their business activities have led to a creating a positive pressure within the industry, as well as in other industries, with more and more companies adopting global standards in corporate governance practices. The major IT/ITES companies in India have in recent times received national and international recognition for their corporate governance initiatives. Boosting the image of India in the global market: The India IT/ITES industry has contributed to what brand India stands for in todays global market. While India Inc. has been witnessing an acquisition spree of overseas companies in recent years,the IT/ITES sector has led this phenomenon with the highest share (23%) of outbound M&A deals in 2006. Listing of Indian IT/ITES companies in global stock exchanges, which requires adherence to stringent global accounting norms, has helped build a strong brand of the companies and the sector outside India.

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GOVERNMENT INITIATIVE The IT sector plays a major role in the Indian economy. Some major policy changes in improving human capital, exports, and e-governance are highlighted below, including recent initiatives by NASSCOM. Human capital Investment in human capital is the most important initiative. Many initiatives have taken place at different levels. The National Council for Education Research and Training (NCERT) introduced the National Curriculum Framework School Education in 2000. Major objectives of this framework include the use of computers in the curriculum, enhancing learning opportunities by using ICT across the curriculum, designing curriculum with inter-disciplinary and cross-disciplinary areas. Export promotion In order to promote exports, the Indian Government has initiated several schemes to attract and encourage manufacture and export. Free Trade Zones provide competitive infrastructure facilities, duty free imports of capital goods, raw materials, components and other inputs, tax holidays for exports and access to domestic markets. These include Export Oriented Units (EOUs) within Export Processing Zones (EPZ), Electronic Hardware Technology Parks (EHTP), and Software Technology Parks (STP). Special Economic Zones (SEZs) The objective of the SEZs is to provide an export environment, with lower regulations on taxes, duties, labour laws and business infrastructure. Under the Act, SEZs can be developed either jointly or separately by the central government, state government, or any individual party (including private parties). Units may be set up in a SEZ for the manufacture of goods and rendering of services. All the import/export operations of the SEZ units are on a self-certification basis. The units involved are a net foreign exchange earner, not subject to any pre-determined value addition or minimum export performance requirements.

Software Tecnology Parks (STPs) The STP is a non-profit society under the Ministry of Information Technology to promote and facilitate exports of software. Each STP offers all statutory services and high speed data connectivity to its member firms as 100% export-orientated units. There are now 47 centres spread across the country assisting about 6 500 software exporting firms. In 2000, a new STP was developed in Silicon Valley, with a view to facilitate software exports by small and medium-sized firms to the United States. The STPs, contributed 88% of Indias electronics and computer software / services exports in 2005-06, and have been the largest contributor since 2000-01 .Similar services are being provided to electronic hardware exporting firms under the Electronic Hardware Technology Parks (EHTP) scheme.

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National e-Governance Plan (NeGP) The Government of India accords high priority to improve the quality of the citizens by providing basic services at their doorsteps and has formulated a National eGovernance Plan (NeGP) covering 27 Mission Mode Projects and eight support components to be implemented at Central, State and Local Government levels, at an estimated cost of Rs. 23,000 crore over five years. At the State level, the Mission Mode Projects (MMP) would include services like road transport, land records, commercial taxes, employment exchanges, agriculture, civil supplies, treasuries, land registration, policy and education, while at Central level, it will cover areas such as insurance, central excise, National ID, pensions, e-Posts, banking, passport, visa and income tax.

State Wide Area Networks (SWANs) The Government has approved a Scheme for establishing State Wide Area Networks (SWANs) across the country in 29 States/ 6 UTs with a total outlay of Rs.3,334 crore over a period of five years. The Scheme envisages to provide technical and financial assistance to States for establishing SWANs from State Headquarters upto the Block level with a minimum bandwidth capacity of 2 Mbps. 32 SWAN proposals from States and UTs have been approved. State Data Centre(SDC) has been identified as one of the important elements of the core infrastructure for supporting e-Governance initiatives under NEGP. It is proposed to create data repositories/ data centres in various States/UTs so that common secured data storage could be maintained to serve host of e-Governance applications. The policyguidelines for technical and financial assistance to the States for setting up of State Data Centres have been circulated to the States. The Government has approved the Scheme in January 2008 at an estimated cost of Rs. 1623.20 crore to cover 28 States/6 UTs across the country. Other government initiatives Mode Projects (MMP) at state level include the use of IT services around road transport, land records, commercial taxes, employment exchanges, agriculture, civil supplies, treasuries, land registration and in education. At the central government level they include areas such as insurance, national ID, pensions, banking, passport and visa services and income tax. The government has recently approved 100 000 broadband Internet common service centres (CSCs) in rural areas. Introduction of non-English software has started and needs to be extended to cover a large section of the non-English speaking population.

Foreign Trade Policy

India welcomes investors in Electronics and IT sector. Government of India is

striving to bring greater transparency in policies and procedures to provide an investor friendly platform.

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 In general, all Electronics and IT products are freely importable, with the
exception of some defence related items. All Electronics and IT products, in general, are freely exportable, with the exception of a small negative list which includes items such as high power microwave tubes, high end super computer and data processing security equipment.

Second hand capital goods are freely importable. Export Promotion Capital Goods scheme (EPCG) allows import of capital
goods on payment of 5% customs duty. The export obligation under EPCG Scheme can also be fulfilled by the supply of Information Technology Agreement (ITA-1) items to the DTA provided the realization is in free foreign exchange.

Special Economic Zones (SEZs) are being set up to enable hassle free
manufacturing and trading for export purposes. Sales from Domestic Tariff Area (DTA) to SEZs are being treated as physical export. This entitles domestic suppliers to Drawback/ DEPB benefits, CST exemption and Service Tax exemption.

Supplies of Information Technology Agreement (ITA-1) items and notified zero

duty telecom/electronic items in the Domestic Tariff Area (DTA) by EOU/EHTP/STP/SEZ units are counted for the purpose of fulfillment of positive Net Foreign Exchange Earnings (NFE).

The import of second hand computers including personal computers and

laptops are restricted for imports. However, second hand computers, laptops and computer peripherals including printer, plotter, scanner, monitor, keyboard and storage units can be imported freely as donations by the following category of donees, subject to the condition that the goods shall not be used for any commercial purposes and are non-transferable:

School run by Central or State Government or a local body Educational Institution run on non-commercial basis by any Community Information Centre run by the Central or State Government
or local bodies Adult Education Centre run by the Central or State Government or a local body Organisation of the Central or State Government or a Union Territory organisation Registered Charitable Hospital Public Library Public funded Research and Development Establishment

Foreign Direct Investment Policy for Information Technology FDI upto 100 percent is permitted for E-Commerce activities subject to the condition that such companies would divest 26 percent of their equity in favour of the Indian

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public in five years, if these companies are listed in other parts of the world. Such companies would engage only in business to business (B2B) E-Commerce and not in retail trading, inter alia, implying that existing restrictions on FDI in domestic trading would be applicable to E- Commerce as well.

Export Promotion Schemes

Special schemes are available for setting up Export Oriented Units for the Electronics/IT Sector. These schemes are:

Export Oriented Unit (EOU) Scheme Electronics Hardware Technology Park (EHTP) Scheme Software Technology Park (STP) Scheme Special Economic Zones (SEZ) Scheme Export promotion Capital Goods (EPCG) Scheme Duty Exemption and Remission Scheme

EOU/EHTP/STP Schemes Units undertaking to export their entire production of goods and services, except permissible sales in the Domestic Tariff Area (DTA), may be set up under the EOU, EHTP or STP Scheme for manufacture of goods, including repair, re-making, reconditioning, re-engineering and rendering of services. Trading units, however, are not covered under these schemes. 100% Foreign Direct Investment is permitted through automatic route for the units set up under these schemes. EOU/EHTP/STP units may import and/or procure from the DTA or bonded warehouses in DTA, without payment of duty, all types of goods, including capital goods, required for its activities, provided they are not prohibited items of import in the ITC(HS). The units shall also be permitted to import goods including capital goods required for the approved activity, free of cost or on loan/lease from clients. An EOU/EHTP/STP unit may, on the basis of a firm contract between the parties, source the capital goods from a domestic/foreign leasing company without payment of customs/excise duty. EOU/EHTP/STP unit shall be a positive net foreign exchange earner. Net Foreign Exchange Earnings (NFE) shall be calculated cumulatively in blocks of five years, starting from the commencement of production. The donation of computers, imported/indigenously procured duty free by EOU/STP/EHTP units to recognized non-commercial educational institutions, registered charitable hospitals, public libraries, public funded research and development establishments, etc., two years after their import/procurement and use by the said units is permitted. Supplies of Information Technology Agreement (ITA-1) items and notified zero duty telecom/electronic items effected from EOU/EHTP/STP units to DTA will be counted for the purpose of fulfillment of positive NFE. EOU/EHTP/STP units are permitted DTA access upto 50% of the FOB value of exports subject to fulfillment of positive NFE on payment of concessional duties. Depreciation upto 100% is permissible to computers and computer peripherals over a period of 5 years.

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Export Promotion Capital Goods (EPCG) Scheme The EPCG Scheme allows import of capital goods for pre-production, production and post-production (including CKD/SKD thereof) at 5% customs duty subject to an export obligation equivalent to 8 times of duty saved on capital goods imported, to be fulfilled over a period of 8 years. The capital goods shall include spares (including refurbished/reconditioned spares), tools, jigs, fixtures, dies and moulds. Second hand capital goods without any restrictions on age may also be imported under the EPCG Scheme. The export obligation can also be fulfilled by the supply of ITA-1 items to the DTA provided the realization is in free foreign exchange.

SPECIAL ROLE OF NASSCOM To extend Indias global IT-ITeS reach, the NASSCOM and industry have taken several initiatives to enhance the availability of and access to suitable talent for IT-ITeS in India. These initiatives include: Special Economic Zones for education NASSCOM has suggested experimenting with adapting the Special Economic Zone concept (deregulation and removal of restrictions) for education, and creating Special Education Zones. However, long-term steps are required, including much higher government investment in education, major education reform, and better compensation and research grants for teachers/researchers (NASSCOM, 2006a). Memorandum of Understanding with University Grants Commission and All India Council for Technical Education NASSCOM, in combination with the University Grants Commission (UGC) and the All India Council for Technical Education (AICTE), has signed a Memorandum of Understanding (MoU), to strengthen professional education in meeting increasing demand in the sector through changes in curricula, faculty and infrastructure. Industry-University Partnerships NASSCOM in its IT Workforce Development (ITWD) initiative is also working with academia across the country to encourage and facilitate greater industry interaction, share relevant feedback, stay updated on industry developments and giving encouragement to changes in curriculum and teaching. Certification Program for Frontline Management Under the NASSCOMs Executive Development Programme (NEDP), NASSCOM and QAI the leading quality consultancy in India introduced the Certification Program for Frontline Management in the ITeS-BPO sector. The program was launched nationally in five major cities - Delhi, Mumbai, Bangalore, Chennai, and Hyderabad - in 2005 and is being extended to other cities.

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National Assessment of Competence (NAC) NASSCOM has launched the NAC program for potential employees in the BPO segment. NAC is an industry standard assessment and certification program, which ensures the transformation of a trainable workforce into an employable workforce. National Skills Registry (NSR) In dealing with issues such as governance, physical security, business continuity, logical security, safeguarding IP, software change management and personnel security both for employees and clients more effectively, NASSCOM in collaboration with the National Securities Depository Limited (NSDL) introduced the NSR scheme in 2006. This is a national database of employees working in IT/BPO industry in India. This database contains third party verified personal, qualification and career information on IT professionals. Data Security Council of India (DSCI) NASSCOM is involved in making the Indian Information Security environment comparable to the world standard. As a part of its trusted sourcing initiative, NASSCOM is in the process of introducing the Data Security Council of India (DSCI), a Self Regulatory Organisation (SRO) to establish, popularise, monitor and enforce privacy and data protection standards for the ITeS-BPO segment (NASSCOM,2007b). The Indian Computer Emergency Response team (CERT-In) provides incident prevention and response services under the Department of Information Technology. Key challenges The Indian IT sector plays a significant role in the global market. In recent years, competition has intensified with China, Latin America, Eastern Europe and other countries such as Egypt establishing themselves as outsourcing centres, and major global firms (e.g., Accenture, HP Services and IBM Global Services) establishing delivery centres in India. Manpower supply constraints, a small number of large firms dominating the industry, high tariff and import duties, lack of commercialisation of domestic R&D and lack of adoption in key vertical sectors such as agriculture, education and healthcare are seen as major limitations for this sector. For India to fully capitalise on the opportunity and sustain growth in the global IT-ITeS market and in the IT sector in general, timely and coherent execution of initiatives to address supply-side concerns are needed in a wide range of areas. Priority areas are described below. Improving the supply of quality human capital Human resource development (HDR) is the key area in supplying quality skilled workers for global and local markets, and various initiatives have been introduced to restructure educational institutions. In most firms, around 80% of recruitment is made at the entry level and 80% of the total

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training budget is spent on these employees (NASSCOM-Deloitte, 2008). Many states have established Indian Institutes of Information Technology (IITs) as centres of excellence, to overcome shortages of employable labour in the IT sector. Changing school and university curricula; providing incentives to academics; promoting industry-academia partnerships; introducing bridge courses for managers; expanding capacity of world class institutions (e.g., IITs, IIMs and IISc) are amongst such initiatives. Creating world-class infrastructure and bridging the digital divide Major cities (Tier I/II cities such as Bangalore, Mumbai, Delhi, Pune etc.) are already witnessing signs of strain. Tier III/IV cities (such as Mysore, Manglore, Nagpur, Indore, Bhubneshwar and Kolkata) need development of adequate infrastructure with modern facilities (transport, particularly roads, and utilities). Public-private partnerships have been initiated and investment in an increasing number of engineering colleges, housing, transport facilities is underway, but many of these initiatives need further support. Telecommunications infrastructure and regulatory challenges While some states of India clearly benefit from advanced telecommunications infrastructures, others are lagging. Further reforms to bridge the gap between urban and rural connectivity, efficient spectrum management and a market-based regulatory framework are key regulatory measures. To maintain a sustainable level of investment in this sector, policy measures need to improve the regulatory environment; for example delivery of data services is extremely poor due to low spectrum coverage, and Internet access and broadband density is poor compared to countries such as China and Brazil. The TRAI Act (1997) was somewhat ambiguous with regard to the mandate of the National Regulatory Authority. This was amended in 2000 to clarify the role and functions of the regulatory body vis--vis the policy maker. Nevertheless, various licensing and regulatory functions are still performed by multiple agencies including the Department of Telecommunications (DOT, licensor), DOT Wireless Planning and Coordination (Spectrum management), TRAI (Tariff, Quality of Services and Interconnection Regulation), and the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) (Dispute Resolution). Generally there is a difference of opinion among these various agencies leading to disputes and prolonged litigation. While policy making powers in respect of licensing for telecommunication services rest with the DOT, the sector regulator (TRAI) has the powers to initiate recommendations. In many cases the DOT does not accept the TRAIs recommendations on market and sector liberalisation, or delays implementation. Due to the multiple regulatory agencies, regulatory oversight, reporting requirements, and compliance requirements are heavy burdens on all type of operators irrespective of their size, market segment or market power.28

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 Promoting the hardware/electronics sector for domestic demand and export Granting of SEZ status, high consumer demand for electronic goods and favourable FDI flows have helped building a competitive hardware sector. Consumer electronics is the driver for this segment, and increasing production of finished and intermediate components will help to reduce the hardware trade deficit. However, in more advanced segments, Indian producers rely on foreign partners such as Unisys for TUL, ICL for ICIM, Sun and other technical collaborators for WIPRO Infotech, HewlettPackard for HCL-HP, etc. Fostering innovation Indian industry has been heavily dependent on imported technology and on technical collaboration agreements. India needs to transform gradually from the back-office of the world to the front-office of the world through innovation. NASSCOM, with the help of various state governments, is actively encouraging linkages between technology industries, academia and research institutions in promoting research and innovation. Lack of knowledge about patent regimes, inability to take risks and lack of detailed domain knowledge have hindered software firms in promoting innovation. Strengthening patent rules, simplifying procedures and reducing the cost of patenting would help the innovation environment.

Impacts of the global recession The major factor affecting Indian firms and the IT sector has been the global financial crisis and economic recession and the subsequent recovery. How did the Indian IT sector perform? The recession led to downward revisions of growth projections for major Indian and multinational firms, and a slow-down and negative growth for the top 10 Indian firms at the start of 2009, rather than a deep slump . This relatively good performance compared with the global IT hardware sector is due to growing domestic demand, a weaker currency and relatively good government macroeconomic management. The Indian IT services industry (including IT services, BPO, and software and engineering) has grown at two-digit rates year on year since the late 1990s, but in 2010 revenue growth slowed to one digit (6%). Between 2000 and 2010, annual revenue in the industry grew at 27% a year to reach almost USD 64 billion in March 2010.

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The top 10 Indian IT services firms generated almost USD 23 billion in annual revenue in 2009. This is almost 36% of the overall revenue of the Indian IT services industry. Tata Consulting Services (TCS), Wipro and Infosys Technologies are the biggest firms, accounting respectively for 27%, 24% and 21% of the top 10 revenues in 2009. Quarterly revenues of the top 10 Indian IT services firms have been increasing year on year (33% on average), since the 3% year-on-year decline in the first quarter of 2001. In the first quarter of 2009, however, quarterly revenue growth turned negative (around -5%) and remained slightly below zero in the following quarters of 2009 but growth has now resumed

Policy suggestions The Indian IT services sector plays a major role in the global market. The strength of the sector lies in the availability of skilled labour, early initiatives taken by the central and several state governments in promoting IT services in export markets and mass demand generated from the domestic sector itself. The hardware and electronics segment was in an embryonic stage for many years, although it has started picking up in recent times. Policy prioritisation: Many initiatives have been taken at various national, state and local levels.Prioritisation of the policy agenda is needed to define the roles of government and other public sector actors along with the private sector. Monitoring performance and keeping timelines is important in this respect. Promoting electronics production for domestic and export markets should be a priority. Rural awareness: To increase IT awareness in rural areas, the Indian government needs to increase the funding of major projects including introducing cyber cafs, software and Internet websites in Indian languages at a wider level. Connectivity in rural areas needs improvement. Initiatives such as Media Lab Asia (a collaboration of the Department of Information and Technology (DIT) with the Massachusetts Institute of Technology) are helping villages in the areas of education, training, healthcare, agriculture, etc. using broadband. This kind of programme should be introduced more widely.

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R&D spending: Further efforts are needed to foster business sector R&D, and commercialisation of technology, is necessary. Contributions of both public and private sector R&D should be increased. Further sources of venture capital are needed both in IT services and hardware. Particularly in the hardware segment, fast obsolescence, a weak R&D base and poor basic infrastructure (transport and utilities) have resulted in low investment. ICT skills: To create more manpower and retain people in the IT sector, government and other bodies need to constantly update the curriculum in schools, colleges and universities, whilst offering higher salaries to research professionals. Academia-industry partnerships should be promoted more extensively. Content creation: Development of websites is desirable both for public and private businesses (maps, archives, products, prices, staff and contact persons). Currently, data availability in the public domain is very poor, and use of IT in government functions remains low. Importance of small and medium-sized enterprises (SMEs): Providing SMEs fiscal incentives so that they can compete with multinationals in export markets. Development of web-sites with company details, improved access to data in the public domain and introduction of digital signatures are needed to run businesses more effectively. Standard, trust and security: Introduction of policies to deal with cyber crimes. Laws need to be introduced for electronic payments and Internetbased businesses. Evaluation: Information at various levels is not transparent or easily accessible, and evaluation of government policies remains sparse. Better and more widespread evaluation will lead to more efficient policies, the identification of good practice in policy design and delivery.

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IBEF REPORT ON IT & ITES SECTOR 2011

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Future outlook of IT sector(NASSCOM REPORT) Despite 2011 ending in a difficult economic environment, some geographic regions and services are expected to circumvent the situation in 2012. Global GDP, after growing by 2.7 per cent in 2011, is expected to grow 2.5 per cent in 2012, with developing economies growing thrice as fast as the developed economies. Better economic conditions in the second half of the year signifying return of consumer confidence and renewal of business growth, is expected to drive IT spending going forward. Key Highlights during FY2012

Global technology related spend expected to grow by 5 per cent in 2012 Global sourcing to continue growth trend as organisations aim to cut costs, access local market and innovation and sourcing requirements Indian IT-BPO services exports expected to grow by 11-14 per cent while domestic services to grow by 13-16 per cent (in Rs terms) India accounts for less than 5 per cent of global technology spending tremendous untapped potential for growth of Indian IT-BPO sector, in both core as well as emerging opportunities To achieve this growth, the sector has to continue to re-invent itself through new business models, global delivery, partnerships and transformative focus Prevailing global megatrends presents new opportunities and risks for the industry, which will shape the technology industry landscape IT-BPO sector will need to build on its strengths and address challenges around competition, talent, security and business environment In the future, the industry to drive transformation, innovation and inclusivity in business and India

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The key action themes for the IT-BPO industry to remain competitive and profitable in the future are: To increase operational efficiencies, reinvent and embrace new business models which will offer customers a transformed business proposition. For example, based on the customer requirement shift to transaction-based pricing which facilitates revenue-generating projects Drive concerted initiatives to strengthen the innovation capacity and research capabilities through specific domain focus and by encouraging R&D collaborations and public-private partnerships. Pursue continued efforts to further build a high-calibre R&D pool, not only from an educational perspective, but also by instilling the relevant research aptitudes and capabilities Continue to strengthen the long-term entrepreneurial environment Enhance the skilled talent pool in the country and focus on specialisation Continue the use of ICT for inclusive growth. Ensure that the basic necessities like education for masses, quality healthcare and employment and skill generation is benefited by ICT

IT industry will do 'exceedingly well' in 2013-14: Nasscom

(money control business news)

Nasscom believes the Indian IT industry will do "exceedingly well" in 2013-14. The IT industry body expects to meet its earlier projected estimate of 11-14 percent growth in the countrys software exports in the current financial year at the lower-end. It says the sector, which crossed USD 100 billion mark last year, will clock at least double-digit growth this year. Earlier, Nasscom said its vision for the Indian product landscape is to help make India the hub of the world's most successful software products through multiple initiatives of market development. Addressing the ninth edition of product conclave, Nasscom President Som Mittal also said the product landscape has leapfrogged in India over the years. And in an effort to pursue this vision, Nasscom is making representations with governments across levels, recommending them to set up an entrepreneurship mission, change in procurement guidelines and access to funding," he said. Officials said the time for the Indian product story is ripe as the country's IT industry moves beyond its leadership in the services sector towards IP and products. The 'NASSCOM AWSME India Survey 2012' released at the event said technology and software providers are considerably interested in the Indian SME market because of the immense rise in numbers and growth potential of this category.

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IT, ITeS revenues to cross $100-bn milestone: NASSCOM (business standard)

Despite challenging global environment, the Indian IT export revenues are expected to grow by 11-14% and domestic revenues will grow by 13-16% for FY13, said the National Association of Software and Services Companies ( NASSCOM). The revenues for the Indian IT and BPO services company will cross the $100 billion mark this fiscal, said Nasscom. According to the Strategic Review report by Nasscom, the Indian IT exports accounted for $69 billion growing at 16.3% over the last fiscal. For the year ahead, global technology spending is estimated at 4.5% and global sourcing is expected to be a major driver of technology spending. Nasscom estimates for FY12-13 factor in the uncertain economic environment with delayed decision making and differentiated growth across the industry sectors and companies. The outlook would be revisited later in the year when more data is available.India retains its number one position as the worlds leading sourcing location for IT-BPO services, despite the rise of several alternative sourcing locations, with a share of over 58% in 2011. India-based resources are estimated to account for about 60-70% of the offshore delivery capacities across the leading multinational IT-BPO players. Indian IT-BPO firms have matured from being service providers to strategic partners to their customers highlighting their importance in enabling growth of customer businesses. Verticalisation, operational excellence and an expanding global delivery model were internal priorities for the industry in this year. The domestic market for the last couple of years has been growing faster than the exports sector and would continue to be a key thrust area for the industry, saidSom Mittal, President, Nasscom. Despite challenges in the global market conditions, India sustained its growth trajectory. Some of the other pivotal factors that have been contributing to this growth include new business models, organisation efficiencies, services around disruptive technologies such as cloud, mobility, analytics, social media, and flexible product portfolios and verticalised solutions. The industry performance this year demonstrated the sectors ability to innovate and deliver differently in order to maintain the growth trajectory. The Indian IT companies are investing in building platforms and productised solutions to drive future growth opportunities. More importantly, the industry is expanding into newer geographies and verticals where the growth is 1.4 time that in the mature markets. Emergence of a vibrant start-up product ecosystem creating solutions for India and the world also enhanced the product opportunity for India, said Rajendra Pawar, Chairman, Nasscom.

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Conclusion
Recession and the consequent slow down of U.S economy is in fact a bad news to India as many of the Indian companies have their major outsourcing deals from the U.S. India's export to the U.S had grown substantially over the years and Indian IT companies with big ticket deals in the U.S had to see their profit margins shrinking. This has greatly affected the unemployment in the IT sector and even the youth started opting for other fields in fear for future impact on the sector. However, Indian IT sector could slowly resist and stabilize itself in the world market even after the recession effect. Indian IT industry with its software and services will continue to remain in the driver's seat. India is successful in the IT sector due to the knowledge and expertise in cutting edge technologies of the software industry and skilled manpower base. Due to these strengths the sector is likely to march ahead towards the future growth of Indian economy. The emerging technologies of India help the sector in obtaining new customers, even after the slowdown of the U.S economy. The Indian IT sector will continue its supremacy not only in the domestic front but in the world market as well. It will further help in changing the face of India and thereby bring about a change in the lifestyles of the people. It will contribute much to the economic growth of the country in near future and undoubtedly will continue to lead in the IT sector of the world.

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BIBLIOGRAPHY

Useful Links

http://www.nasscom.in/ http://www.ibef.org/industry/informationtechnology.aspx http://www.mit.gov.in/ http://www.sezindia.nic.in/writereaddata/pdf/Sector-wise%20distribution-... http://mit.gov.in/ http://deity.gov.in

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