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Indias R&D policy and the growth ofsoftware 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

1. Government of India adopted Industrial Policy Resolution

Act. (April 1948)

Private sector development of Industry.

Reserve for development of exclusive industries in publicsector. (The manufacture of equipment viz telephones, telegraph andwireless apparatus excluding radio receiver sets one of the six major

areas of industrial activities so reserved)

2. The Industries (Development and Regulation Act of 1951)

3. In 1956 Parliament adopted Industrial Policy Resolution

(IPR 56).


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Cont.//

4. 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)

5. 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.//

6.

Industrial policy as a whole was reviewed in 1973, 1977 and1981

(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.)

7. In 1983 government announced certain special tariff andtax concessions for the electronics industry.

8. In March 1984, the IPR 56 was amended.

(The manufacture of Telecommunication equipments such as private

automatic branch exchange (PABXs), telephone instruments, teleprintersand 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 thatwould enable them to master and assimilate thetechnology effectively.

Limited technological content of the

collaboration results from the efforts ofsuppliers firms to minimize the knowledge andexpertise 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 andstrategic concerns, hazardous chemicals.

The restrictions imposed by MRTP Act on

large firms expansion, merger, amalgamationand 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 2.4 trillion in 2004


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Electronics policy measures (1981-1988)

1. Policy on electronics components (1981).

2. Industrial and licensing policy for color television

receiver set (Feb. 1983).

3. Measures to accelerate the rapid development of

electronics (Feb. 1983).

4. New computer policy (1984).

5. Integrated policy measures in electronics (1985).

6.

Policy on software exports, software developmentand training.

7. 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 billionexports and $ 3.4 billion domesticmarket).

Nasscom estimates software exports andITES to grow at 30-32% in 2004-05. Thatwould take the industry to $ 20 billion

mark, of which export will amount to16.3 billion.


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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 5,881 ($ 1 billion)

3 Infosys 4,761 ($ 1 billion)

4 Satyam 2, 623

5 HCl 2,400


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Cont.//

US continues to be major market forIndian software services with a share of70% while Europe accounted for 23.5%in 2003-04.

The number of 500 companies that havebeen outsourcing their requirements hasalso been steadily growing with as many

as 254 outsourcing their requirementsfrom 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. Lastfiscal, 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 ofquality 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/CAMmarket 41% and banking by 70%.


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Cont.//

The number of software exportingcompanies 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 kmTotal GDP $ 1 trillion 500 bn

GDP growth (CAGR) 10% 6%

Per capita GDP $ 735 $ 495

Total exports (in bn) $ 249 $47Share 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 mediumenterprises be thrown in private waters to swim or sink

For most of the last two decades Chinas economy hasgrown 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 in2000.


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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 companieshad 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 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


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Cont.//

Path navigating capability

Planned management

Fitting into changes in environment

Joint R&D 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%

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