Indias R

1
Indias RD policy and the growth of software
industry in comparison with China

• Mohsin U. Khan
• National Institute of Science Technology and
  Development Studies, New Delhi-110012

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Technology import policy of India

• Period of liberalization until mid sixties.
• Period of tight regulations from then until the
  end of seventies.
• Period of relaxation of regulations from then
  until the end of eighties.
• Regulations were then relaxed and th policy
  became once again liberal.

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Industrial policy resolutions

• Government of India adopted Industrial Policy
  Resolution Act. (April 1948)
• Private sector development of Industry.
• Reserve for development of exclusive industries
  in public sector. (The manufacture of equipment
  viz telephones, telegraph and wireless apparatus
  excluding radio receiver sets one of the six
  major areas of industrial activities so reserved)
  
• The Industries (Development and Regulation Act of
  1951)
• In 1956 Parliament adopted Industrial Policy
  Resolution
• (IPR 56).

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Cont.//

• The Monopolies and Trade Restrictive Practices
  Act (MRTP Act) 1969.
• (The industrial groups with assets of Rs 200
  million and above would be allowed to undertake
  activity only in specific group of industries)
• The Foreign Exchange and Regulation Act. (FERA)
  1973.
• (Restricts the Indian activities of the
  companies having more than 40 foreign equity to
  the same group of industries as the MRTP houses.
  Net payment in foreign exchange increased from Rs
  412 million in 1977-78 to Rs 1848 million in
  1980-81)

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Cont.//

• Industrial policy as a whole was reviewed in
  1973, 1977 and 1981
• (Industries with the investment of Rs 50 million
  now dont need the license if their annual
  requirement of imported raw material does not
  exceed four million rupees or 15 of the
  production whichever is less.)
• In 1983 government announced certain special
  tariff and tax concessions for the electronics
  industry.
• In March 1984, the IPR 56 was amended.
• (The manufacture of Telecommunication equipments
  such as private automatic branch exchange
  (PABXs), telephone instruments, teleprinters and
  data communication equipments for installation.
  Also jointly with the public sector with 5
  investment by the government the private sectors
  now manufacture switching and transmission
  equipments).

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Technical knowledge acquired

• A common view of this issue
• Indian firms have not acquired full depth and
  breadth of knowledge and information that would
  enable them to master and assimilate the
  technology effectively.
• Limited technological content of the
  collaboration results from the efforts of
  suppliers firms to minimize the knowledge and
  expertise they make available.

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Technology policy statement of 1983, emphasized
the need to plan collaboration agreements in ways
that would ensure effective transfer of basic
knowledge, know-why important inputs to the
importing firms for subsequent absorption,
adaptation and up-gradation of the initially
acquired knowledge.
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Why India gone for liberalization in 1991

• Indias economy grew at the rate of about 5
  during 1980s.
• Domestic inflation gone up to 17 in 1991.
• Foreign exchange reserves reduced to 1.2
  billion barely sufficient to pay for two weeks
  imports.
• Central government fiscal deficit as a percentage
  of GDP touched the all time high of 8.4.
• Current account deficit widened to 8 billion
  (2.6 of GDP)

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Policy changes since 1991

• Drastically reduced number of industries reserved
  for public sector.
• Abolished industrial licensing except for a short
  list of industries related to security and
  strategic concerns, hazardous chemicals.
• The restrictions imposed by MRTP Act on large
  firms expansion, merger, amalgamation and take
  over etc..have been abolished.

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Cont.//

• The protection provided to the small firms being
  reduced.
• Now TNCs are free to decide whether they will use
  imported or local raw material.
• Now TNCs are free to use their brand names.
• Now TNCs can increase the permissible extent for
  foreign equity from 40 to 51 percent

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Response of TNCs

• Gross flow up
• From Rs 5.3 billion in 1991
• to Rs 38.9 billion in 1992
• to Rs 88.6 billion in 1993
• to Rs 141.9 billion in 1994
• to Rs 2.4 trillion in 2004

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Electronics policy measures (1981-1988)

• Policy on electronics components (1981).
• Industrial and licensing policy for color
  television receiver set (Feb. 1983).
• Measures to accelerate the rapid development of
  electronics (Feb. 1983).
• New computer policy (1984).
• Integrated policy measures in electronics (1985).
• Policy on software exports, software development
  and training.
• New computer policy (April 1988)

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Growth of electronics industry

• Sixth Plan (1980-85) 25
• Seventh Plan (1985-90) 30

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Software revenues

• During 2003-04 the industry grew 28.2 to touch
  15.9 billion (12.5 billion exports and 3.4
  billion domestic market).
• Nasscom estimates software exports and ITES to
  grow at 30-32 in 2004-05. That would take the
  industry to 20 billion mark, of which export
  will amount to 16.3 billion.

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The money makers, Nasscom ranking as per revenue

• Rank Company Exports in 2003-04
• Rs in crore
• _________________________________________________
• TCS 5,963 ( 1 billion)
• Wipro 5,881 ( 1 billion)
• Infosys 4,761 ( 1 billion)
• Satyam 2, 623
• HCl 2,400

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Cont.//

• US continues to be major market for Indian
  software services with a share of 70 while
  Europe accounted for 23.5 in 2003-04.
• The number of 500 companies that have been
  outsourcing their requirements has also been
  steadily growing with as many as 254 outsourcing
  their requirements from India.

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Cont.//

• The IT industry added over 100,000 jobs in
  2003-04, taking total employees in the sector
  810,000. Last fiscal, ITES-BPO added 65,000 jobs
  and software and allied services created 40,000
  jobs.

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Cont.//

• One of the major reasons that Indian software
  exports is gaining recognition across the world
  is because of quality certification. Out of 23
  SEI-CMM level 5 certified companies world over,
  15 are from India. This number is expected to
  grow as there are several companies that have
  already reached to level 4.
• Another encouraging sign is that small office
  segment of the market has grown by 70 in
  2003-04. Besides large corporate market like ERP
  segment grew by 23,e-commerce solutions by 300
  CAD/CAM market 41 and banking by 70.

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Cont.//

• The number of software exporting companies has
  grown to a record. At present it is 1,250 and
  expected to grow to 1660 mark next year.
• Number of software companies logging exports to
  Rs 100 crore now stands at 37. The top 25
  exporters accounted for 61 of the export
  resources in 2003-04

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Projections for Indias IT industry

• According to Nasscom-McKinsey report
• Annual revenue for IT industry in 2008 will be
  around US 50 billion.
• Thus a number of opportunities to be created
• Potential for 2.2 million jobs in IT by 2008.
• IT will attract Foreign Direct Investment (FDI)
  of US 4-5 billion.

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China Vs India

• Attribute China India
  _______________________________________________
• Population (in billion) 1.3 1.03
• literacy rate 82 54
• Area 9.6 bn sq km 3.3 bn sq km
• Total GDP 1 trillion 500 bn
• GDP growth (CAGR) 10 6
• Per capita GDP 735 495
• Total exports (in bn) 249 47
• Share in world trade 3.4 0.8

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China Vs India

• IT industry figures Calendar 2001 2001
• __________________________________________________
  ___
• IT spending as of GDP 1.10 1.68
• IT industry turnover 46.1 bn 12 bn
• Hardware exports 26.4 bn 0.4bn
• Software exports 1.2bn 6 bn
• Installed PC base 22 million 7 million
• PC Penetration/1000 13.2 3.5
• Internet user base 22.5 million 3.5 million
• International Bandwidth 7.5 Gbps 1 Gbps
• Telephone lines 175 million 34.5 million
• Telephone lines/100 8.6 3.4
• Mobile phones 136 million 5.7 million

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Chinas economic policy reforms

• Chinas economic reforms started a full 25 years
  ago while in India they started a decade later in
  1991.
• Deng Xioping kicked off economic reforms when he
  suggested that tens of thousands of small and
  medium enterprises be thrown in private waters to
  swim or sink
• For most of the last two decades Chinas economy
  has grown double digit growth with an average
  CAGR (Compound Aggregate Growth Ratio) of 10 in
  the last decades.
• In the last decade China has paid special
  interest to high technology industries.
• From exporting toys and textiles, China has today
  grown to be major exporter of IT hardware,
  overtook Taiwan in 2000.

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Chinas software story

• Chinas software growth is currently hampered by
  number of factors
• China Media Intelligence (CMI) estimates that out
  of 5,000 software companies 55 of them have less
  than 50 people. Another 42 employ 50-100 people
  and there are only a handful of companies with an
  employee strength of 1000 people.
• CMI says Yongyou the largest domestic player in
  software development. The countrys largest
  company Oriental Software has a little over 1300
  people compare that to 26,000 at Infosys and
  24,000 at TCS.

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Cont.//

• Some of the top companies had obtained CMM
  certification, a large number of middle level
  companies had not even heard it.
• Lack of comfort with English language and the
  cultural confusion that comes with it made
  Chinas software industry immature.
• India has at least five year lead in software
  outsourcing. India has surpassed Ireland as the
  prime outsourcing destination of the world. The
  Indian companies have won a reputation of low
  cost high quality software delivery.

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Dynamic techno-management capabilities

• Resource exploitation capabilities
• Technological learning
• Outside technological sourcing
• Human resource exploitation
• Resource focusing for the target
• Managerial integrating capabilities
• Task force team integration between RD and
  production
• Concurrent development system Managing
  multifaceted activities
• Production technology management
• Interfaces and consensus building among
  functional department
• Top management leadership and involvement

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Cont.//

• Path navigating capability
• Planned management
• Fitting into changes in environment
• Joint RD activities

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Korean electronics export growth

• From meager of 89 million in 1971 to 20.638
  billion in 1992 an increase by a factor of 232
• Between 1988 and 1992 Korean market share
  increased
• From 7.5 to 17.7 in US
• From 7.8 to 18.1 in Europe and
• From 23.6 to 33.7 in East Asia
• (Exclusive of Japan)

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Cont.//

• Semiconductor export is the largest item in
  electronics export
• From 7.8 billion in 1993 to 11 billion in1994
• During the seventies electronics exports
• CAAGR was 43 while for other sectors
• CAAGR Was 35.6