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How IT became competitive

By T S Vishwanath
November 22, 2012 11:22 IST
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Following the economic liberalisation of 1991, the government established the software technology parks of India scheme, and opened several software parks around the country, T S Vishwanath

ComputersA working paper on the Information Technology Agreement-I, or ITA-I by Murali Kallummal at the Indian Institute of Foreign Trade's Centre for WTO studies provides some interesting insights on the impact of the plurilateral agreement on India's export of information technology-related services.

ITA-I includes 74 member countries of the World Trade Organisation and covers nearly 97 per cent of world trade in products that have been liberalised under the agreement.

According to the agreement, India has completely liberalised trade in these products -- in phases -- starting in 1997 and ending in 2005.

India had to an extent backloaded its commitment and, therefore, carried out maximum liberalisation in 2005.

ITA-I covers a variety of areas, including computer software, information systems, computer hardware and programming languages.

The agreement, which covers over $4 trillion of global trade, is touted as an important instrument in increasing global trade, and is viewed by many as the main reason for the increasing growth of India's software industry.

Interestingly, the IIFT paper, "ITA -- The Indian Experience", suggests that the viewpoint that India's software exports emerged competitive owing to the ITA agreement does not hold water.

The paper specifically states that this notion "has been proved completely misplaced and has no basis".

The paper goes on to state that the "two major objectives of ITA was to increase trade and competition through trade liberalisation for information technology products, and, second, to improve global diffusion of information technology.

These have only been partially achieved, as there has been concentration of trade in [the hands] of few players after the formation of the agreement.

Another critical aspect that emerges from this study is the impact on overall employment in the context of a decrease seen in indigenous contents, in a growing export market of information technology products; this only substantiates that there has been a reduction in local value addition, subsequently leading to an adverse impact on employment-generation capacity by this sector."

The study then proceeds to make a case that the software industry in India primarily owes its growth to the policies adopted by the Indian government since the late 1980s.

The study's views are based on the fact that the first Computer Policy of 1984 and the Software Policy of 1986
emphasised the concept of software development and export through data communication links.

"The objective of this policy was to develop software in India using Indian expertise on sophisticated computers, which were being imported duty-free.

"This way, one could make use of the low-cost expertise available in India and avoid the expense of time and cost in travelling abroad."

Following the economic liberalisation of 1991, the government established the software technology parks of India scheme, and opened several software parks around the country.

These parks have played a critical role in the growth of India's software sector, the study states.

The study conclusive states that the emergence of a strong Indian software industry occurred owing to the concerted efforts on the part of the government, particularly since the 1980s, and host of other factors like government-diaspora relationships, private initiatives, emergence of software technology parks, clustering and public-private partnerships.

The IIFT study is of the view that the role of the government from a facilitator to a regulator continues to remain vital for the development of the software sector in India.

Several analysts, however, hold a contrarian view that India's software sector has primarily been driven by the private sector, and the government actually needs to step up its effort to help the industry move up the value chain.

While the government does pay a lot of attention to the software industry during any negotiations for a free trade agreement, there seems to be a lack of strategy for moving up the software industry to the next level of innovation and product development.

While the industry has to keep up the momentum, it will be important for the government to look at providing a vision to ensure that India uses the various free trade agreements to move up the value chain in the software sector.

Given the fact that the only service where India has been able to draw the world's attention has been information technology and information technology-enabled services, it is pertinent to develop a strong vision to stay ahead of other competitors globally.

The writer is Principal Adviser at APJ-SLG Law Offices
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