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TABLE OF CONTENTS

1 ANALYSIS OF INDIAN SOFTWARE EXPORT INDUSTRY

1.1 INTRODUCTION
1.2 LOCATION OF SOFTWARE COMPANIES
1.3 DOMESTIC SOFTWARE INDUSTRY
1.4 SOFTWARE EXPORT INDUSTRY
1.5 STRUCTURE OF SOFTWARE EXPORTS
1.6 DESTINATION OF INDIAN SOFTWARE EXPORTS
1.7 DEVELOPMENT FOCUS OF THE SOFTWARE EXPORTERS
1.8 MARKETING CHANNELS USED BY SOFTWARE COMPANIES
1.9 SEGMENTS OF APPLICATION SOFTWARE DEVELOPMENT
1.10 DEVELOPMENT PLATFORM
1.11 TOP TWENTY SOFTWARE EXPORTERS

TABLE OF TABLES AND FIGURES

TABLE 1.1: GEOGRAPHIC LOCATION OF INDIAN SOFTWARE COMPANIES 6
FIGURE 1.1: GROWTH OF THE DOMESTIC SOFTWARE INDUSTRY 6
FIGURE 1.2: GROWTH OF SOFTWARE EXPORTS FROM INDIA 7
FIGURE 1.3: PERCENTAGE GROWTH OF SOFTWARE EXPORTS FROM INDIA 8
TABLE 1.2: STRUCTURE OF SOFTWARE EXPORTS 9
TABLE 1.3: BREAK UP OF THE SOFTWARE ACTIVITY 9
FIGURE 1.4: DEVELOPMENT FOCUS OF INDIAN SOFTWARE EXPORTS 10
FIGURE 1.5: A BREAK-UP OF THE MARKETING CHANNELS USED BY INDIAN SOFTWARE COMPANIES 11
FIGURE 1.6: A BREAK-UP OF THE REVENUES BY SECTOR 12
FIGURE 1.7: A BREAK-UP OF THE DEVELOPMENT PLATFORMS USED 12
TABLE 1.4: TOP 20 INDIAN SOFTWARE EXPORTERS 13
FIGURE 2.1: DESTINATION OF INDIAN SOFTWARE EXPORTS 16
TABLE 2.1: LOCATION OF INDIAN SOFTWARE COMPANY HEADQUARTERS 20
TABLE 3.1: THE OTHER TOP EXPORTING ORGANISATIONS IN AUSTRALIA 21
FIGURE 3.1: A PROFILE OF SOFTWARE EXPORTS OF IRELAND 22
FIGURE 3.2: A PROFILE OF IRISH SOFTWARE EXPORTS 23
FIGURE 3.3: A COMPARISON OF IRISH EXPORT AND INDIGENOUS SOFTWARE INDUSTRY 24
FIGURE 3.4: DESTINATION OF IRISH SOFTWARE EXPORTS 24
TABLE 3.2: REVENUES OF IRISH SOFTWARE INDUSTRY 24
TABLE 3.3: EXPORTS (AS A % OF TOTAL REVENUE) 25
FIGURE 3.5: COMPOSITION OF IRISH IT INDUSTRY: 25
 
 

1 ANALYSIS OF INDIAN SOFTWARE EXPORT INDUSTRY

1.1 Introduction

The Indian software industry has a unique distinction in that most of its output is exported. Of the turnover worth US $2 billion, over 50 per cent is accounted by exports. The CAGR (Compounded Annual Growth Rate) for the Indian software industry in the last five years has been 52.6%. CAGR for the software export industry has been 55.04% while that for the domestic industry has been 48.9%.

Despite these high growth rates, India's share in the world software market is very low, but India still enjoys an advantage over some of the other nations, which are trying to promote software exports. This is due to the fact that India possesses the world's second largest pool of scientific manpower which is also English speaking. Coupled with the fact that the quality of Indian software is good and manpower cost is relatively low, it provides India a very good opportunity in the world market.

1.2 Location of software companies

Table 1.1: Geographic location of Indian Software Companies

1.3 Domestic Software Industry

The growth rate was 44.13% in the year 1996-97. The domestic software industry is expected to gross Rs.36 billion in 1997-98. With the amendments to the copyright Act and its rigorous enforcement, it is expected that in the coming years, piracy would be brought under further control. Also, the government has announced zero import duty on software. With the copyright amendments and zero import duty, the domestic market is expected to show high growth rates in the range of 40-50 percent in the coming years.

Figure 1.1: Growth of the Domestic Software Industry

1.4 Software Export Industry

Interestingly, most of the export is in the form of providing software services, that is developing or helping develop software for organisations overseas. Most of domestic turnover comes through selling of software products developed primarily in other countries. That is, the overseas revenue is earned by providing services while the domestic revenue comes mostly through trading.

Figure 1.2: Growth of Software Exports from India

The Indian software industry has generated an estimated software export revenue of Rs 3,074 crore (US $853.89 million) in the first half of fiscal 1997-98. The industry has marked a record growth of 64.4 percent over the previous year’s Rs 1,870 crore (US $519.44 million) during the same period.

The software industry in Indian expects to reach an export level of US $ 4.0 billion by 2000 AD For achieving this velocity of business, the industry needs further liberalisation of the Indian economy, simplification of procedures, deployment of additional resources for technical manpower development, new marketing channels and providing state-of-the-art infrastructure for software development.

Figure 1.3: Percentage Growth of Software Exports from India

1.5 Structure of Software Exports

The degree of on-site development is still very high, with as much as 59% of the work being done at the client's site, but it is expected to decrease further in the coming years with improved data communication links. In 1988, the percentage of on-site development was almost as high as 90%.
 

A break-up of the software activity is shown in the table below:
 

An analysis of break-up of software activity of both domestic as well as export industry demonstrates that Products & Packages tops the list with a share of 46.8% in domestic market, whereas professional services command a share of almost 46.7% in the export market.
 

1.6 Destination of Indian Software Exports

In the coming years, India is expected to strike many joint ventures and strategic alliances in Europe. The trade with European nations is growing rapidly. There have been alliances to create more co-operation between Indian and European software companies.

NASSCOM under the aegis of Ministry of Commerce, Government of India had initiated a Project called NASSCOM's India-Europe Software Alliance (NIESA). The NIESA Phase-I was partly funded under the ECIP Facility 1 Scheme of the Commission of the European Communities. After successful completion of phase I of the Project, Nasscom has now launched phase II. This is expected to further help in increasing software exports to Europe.

Over the next two years, software exports to many Asian countries and Australia are also expected to increase. The new markets include Korea, South Africa, Latin America and some countries in Asia-Pacific. USA continues to be India's largest export market. However, if the visa situation for the US market does not improve, the export growth for the US market can be adversely affected.

1.7 Development focus of the Software Exporters

Figure 1.4: Development Focus of Indian Software Exports

1.8 Marketing channels used by software companies

Figure 1.5: A break-up of the Marketing Channels used by Indian Software Companies

1.9 Segments of Application Software Development

1. Banking
2. Manufacturing
3. Insurance and Other Financial Services

Figure 1.6: A break-up of the Revenues by Sector

1.10 Development Platform

Figure 1.7: A break-up of the development Platforms used

1.11 Top twenty Software exporters

2 CHARACTERISTICS OF INDIAN SOFTWARE EXPORTS

2.1 Uneven Output: Services not Packages

One reason why packages not taken off despite India's low labour cost advantages is because of high entry barriers despite the low cost at which Indian companies can develop such packages.

These entry barriers are lack of familiarity with the foreign package markets they seek to penetrate, and their distance from those markets makes it hard to keep up with changing needs and standards. Moreover, the Indian domestic market is a poor guide for software developers because of differences in user needs, in work, in hardware environments, and a generally low level of innovation.

Other entry barriers in the software package markets is high costs in advertising and marketing effort needed to catch the attention of potential customers. Software multinationals can spend 40-50% of annual revenue on package sales and marketing, and 10-15% on research and development for packages (Economist 1994). For a single large firm, this can represent billions of US dollars-worth of investment: more than the entire output of all Indian software producers.

Due to India's lack of reputation as a software package source and its lack of any software brand names in a relatively brand-loyal market, high sales would not be expected, making the unit cost of marketing and distribution even higher. Providing
support, maintenance and upgrades for a product in a foreign market is also either difficult or very costly.

Lastly, all this assumes success with the product, yet experience suggests that only about 1-5% of software packages succeed, in which case huge investments are required, which are not readily available within India. Even if available, neither government policy nor managerial attitudes have generally encouraged the high-risk, long-term investments necessary.

Because of these constraints, some Indian companies have agreed to undertake custom software work at cut price for a foreign client on the understanding that they will subsequently try to market the developed system as a package for a niche market.
Firms and official surveys frequently classify this as 'package exports' but such 'packages' - sometimes more accurately identified as 'semi-packaged software' - often end up being used merely as marketing or development platforms for further
customisation.

The alternative option for Indian exporters seeking to work on packages is to collaborate with a foreign firm which will supply the package specifications, marketing, support and finance. The drawback is that the Indian company ends up just supplying programming services in return for a very small share of any revenue. Nor will its reputation be much-enhanced for, as with original equipment manufacturing in other fields, the product will emerge under the foreign firm's brand name.
 

2.2 Uneven Export Destination: US Domination

Figure 2.1: Destination of Indian Software Exports

The US market dominates Indian software exports partly because it is by far the world's largest software market, constituting around half of all software sales in the 1990s. The US has also had more liberal immigration rules for work or residence than most other developed countries which encourages export of onsite projects.

The US-orientation of exports might present a limitation to future growth because US share of the world market is slowly declining. However, the American market is still expanding substantially in absolute terms plus, since the early 1990s, Indian software exports have shown their ability to grow in other markets, such as those of Asia and Europe.
 

2.3 Uneven Divisions of Labour: 'Body Shopping Prison'

2.3.1 Uneven Locational Divisions: Onsite and Offshore Work

Subsequent surveys have shown that the amount of work carried out offshore has increased within individual firms.

2.3.2 Uneven Skill Divisions: Dominance of Programming

2.3.3 Persistence of Onsite Programming Services

• Trust and Risk: According to interviewees, there is a lack of trust and a perception of risk among clients, who are uncertain of the skills, capabilities and credibility of potential Indian sub-contractors. In order to reduce the risk, many clients choose to retain as much control as they can over production, only contracting out the relatively unproblematic tasks of coding and testing, and having the work carried out onsite. Work will only be allowed offshore if there are fairly tight, formalised specifications, but exporters are caught in the bind that such projects are then more amenable to automated software tools.

• Other Client Attitudes: Client attitudes perpetuate onsite work in other ways. According to InfoTech's (1992) survey the important factors guiding foreign firms over onsite work are cost, credentials, productivity and quality. Indian firms working onsite tend to score quite well on these. However, there is a different picture for offshore or turnkey assignments. In these cases, cost is less important while management skills, quality, proven expertise and access to technology all become much more important. Indian firms working offshore tend to score much less well on these, making a transition that much less likely to occur from onsite programming to offshore turnkey assignments.

• Project Size: Project size affects the division of labour since small contracts are not worth sending overseas. Nicholas (1994), for example, recommends a minimum project size of US$100,000 before it becomes worth the time, effort and risk to consider sending work offshore.

• Need for Interaction: Continuous client-developer interaction is an essential part of software development. Despite good communications links, interaction sometimes needs to be face-to-face, which means the developers going to the client rather than vice versa. Thus, even with offshore turnkey contracts, the requirements analysis, preliminary design, installation and implementation generally need to be done onsite.

• Uneven Skills Profile: The average software development project requires less than half the labour input to come from programmers. Yet 85% of workers in Indian software exports are programmers. This 'programmer heavy' skills profile, reinforced by losses of experienced staff to the overseas 'brain drain', encourages programming-only contracts. This and constraints on the availability of IT and project management resources within India also reduce offshore productivity and quality in some companies, making onsite work more attractive.

• Indian Managerial Perceptions: Apart from the external 'push' factors noted above, there is an internal 'pull' in favour of onsite programming because managers perceive it to bring benefits. It produces quick revenue for low investment, which suits the lack of risk-taking favoured by many Indian business managers, particularly given uncertainties that exist about policy and about the global and Indian economies. It helps by exposing staff to foreign market trends, skills and standards. Many Indian staff also want to work overseas and, if denied the opportunity by one company, will simply join another which will send them abroad. This motivates most companies to retain a measure of onsite work.

2.4 Uneven Market Share: Economic Concentration of Production

Large firms have dominated software exports thanks to the economies of scale and entry barriers that exist in software production. Economies of scale and barriers include those of hardware, of staff training, of marketing and, less tangibly, of credibility and reputation.

Since Indian software exports are services rather than goods, examples cannot easily be displayed to potential buyers to establish credibility. There is therefore a heavy reliance on reputation, track record, references and the skills and appearance of
the marketing team, which all go together to determine the Indian firm's credibility. All these credibility-related factors, which principally hinge on track record and spending on marketing, obviously work to the advantage of larger, longer-established
firms.

The only short cut occurs if a new firm is set up by an ex-member of one of the large IT companies. In this case the individual can make use of his or her personal contacts and credibility. However, this does not enable the firms to overcome technology, skills and finance barriers. This explains their initial reliance on onsite programming services, for which there are few scale economies, and the fact that few of them have made significant long-term headway in software exports.

There are also biases against small and start-up companies in terms of obtaining foreign collaborations and technology, and in dealing with the bureaucracy. For example, despite the falling real prices of powerful computers and telecommunications, these technologies remain beyond the reach of many small Indian firms. Similarly, access to government support tends to be the preserve of the larger firms.

2.5 Uneven Siting: Locational Concentration of Production

Haug's (1991) work has shown that five main factors play a part in the locational decisions of new software companies. One of these - proximity to customers - is of limited relevance in the context of software exports. Three other factors, however, are found to have guided locational decisions in India:

• Labour Availability: Bangalore was seen to have abundant labour that could be drawn from its long-standing research laboratories, educational institutes and public sector electronics firms. Key institutions included Bharat Electricals Ltd, the Indian Institute of Management and the Indian Institute of Science. These have been a key source of both software employees and - in later years - entrepreneurs.

• Quality of Life: Bangalore benefited from its reputation for a good climate and social life. IT workers were rapidly integrated into the city's social fabric By contrast Mumbai

3 ANALYSIS OF OTHER SOFTWARE EXPORTING COUNTRIES

3.1 Australia

IBM Australia was the highest ranked IT&T exporter (29% of the total exports) with export revenue of $601m in the financial year 1996-97.
 

3.1.1 Effect of East Asian Crisis in Software exports of Australia

Malaysia was the most important market for Australia. The next most important markets are Indonesia, Singapore and Korea, Hong Kong and Thailand. Many organisations have changed their strategies as a result of the economic situation in Asia. The main changes can be summarised as follows:

•  Downsized operations or reduced staff numbers in Asian operations
•  Cut in marketing activities/expenditure or stopped activities in Asia completely
•  Changed marketing approach like less use of direct marketing and more use of partnerships
•  Reduce margins to retain customers/distributors
•  Change of product mix (lower priced products) or marketing message (emphasis on cost benefits)
•  Cancelled expansion plans in Asia, concentrating on maintaining existing business
•  Organisation are changing their emphasis back on the Australian domestic market, or focussing on other markets, primarily North America and Europe.

3.1.2 Implications for India

3.2 Ireland

Figure 3.1: A Profile of Software Exports of Ireland

The software sector currently comprises more than 550 companies, 80% of which are Irish owned. Some are small, specialised firms operating at the forefront of software development technologies; others are larger organisations that have successfully targeted niche markets on a worldwide basis and have established offices overseas.

3.2.1 Focus on Exports

Figure 3.2: A Profile of Irish Software Exports

Ireland's indigenous software developers have a uniquely international focus and a strong product bias, setting it apart from many other European countries, where services account for a large proportion of software activity. More than two thirds of Irish companies are involved in developing and/or marketing software products.

Figure 3.3: A Comparison of Irish Export and Indigenous Software Industry

After the U.S., Ireland exports more software than any other country in the world, not on a per capita basis, but in absolute terms! The major destinations for Irish software exports are given below:

Figure 3.4: Destination of Irish Software Exports

Revenue [IR£ million]

3.2.2 People with skills

As enthusiastic Europeans, the Irish have a strong work ethic. This is reflected in the rate of employee turnover, which is well below the European average. It means that companies enjoy greater commitment from their staff, and benefit from a higher proportion of experienced personnel and lower annual training costs. Surveys from organisations such as the London consultancy William M. Mercer show that foreign investors in Ireland consider the quality and the 'can do' flexible attitude of Irish people to be two of the country's greatest advantages.

Ireland is committed to further developing the software industry and continues to take steps to ensure that the availability of graduates coming through the country's 20+ universities and third level colleges is sufficient to meet the demands of the sector. Close co-operation between industry and academia has resulted in the provision of additional resources and places for computing courses and also in the establishment a number of new software-related courses - with a greater emphasis on the linguistic skills of graduates and the newer software and telecommunications technologies.

The education system is highly-rated - a recent report by the International Institute for Management Development ranked it the best in Europe - and is ideally geared to producing skilled employees for the software sector.

3.2.3 Focus for Investment

3.2.4 Technology in place

Ireland's digital telecommunications system is one of the most advanced in the world and enables software developers to link across the world for real-time development activities, and provides for pan-European and world-wide customer support.

The transformation of the telecommunications infrastructure has come about as a result of the investment of $5 Billion by Telecom Ireland in the development of fully integrated digital network. Over 75% of all customers are now connected to digital exchanges, which in turn are interconnected by digital transmission systems.
 

3.3 Finland

There are about 420 software companies in Finland out of which most of them are local service companies and do not have software products for international markets. The revenue of software product business was FIM 3.5 billion in 1997.
 

4 INDIAN SOFTWARE EXPORTS - EVOLUTION & STATE POLICIES

4.1 Introduction

Consistent with the protectionist views towards industry, India's software policies before 1984 were consistent with a model of state-led planned development. In the mid 1980s, a guided and guarded economic liberalisation took place that emphasised both greater access to imports and the promotion of software exports while still closely regulating the domestic computer and software industries. However, it became clearer in 1991 with the state slowly getting out of the way. In fact in India, economic liberalisation was combined with policies to encourage and direct the introduction, adoption, and use of information technologies and to advance national capabilities. Of particular importance in this regard are the evolution of policies:

•  to promote the software industry and software exports through deputation contracts,
•  to enhance information resources and human skills relevant to information technologies,
•  to shift the composition of software exports, and
•  to capture a higher value added segment of the global software industry.

4.2 A brief history in time - Software Policy prior to 1984

The framework for software exports, which has been operational since the early 1970s, allowed the import of computers by those wishing to export software above 200% of the value of the imported computer over a period of 5 years. In 1976, the government allowed NRIs to invest in Indian software operations. If they were using foreign capital, a software export commitment of 100% of the computer's values over a period of 5 years was to be made.

In 1981, a revision of the software export policy was announced that further accentuated the emphasis on national self-reliance. Imports of computers were allowed only with proof of guaranteed exports in place. Performance and progress reports to the DoE were required every 6 months, and legal bonds were required to cover the eventuality that the schedule of export obligations was not met over the five-year period. In retrospect, one might consider that the high export requirements for imported computers might have contributed towards the "export of human resources" as a strategy to expand software exports. This essentially involved lower requirements for imports of equipment to build industry capital and infrastructure domestically in India.

4.3 1984-1990: Guided and Guarded Liberalisation

The 1986 software policy had the objectives of radically expanding Indian software exports and of changing the composition of software exports. It had the following objectives:

•  to promote software exports to take a quantum jump and to capture a sizeable share in the international software market,
•  to promote the integrated development of software in the country for domestic and export markets,
•  to sirnplify the existing procedures to enable the software industry to grow at a faster pace,
•  to establish a strong base for the software industry in the country,
•  to promote the use of computers for decision making, and
•  to increase work efficiency.

•  Liberalisation of access to imported inputs required by software firms
•  De-licensing of production capacity for computers and electronics equipment.
•  A shift from the state-led development of the national software and computer industry towards a greater role for the Indian private sector
•  Allowing solely owned foreign firms to operate 100% export-oriented units within India
•  Better access to telecommunications services
•  Reduction of import tariffs and income taxes
•  Assistance in the training and education of computer software personnel.
•  A shift towards a national focus for tighter integration with international computer service corporations and global services markets.

•  Software Development Agency in the DoE,
•  A series of software technology parks that provided the telecommunication infrastructure needed by the software companies,
•  Organisation of software export seminars by the trade Development Authority and
•  The creation of the electronics and Computer Software Export Promotion Council, the latter two being sponsored by the Ministry of Commerce.

4.4 Industry Evaluation of Software Policy in 1990

1.  The appropriateness of the policy's objectives.
2.  The importance of altering the composition of software exports.
3.  The nature of liberalisation, government support or other policy changes required in order to achieve those objectives.

4.4.1 Appropriateness of policy's objectives

The former head of CMC, P.D. Jain noted that to significantly expand the software exports, some of the best people would be taken away from the skilled work force available to the Indian computer services industry. Robert Schware of the World Bank in an October 1989 consultation on the world software industry in New Delhi, proposed that governmental policy should encourage the development of a public and private national industry as well as the development of a private sector export-oriented industry.
 

4.4.2 Altering the composition of Software Exports

In 1990, a number of steps were identified by industry representatives, whereby Indian firms could shift the composition of software exports. These included:

•  developing long term relationships with clients,
•  building connections with foreign affiliates,
•  developing software for hardware manufacturers prior to the release of new equipment,
•  setting up corporate service centres in India, and
•  constructing alliances among Indian software services and other activities such as engineering or accounting in order to develop niche specialisation's.

4.4.3 Nature of liberalisation, government support or other policy changes required

The areas in which the need for policy changes was especially emphasised were:

•  necessity of obtaining import licenses for equipment,
•  continuing tariffs on imported software under the open general license scheme,
•  high export performance commitments to offset the foreign exchange cost of foreign equipment, and
•  improved availability, quality, and price of inputs obtained within India.

4.5 Economic Liberalisation - 1991 - 1998

The overall role of the state, thus, shifted in 1991. The new measures introduced were:

•  the virtual abolition of industrial licensing,
•  the dilution of Monopolies Act requirements that expansions or mergers be approved,
•  the relaxation of FERA prohibitions on foreign companies holding a majority stake in certain Indian operations,
•  the abolition of import licenses, moves towards convertibility of the rupee, and
•  the lowering of customs duties.

Crucial to the deputation strategy was the receptivity of the host country to temporary workers and potentially permanent migrants. Deputation was also contingent on the ability to obtain a visa quickly in order to allow admittance for a specific worker when that worker's skills were required. In 1992-93, for instance 36% of India's software exports were in the form of on-site consultancy in the United States, and the US accounted for 58% of India's overall software exports. In 1993, electrical engineers and software workers in the US began to claim that their job openings and wage levels were being undercut by the extensive use of temporary workers by large software companies. The US Department of labour responded to these concerns in December 1994, by issuing a new set of regulations for granting visas to guest workers.

Finally the Indian software industry also benefited from the end of the Cold war. Certain restrictions on the export of information technologies, which had obstructed India's access to some computers and operating systems, were removed by the US in conjunction with dissolving the Coordinating Committee on Multilateral Exports Control (COCOM).
 

4.6 PM's IT Task force - The New IT Policy of the Government

The main document of the policy highlights the important thrust areas. It goes on to say the following:
"The Government of India, recognising that the impressive growth the country has achieved since the mid-Eighties in Information Technology is still a small proportion of the potential to achieve, has resolved to make India a Global IT Superpower and a front-runner in the age of Information Revolution. The Government of India considers IT as an agent of transformation of every facet of human life which will bring about a knowledge based society in the twenty-first century. As a first step in that direction, the following revisions and additions are made to the existing Policy and Procedures for removing bottlenecks and achieving such a pre-eminent status for India."

As can be seen the thrust of the government policies (current and the future) are aimed at achieving three basic objectives:

•  to make India a Global IT Superpower
•  by being a front-runner in the age of Information Revolution and
•  transform every facet of human life to bring about a knowledge based society in the twenty-first century

1.  Info-Infrastructure Drive: Accelerate the drive for setting up a World class Info Infrastructure with an extensive spread of Fibre Optic Networks, Satcom Networks and Wireless Networks for seamlessly interconnecting the Local Informatics Infrastructure (LII), National Informatics Infrastructure (NII) and the Global Informatics Infrastructure (GII) to ensure a fast nation-wide onset of the INTERNET, EXTRANETs and INTRANETs.

1.  Target ITEX - 50: With a potential 2 trillion dollar Global IT industry by the year 2008, policy ambiance will be created for the Indian IT industry to target for a $ 50 billion annual export of IT Software and IT Services (including IT-enabled services) by this year, over a commensurately large domestic IT market spread all over the country.

1.  IT for all by 2008: Accelerate the rate of PC / set-top-box penetration in the country from the 1998 level of one per 500 to one per 50 people along with a universal access to Internet / Extranets/ Intranets by the year 2008, with a flood of IT applications encompassing every walk of economic and social life of the country. The existing over 600,000 Public Telephones / Public Call Offices (PCOs) will be transformed into public tele-info- centres offering a variety of multimedia Information services. Towards the goal of IT for all by 2008, policies are provided for setting the base for a rapid spread of IT awareness among the citizens, propagation of IT literacy, networked Government, IT-led economic development, rural penetration of IT applications, training citizens in the use of day-to-day IT services like tele-banking, tele-medicine, tele-education, tele-documents transfer, tele-library, tele-info-centres, electronic commerce, Public Call Centres, among others; and training, qualitatively and quantitatively, world class IT professionals.

4.6.1 Info Infrastructure drive

• (7) For setting up ISP Operations by companies, there shall be no license fee for first five years and after five years a nominal license fee of one rupee will be charged.
• (18) Existing Software Centres by themselves may not be able to fulfill the high targets now set for the IT industry by the year 2008. International experience has shown that hi-tech industries flourish essentially in the rural hinterland adjacent to cities with modern telecom and communication infrastructure and top class hi-tech educational/research institutions. India will promote such 'Hi-tech Habitats' in the rural hinterland adjacent to suitable cities. For this purpose suitable autonomous structures will be designed and progressive regulations will be framed to facilitate infrastructurally self-contained self-financed Hi-Tech Habitats of high quality. Initially, five such Hi-Tech Habitats shall be planned and implemented in the rural hinterland of the cities: Bangalore, Hyderabad, Pune, Delhi and Bhubaneswar. It is estimated that progressively 50 such Hi-Tech Habitats can be viably set up by empowering the State Governments to autonomously nucleate them within a technologically progressive and administratively liberal set of guidelines to be prepared by a special Working Group on Hi-Tech IT Habitats to be set up by the Task Force.

4.6.2 Target ITEX-50

• (19)(c) IT Software shall be entitled for zero customs duty and zero excise duty.
• (23) IT Software and IT Services companies, being constituents of the knowledge industry, shall be exempted from inspection by Inspectors like those for Factory, Boiler, Excise, Labour, Pollution/Environment etc.,

• (26) The Ministry of Civil Aviation shall issue the following notifications/ amendments in the regulations:
• Export shipment time for air cargo will be reduced to less than 24 hours.
• "Known Shipper" will be introduced to avoid delays on account of cooling off period.
• Cargo companies and other associated agencies to allow consolidation of export air cargo.

• (27) Section 80 HHE of the Income Tax Act provides for income tax exemption to profits derived from software and services exports. This section shall be amended as follows:
•  The existing formula will be so changed that tax on profits shall not have any relation to domestic turnover.
•  The definition of software and export turnover will be changed so as to include IT services exports.
•  The benefits of this Section for income tax exemption to profits from exports will be extended to supporting IT Software & IT Services developers.

• (33) As the traditional method of asset-based funding of working capital would not meet the adequate and timely requirements of fund of the software sector, a differential and flexible approach shall be adopted by giving special dispensation towards working capital requirements of this sector in view of the unique nature of the industry. Accordingly, RBI shall issue, by 15th August 1998, new guidelines with regard to working capital requirements for the IT software and services sector which would be based on simple criteria such as turnover. Banks shall be advised to give 25 percent of the contract value for 18 months, with the first six months as term loan (without collaterals) and from the 7th month onwards annualized Cash Flow Statements shall be accepted instead of collaterals.
• (34) IT software and services industry shall be treated as a Priority Sector by banks for the next five years. This would help to meet the requirements of IT software and services exports, and also the IT industry and applications within the country. Major banks will be advised to create specialised IT financing cells in important branches, where IT Software and Services units are sufficiently large in number. Performance in this dimension will be monitored by the Ministry of Finance.
• (35) Against the present estimate of Rs. 400 crores of working capital for the industry, the amount shall be increased to around Rs. 1200 crores by the year 2000 subject to the broad criteria of pro-rata increase for the prospective requirements 24 months ahead as compared to the actuals of the current requirements at any given time. As quantitative targeting is not appropriate, a system will be put in place, which would enable substantial increase in working capital provided by the banks.

•  Provide advance loans for the export contracts that have been already gathered.
•  Put IT exports in priority sector lending scheme, which would force banks and FIs to provide a certain percentage of their annual lending's to this sector and at a much lower cost and also without getting credit ratings, which is a time consuming process.
•  Increase the estimate of the Working Capital requirements of the industry from the current Rs. 400 Crores to Rs. 1200 Crores (trebling of the original amount).

• (37) The banks shall be allowed to invest in the form of equity in dedicated venture capital funds meant for IT industry as part of the 5 percent of increment in deposits currently allowed for shares.
• (38) Banks/FIs like ICICI, IDBI, UTI and SBI shall set up joint ventures with Indian or foreign companies for setting up of at least four different venture capital dedicated funds of a corpus of not less than Rs. 50 crores each to cater to the credit need of the industry. Such venture capitalists may be allowed to set off losses in one invested company and profit in another invested company during the block of years for the purpose of income tax

• (41) Dollar Linked Stock Options to employees of Indian Software companies were announced in the 1998 Budget and detailed guidelines on this have been issued by DEA, Ministry of Finance. This shall be modified in accordance with the definition of IT Software and IT Services given under (19)(a) and (b) above.
• Employee Stock option schemes for stock listed in India would also be encouraged. Also, clarification shall be issued that income tax is applicable only at the time of sale and not at the time of excise of option.

• (42) Recognising the high velocity of business, high degree of competition and fast technological obsolescence faced by the IT software and IT service exporters, RBI shall be maximally accommodate the following:
•  (a) A blanket approval for overseas investment for acquisition of software/IT companies across the board for software exporters with previous three years cumulative actual export realisation in excess of US $ 25 million to be given up to 50 % or US $ 25 million, whichever is lower, out of the cumulative actual export earning of the previous three years. This is subject to submission of a certificate of software industry by appropriate authorities.
• (47) On-site IT Services should be made easier by combating Visa regulations of the recipient countries through a planned diplomatic strategy by the Ministry of External Affairs and the Indian Missions abroad for which MEA will create a suitable dedicated structure. This will also include signing of totalisation agreements, wherever necessary so as to maintain the competitive advantage of Indian companies.
• (48) Returns from package software development shall be increased by enabling Indian Marketing companies to set up wholesale companies abroad. They shall also be given maximum flexibility in organising the marketing of package software from India through INTERNET.

• (50) Restrictions on the location of IT software and IT Services (including IT training) companies in residential areas shall be removed.
• (51) To enable organisations and companies to identify, explore and plan strategies for Large Niche Markets like Y2K and Euro, nationally and corporate wise, all applicable provisions shall be made applicable on higher priority basis. Through MOC and DOE funds 'India Pavilions' shall be set up in several major IT exhibitions around the world through the initiative and co-ordination of ESC and NASSCOM.
• (53) 'Mega Web sites' shall be created on INTERNET for promoting marketing and encouraging Indian Software products and packages under multiple initiatives.

4.6.3 IT for all by 2008

• (60) All universities, engineering colleges, medical colleges and other institutions of higher learning in the country as well as Research and Development Organisations shall be networked for a supplementary programme of distance education for improving the quality of education before year 2000.
• (61) The seven national level institutions (IITs, IISc.) shall be encouraged to triple their output of students in IT by suitably restructuring the programme.
• (62) A National Council of IT Education comprising experts from both the industry and the academicia, shall be set up for defining courses and their content in the light of rapid developments taking place in Information Technology. The Council will also initiate a 'Teach the Teachers' (3T) programme for upgrading on a regular basis the IT knowledge and skills of teachers.
• (63) An IT Course Module shall be made a compulsory component of all Degree Courses within a short period.
• (64) The setting up of Indian Institutes of Information Technology (IIIT) shall be implemented with urgency to make up for the lost time. Hi-tech institutions like the Indian Institute of Information Technology (IIIT) will be given the Deemed University status without insisting upon the mandatory three-year stipulation.
• (65) The Government shall promote the pairing of our Universities with centres of excellence in IT in developed countries.
• (66) Specific courses shall be launched in association with the Software Industry and IIMs to provide Project Management skills and develop specialised courses on Software Marketing.
• (74) A pilot project under the aegis of the National Task Force on Information Technology shall be launched in some lead districts, which have already attained universal literacy, with the aim of achieving universal computer literacy in all the secondary schools in these districts. Alongside, the network of educational institutions in these districts will be assisted to maximise the induction of IT in order to create world-class talent at the top-end of the education pyramid. These pilot projects will be joint initiatives of the local educational institutions, respective State Governments and the Centre. In the first instance, such a pilot project will be launched in Dakshin Kannada and Udupi Districts in Karnataka on a substantive self-financing basis. Within a short time, the same will be extended to suitable districts in other States.

4.6.4 Data Security Systems and Cyber Laws

• (100) A National Computerised Records Security Document shall be prepared within three months for enforcing security requirements by consulting similar documents prepared by SAG, JCB, WESEE, etc.
• (101) An Information Security Agency shall be set up at the National level to play the role of Cyber Cop.
• (102) A National Policy on Information Security, Privacy and Data Protection Act for handling of computerised data shall be framed by the Government within six months.
• (104) The cryptology and Cyber Security knowledge and experience developed by the Defence establishments shall be suitably transferred to the civilian information security agencies for wider dissemination in the country to increase information security, network security and bring about a greater degree of secure use of EFT, Digital Signature, etc.
• (106) The Indian Telegraph Act of 1885, the Indian Post Office Act of 1888 and the Indian Wireless Telegraphy Act of 1993 shall be suitably modified in the light of the growing predominance of IT in day-to-day life. Suitable changes will also be made in other Laws/Acts, wherever necessary.

4.7 Conclusions

The new IT policy framed by the IT Task Force aims to address most of the long standing needs of the software industry. It is for the first time that the Government has come out with such a comprehensive document that covers nearly all the aspects of the industry. These range from financing, infrastructure and working capital needs to the penetration of IT across the length and breadth of the country and most importantly the development of a structured approach to solve the growing manpower scarcity in the industry. The aim of all these policies is to promote software export to make India a shining star in the global software scenario.
 

5 CONCLUSIONS

A comprehensive analysis of the Indian Software industry with special emphasis on the software exports can be summarised as follows:
 

•  The domestic as well as the software industry has shown consistently high growth rates in the 90s although our share in the global export market is miniscule

•  About 73% of our export cargo consists of Professional Services, Consultancy and Training. However, there has been a visible shift of our software exports towards off shore project development, which also includes offshore package development

•  Indian companies have exported software to more than forty countries but there has been a heavy reliance on the US market. India's software export trade has been characterised contracts, which allocate only the less-skilled coding and testing stages to Indian professionals.

•  Indian software export industry is heavily concentrated. It can be evidenced by the fact that only top 20 of the 400 exporting firms generate 70% of the exports.

•  Analysis of the other software exporting nations revealed the fact that countries like Australia which had so far concentrating on South East Asian countries are now looking for markets in Europe and North America. Study of Ireland emphasises the importance of skilled manpower, infrastructural facilities and Government support for development of Software Industry.

•  In order to ease the supply side bottlenecks, the role of the government becomes very important for channelising investments in developing both physical infrastructure in terms of telecommunications as well as human infrastructure in terms of development of professionals who have good project management skills. In light of this, the new IT policy of the government is commendable provided it is implemented in a planned and systematic manner.

6 REFERENCES

1.  Heeks, Richard (1996) India's Software Industry - State Policy, liberalisation and industrial development
2.  http://www.man.ac.uk/idpm/isiexpt.htm
3.  http://www.economictimes.com/today/03feat3.htm
4.  http://www.tagish.co.uk/ethos/news/lit1/e8ba.htm
5.  http://www.aiia.com.au
6.  http://www.nasscom.org
7.  http://www.it-taskforce.com