India’s Transformation: ICT and Economic Development
BY TOJO THATCHENKERY AND ROGER STOUGH1
India has emerged as one of the fastest growing economies in the world. A report authored by Goldman Sachs in 2003 stated that by the year 2050 India will become the third largest economy in the world, behind China and the United States. The report predicts that India’s GDP will overtake that of Italy by 2015, France by 2020, Germany by 2025, and Japan by 2035. A more recent study (May 2005) by the Confederation of Indian Industries predicted that India is all set to emerge as a Knowledge Process Outsourcing (KPO) destination. KPO is expected to grow at 46 percent to become a $17 billion sector by 2010. Areas of rapid growth in KPO include pharmaceuticals, biotechnology, information and communication technologies (ICT), and intellectual property research. According to the study, India could emerge as a global KPO hub, as the business requires specialized knowledge in respective verticals and the country’s large numbers of engineering and technical institutes are geared to address the manpower demand.
India’s technological capabilities and rising exports in information technology and pharmaceuticals have driven the country to become a significant outward investor of capital (The World Investment Report, the United Nations Conference on Trade and Development, September 22, 2004.). According to the report, India’s top 15 software and service companies have all invested abroad, mostly in developed countries, while the country’s business process outsourcing firms are setting up affiliates in Mexico and the Philippines. Such developments have raised India’s standing in the world. More specifically, the IT exports have brought about a heightened awareness of India in different parts of the world. The IT growth has also challenged traditional modes of economic development. India now ranks above many developed countries in software capability.
The growth of the Indian IT industry has been impressive. The Indian IT industry that produced just a few million dollars worth of goods and services in the mid-1980s produced US $15.6 billion in 2002-03 and $20 billion in 2003-04. The IT industry accounted for 1.22 percent of GDP in 1997-98, 3.09 percent in 2002-03, and 3.8 percent for 2003-04. This increase in the share of the IT sector in the national economy is due to exports, as the domestic market for IT products is small and underdeveloped. IT exports have accounted for as much as 60 percent of the total IT industry, a figure that is expected to reach 70 percent in 2004-05.
The Indian software industry has grown at a compound annual rate of more than 50 percent in the 1990s, the highest for any country during this period. The revenues have risen from $175 million to $8.7 billion during the decade. Indian nationals account for 45 percent of H1-B visas issued by the United States every year, and a large proportion of the visas go to software engineers. India is home to some 650,000 software developers or about 10 percent of the world’s developer population. The Indian software developer population is growing at an annual compound rate of 32 percent, which means that in the next three years, the Indian developer population will be the largest in the world. Among the Fortune 500 companies, more than 350 outsource their software-related work to India.
A number of aspects seem to have propelled India toward the creation of a dynamic IT sector. These include a large English-speaking educated labor force, comparatively low labor costs, absence of barriers to setting up back offices, and reasonable availability of infrastructure in places like Bangalore, Hyderabad, and Chennai. About 800 engineering colleges are estimated to produce more than 175,000 graduates every year. In this regard, India is second only to the United States.
India’s presence in the software industry dates back to 1970 when the Tata Consultancy Services, which was a part of the large business (TATA) conglomerate, entered the IT business sector. The foundation for the intellectual capital for the software industry was laid by the establishment of the Indian Institute of Science in 1909 through the pioneering vision of J.N. Tata, one of India’s most famous industrialists and patriots. The Indian Institutes of Technology (IITs) and the Indian Institutes of Management, established soon after India’s independence in 1947, provided the intellectual power necessary to develop a strong knowledge base in technology and innovation management. During the last five decades, the IITs have produced thousands of engineers, many of whom now occupy senior positions in global technology and corporate industry. In a way, India’s transformation is a good example of the concept of “brain circulation,” (a term coined by University of California researcher Ann Lee Saxenian) instead of brain drain.
A country whose GDP is still influenced mostly by the monsoons has quietly grown to have the largest trained manpower in the world and is likely to emerge as a world economic power. The recently released National Intelligence Council Report (“Mapping the Global Future,” December 2004) suggested that the world economy might be 80 percent larger in 2020 than it was in 2000. Though the United States may still be the world’s dominant economic power in 2020, China and India will see their influence expand significantly. “In the same way that commentators refer to the 1900s as the ‘American Century,’ the 21st century may be seen as a time when Asia, led by China and India, comes into its own,” the council wrote in its report, which was produced as a synthesis of the views of all 15 U.S. intelligence agencies. According to the report, India is better positioned than most countries to make use of new technologies, which has helped it leapfrog stages of development. With its well-entrenched democratic institutions, significant intellectual capital, and world-class firms in high-tech sectors, India certainly appears to be on track to become one of the top economies of the world in a decade or two.
Tojo Thatchenkery (thatchen@gmu.edu) is an associate professor of organizational development and knowledge management, and Roger Stough (rstough@gmu.edu) is the associate dean for research, development, and external relations at George Mason University’s School of Public Policy (http://policy.gmu.edu).
- Adapted from their 2006 book (ed), Information Communication Technology and Economic Development: The Indian Experience. Edward Elgar Publishers. [↩]
