How the IT Industry Changed the Indian Economy




The IT Industry’s environment pre-liberalization


For a sector ‘born’ much after India’s Independence, the IT sector has blossomed into one of India’s most impressive achievements. For decades, it accounted for less than 5 percent of the country’s GDP. Today, it contributes nearly twice as much! The mere existence of this sector has granted the country an immense amount of wealth, status, and demand, and therefore, a leg up in quality of life. We have gained a surge in exports, a start-up ecosystem, digital infrastructure, female empowerment and the lovely benefit of an improvement in India’s global perception. The IT sector has helped global corporations optimize their cost, improve quality, create jobs and capabilities worldwide, and drive global business models and technological innovations. The world now looks to India to form partnerships and make investments, tapping into India's bustling technology ecosystem.


Technological advancements allowed for improved productivity and efficiency, better flexibility and agility, and increased profitability in every other sector. As for wealth, the sector is currently the largest forex earner from exports and accounts for over 25% of the country's total exports, contributing over 7.9% to India's GDP. According to the Social Progress Index, India has moved up from the tier of “Low Social Progress” to “Lower Middle Social Progress.” Clearly, the IT Industry has been instrumental in transforming the whole Indian economic landscape.


The country had its first glimpse of the IT industry in the early 1960s. Back then, India adhered to socialist policies, toying with socialism for over four decades. They spurred local talent whilst barring foreign capital. This meant that only government-owned companies could operate in the IT sector. The private sector did not share in this luxury. Naturally, the limitation forced local businesses to remain small. The country did not start growing until the 1990s, that is, until liberalization. Liberalization is the lessening of government controls in order to encourage economic development. This opened the economy, thereby allowing the public to experiment with many activities that were previously unavailable. IT was one such “activity!”




Rise of the IT Industry post liberalization


India’s success in this field can be chalked up to the Y2K bug that agitated the world. Y2K, also known as the millennium bug, was the inability of the computer to differentiate between the years 1900 and 2000. When the software engineers started programming the computers in the 1960s, storage and memory were an expensive commodity. Many programs represented four-digit years with only the final two digits – making the year 2000 indistinguishable from 1900. The dawn of the twentieth century would cause various errors, such as the incorrect display of dates and the inaccurate ordering of automated dated records or real-time events. Trepidation set upon many economies, as this could be a major setback for numerous industries. The US economy looked for the manpower to fix the problem and India stepped up to the challenge. India provided a low-cost force of highly qualified engineers, amongst a comprehensive spectrum of related services.


Over the years, the Indian software industry has matured from providing cost-effective back office support to driving the digital transformation agenda ahead in global companies. Increasingly, leaders of more than a thousand global enterprises like Google, IBM, Microsoft, Walmart, and Adobe (to name a few!) across the US, the UK and other locations have awoken to India's potential and have set up their own IT or R&D centers to take advantage of India’s vibrant software ecosystem. Today, India is swiftly emerging as a leader in the field of software engineering. As of 2016, the country has emerged as the world’s top sourcing destination, with a share of 55% in the global market. Online retailing, cloud computing and e-commerce all contribute to the speedy growth of the country’s IT industry.




Future growth prospects for the IT Industry


India holds 65% of the universal offshore outsourcing BPO market, making it the dominant leader in providing outsourcing services. Since India stood ready as providers of skilled, cost-effective staff, outsourcing granted the Indian economy job opportunities through technical support, software development, website and app development, data analysis, back office support and customer support services. India emerged as a global outsourcing hub because of multinational corporations wanting to eliminate the overhead costs and make use of the highly skilled remote workforce.


As technology in business is a growing necessity, IT outsourcing helps businesses gain a competitive advantage. Outsourcing requires exceptional communication skills and infrastructure, thereby forcing the country into developing these. In addition to that, apart from creating jobs within the field, the IT sector boosts job creation in fields like banking, manufacturing, finance, and sales. Technology evolves at such a rapid pace that annual predictions of trends can seem outdated even months before they go live. However, technology-based careers, although dynamic, develop at a more digestible pace. Today’s technology professionals and enthusiasts dally with artificial intelligence, machine learning, robotic process automation, virtual reality and augmented reality, cyber security, blockchain, and internet of things (IoT).


As for the country, India’s IT industry is that along with its expansion in terms of market size it is also incrementally adding a significant share to India’s gross domestic product (GDP) and consequently boosting the growth and development of the country. From a minuscule 0.4 percent in 1991-92, the IT industry contributed around eight percent in 2017-18 to the total GDP of India. This share is expected to increase to ten percent by 2025. India’s information technology and back-office sector are expected to grow 7.7% in fiscal 2020 to $191 billion, with exports touching $147 billion, the National Association of Software and Services Companies. The industry body said the sector added 2,05,000 jobs in the ongoing fiscal year, up from the 1,85,000 jobs it added in FY19.



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Rachel Carvalho, journalist for DC India

December 2nd, 2020




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