Make India IT-enabled

Domestic demand should make IT less export-dependent

by Business Standard


The brightest star on the Indian economic firmament through the first decade of the 21st century was information technology (IT) software and IT-enabled services (ITeS) or business process outsourcing (BPO) exports. From a mere $2 billion in 1998, these exports touched $49 billion in financial 2010. Historically, IT penetration and absorption has been low in India, in tune with its level of literacy and availability of electricity. Hence the IT sector remained largely export-oriented, IT was something most Indians felt proud about but did not have much use for. Even as Indians helped maintain a lot of the world’s computer systems, their own were dated and at times, at the individual level, quite pathetic. But this is likely to change. While software and services exports will continue to shine in India’s export performance, a new star will emerge on the horizon of the overall Indian economy. A mega trend in the second decade of the century is likely to be the coming of age of the domestic IT market and as hardware and systems design will dominate hardware manufacturing, it is the domestic software effort and market which will drive this change. For this to happen, Indian business and government have to become more IT-enabled so that domestic demand can become the main driver of the sector’s growth. The challenge before policymakers will be how best to foster this change and get the most out of it. While the value created by IT will be important in itself, it will also play a catalytic role in improving efficiencies and productivities across the economy.

In the last five years, software and services exports have grown by a compound annual rate of 22 per cent but this is set to change with Nasscom, the industry body, projecting that in the slowed momentum of the post-financial crisis period, exports in the current year are likely to grow by 13-15 per cent whereas the domestic market will move at a faster clip of 15-17 per cent. The share of the domestic market is currently 28 per cent and will grow if domestic revenue growth continues to outpace export growth by several percentage points over the next few years, as is the general expectation. The two main drivers of domestic demand will be industrial and infrastructure modernisation, and government spending. Telecommunications, insurance and the long-distance-runner banking will continue to lead among industry segments. IT adoption in private enterprises across the board will continue apace, with all major IT integrators offering value packages for small and medium enterprises. But the game-changer can well become the government. Major central government departments and most state governments are now seeking to rapidly e-enable themselves. But the government project that can have an impact far out of proportions to its own budget and take IT adoption in the Indian economy and society to a new level is the unique identification (UID) programme. An identification for all Indians, more and more of whom will own mobile phones which will use applications to offer a host of services to even the semi-literate, can take India’s level of development and its domestic IT market to a new level.