India’s R&D 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

Technology import policy of India
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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.

(The manufacture of equipment viz telephones. The Industries (Development and Regulation Act of 1951) In 1956 Parliament adopted Industrial Policy Resolution (IPR 56). telegraph and wireless apparatus excluding radio receiver sets one of the six major areas of industrial activities so reserved) 2. .Industrial policy resolutions 1. Reserve for development of exclusive industries in public sector.   Government of India adopted Industrial Policy Resolution Act. 3. (April 1948) Private sector development of Industry.

(FERA) 1973. The Monopolies and Trade Restrictive Practices Act (MRTP Act) 1969.Cont. The Foreign Exchange and Regulation Act. (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) . (The industrial groups with assets of Rs 200 million and above would be allowed to undertake activity only in specific group of industries) 5.// 4.

) 7. . Industrial policy as a whole was reviewed in 1973.// 6. In 1983 government announced certain special tariff and tax concessions for the electronics industry. the IPR 56 was amended. Also jointly with the public sector with 5% investment by the government the private sectors now manufacture switching and transmission equipments).Cont. 1977 and 1981 (Industries with the investment of Rs 50 million now don’t 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. teleprinters and data communication equipments for installation. (The manufacture of Telecommunication equipments such as private automatic branch exchange (PABXs). 8. telephone instruments. In March 1984.

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. .

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

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Foreign exchange reserves reduced to $ 1. Central government fiscal deficit as a percentage of GDP touched the all time high of 8.Why India gone for liberalization in 1991      India’s economy grew at the rate of about 5% during 1980s.6% of GDP) . Domestic inflation gone up to 17% in 1991.4%. Current account deficit widened to $ 8 billion (2.2 billion barely sufficient to pay for two weeks imports.

Policy changes since 1991    Drastically reduced number of industries reserved for public sector.have been abolished. . merger. amalgamation and take over etc. hazardous chemicals.. Abolished industrial licensing except for a short list of industries related to security and strategic concerns. The restrictions imposed by MRTP Act on large firms expansion.

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

3 billion in 1991 to Rs 38.6 billion in 1993 to Rs 141.4 trillion in 2004 .Response of TNCs Gross flow up From Rs 5.9 billion in 1992 to Rs 88.9 billion in 1994 to Rs 2.

New computer policy (April 1988) . 3. software development and training. 5. 1983).Electronics policy measures (1981-1988) 1. Measures to accelerate the rapid development of electronics (Feb. Integrated policy measures in electronics (1985). 1983). 4. Industrial and licensing policy for color television receiver set (Feb. Policy on software exports. 2. 6. New computer policy (1984). Policy on electronics components (1981). 7.

Growth of electronics industry Sixth Plan (1980-85)  Seventh Plan (1985-90)  25% 30% .

2% to touch $ 15.  Nasscom estimates software exports and ITES to grow at 30-32% in 2004-05.Software revenues During 2003-04 the industry grew 28. That would take the industry to $ 20 billion mark.9 billion (12.5 billion exports and $ 3. of which export will amount to 16.4 billion domestic market).  .3 billion.

881 ($ 1 billion) 3 Infosys 4.The money makers. Nasscom ranking as per revenue Rank Company Exports in 2003-04 Rs in crore _________________________________________________ 1 TCS 5.963 ($ 1 billion) 2 Wipro 5.761 ($ 1 billion) 4 Satyam 2. 623 5 HCl 2.400 .

 .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.

taking total employees in the sector 810.000. . Last fiscal. ITES-BPO added 65.000 jobs.000 jobs and software and allied services created 40.000 jobs in 2003-04.// The IT industry added over 100.Cont.

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

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

 . Thus a number of opportunities to be created  Potential for 2.  IT will attract Foreign Direct Investment (FDI) of US $ 4-5 billion.Projections for India’s IT industry According to Nasscom-McKinsey report Annual revenue for IT industry in 2008 will be around US $ 50 billion.2 million jobs in IT by 2008.

China Vs India Attribute China India _______________________________________________ Population (in billion) 1.03 literacy rate 82% 54% Area 9.3 1.6 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 3.8% .4% 0.

5 million International Bandwidth 7.2bn $6 bn Installed PC base 22 million 7 million PC Penetration/1000 13.5 million Telephone lines/100 8.5 Internet user base 22.5 Gbps 1 Gbps Telephone lines 175 million 34.4bn Software exports $ 1.7 million .4 bn $ 0.4 Mobile phones 136 million 5.5 million 3.China Vs India IT industry figures Calendar 2001 2001 _____________________________________________________ IT spending as % of GDP 1.10% 1.1 bn $ 12 bn Hardware exports $ 26.68% IT industry turnover $46.2 3.6 3.

China has today grown to be major exporter of IT hardware. From exporting toys and textiles. 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 China’s 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. overtook Taiwan in 2000. .China’s economic policy reforms      China’s economic reforms started a full 25 years ago while in India they started a decade later in 1991.

China’s software story China’s software growth is currently hampered by number of factors:   China Media Intelligence (CMI) estimates that out of 5.000 at TCS. . The country’s largest company Oriental Software has a little over 1300 people compare that to 26. CMI says Yongyou the largest domestic player in software development.000 at Infosys and 24.000 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.

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

Dynamic techno-management capabilities Resource exploitation capabilities     Technological learning Outside technological sourcing Human resource exploitation Resource focusing for the target Task force team integration between R&D and production Concurrent development system : Managing multifaceted activities Production technology management Interfaces and consensus building among functional department Top management leadership and involvement Managerial integrating capabilities      .

// Path navigating capability    Planned management Fitting into changes in environment Joint R&D activities .Cont.

8% to 18.1% in Europe and From 23.6% to 33.7% in East Asia (Exclusive of Japan)  .7% in US From 7.638 billion in 1992 an increase by a factor of 232  Between 1988 and 1992 Korean market share increased : From 7.Korean electronics export growth From meager of $ 89 million in 1971 to $ 20.5% to 17.

8 billion in 1993 to $ 11 billion in1994  During the seventies electronics exports CAAGR was 43% while for other sectors CAAGR Was 35.Cont.6%  .// Semiconductor export is the largest item in electronics export From $ 7.

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