How India became an IT giant

India has a booming technology sector — software and information technology services, business process outsourcing, engineering R&D, and technology start-ups — which contributes to exports as well as the domestic market. It garnered revenue of a massive 227 billion dollars during the last financial year, according to industry data. A bulk of it (178 billion dollars) came from exports with technology services accounting for more than half of India’s services exports. Nearly five million Indians are employed directly in this industry, while several million others are indirectly dependent on it. The IT and communication revolution is easily one of the most amazing success stories of independent India.

Most people attribute the rise of this sector to the economic liberalisation process initiated in 1991. While liberalisation was one of the major contributors to exponential growth of IT from the 1990s, the story of computing is closely intertwined with the post-1947 development of science and technology. The earliest analogue and digital computers were developed to serve the needs of ambitious scientific endeavours initiated soon after the independence. Prasanta Chandra Mahalanobis needed data processing machines for statistical projects, while Homi Jehangir Bhabha and his teams developed on-line computers and electronics for atomic reactors. The result was the development of first and second-generation computers — TIFR Automatic Calculator (TIFRAC) at Tata Institute of Fundamental Research and ISIJU developed by Indian Statistical Institute and Jadavpur University. In addition, Indian Institute of Technology Kanpur imported large computer systems. All these facilities helped develop skills in fabrication, software writing, maintenance, and applications, and they were widely disseminated to all including industry. The first generation of software engineers and programmers got trained in these public institutions in the 1960s.

The first wave of entrepreneurial firms took shape in the tumultuous period of the 1970s which saw the exit of IBM, the oil shock and restrictive licensing policies. DCM Data Products, though a part of a large industrial group, operated like a startup from a garage and spawned new firms, most notably, Hindustan Computers Limited (HCL) founded by Shiv Nadar and others. Narendra Patni, who conceived the idea of shipping data conversion work from America to India in what later came to be recognised as offshoring, founded Patni Computer Systems, which in turn nurtured a group of young programmers led by N R Narayana Murthy. This group broke off and formed Infosys. Azim Premji, scion of the Western India Products Limited, branched off to form Wipro Information Technology Limited, which was incubated at the Indian Institute of Science. Tata Consultancy Services (TCS) expanded its business, with the Tatas also teaming with Burroughs. All these firms benefited from the vast Indian market which was looking to shift from mainframes and data processing to mini and microcomputers after the exit of IBM in 1978. Software services exports, in the form of on-site development, also began in a modest way by the end of the 1970s.

The 1980s saw proto-liberalisation with policies easing imports and foreign exchange restrictions to some extent, and large schemes to promote the use of computers in the government. A landmark project was the computerisation of the passenger reservation system in the Indian Railways. It demonstrated how computers could be used to dramatically improve the quality of service and eliminate petty corruption. It was followed by banking computerisation and networking of government offices by NIC. All these projects greatly
boosted the prospects of the nascent hardware and software industry. The software policy of 1986 recognised software as an industry and permitted exports using satellite data links. But data links were so expensive that no software firm could afford them. Texas Instruments was the only one exporting software via a dedicated satellite earth station in Bangalore.

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To help small software firms with limited resources, Dr N Seshagiri in the Department of Electronics (DoE) conceived a novel solution — Software Technology Park (STP) scheme. It was forcefully implemented by DoE Secretary N Vittal in 1990. STPs provided companies ‘ with single window’ clearances and common high-speed data links for exports. This proved to be a game changer. Indian firms could develop software and provide services to their overseas clients from their offices in STPs in Bangalore, Hyderabad, Noida etc. The opening up of the economy in 1991 enabled software firms to access capital markets, open offices abroad, and enter into joint ventures with foreign companies. Many global software companies set up their offices in India. The period coincided with the internet and the dotcom boom in America, creating new opportunities for Indian companies to take advantage of skill shortage there.

Yet another opportunity appeared around 1996 — the Y2K problem. This helped Indian firms scale up their operations and signup new clients. Most of these new customers continued to do business with Indian firms impressed with Indian talent and quality during the Y2K engagement. At the turn of the new millennium, the growing penetration of the internet and broadband gave rise to another line of business — business process outsourcing which depended on the IT backbone but was not restricted to IT or software services. This kind of outsourcing was enabled by IT while taking advantage of low labour costs in India. Over the next ten years, the IT-enabled services boomed with western banks, insurance companies,
airlines, pension funds, and utilities moving their backrooms to India. High-end operations like engineering R&D, knowledge businesses and consulting also got outsourced. The integrated sector offering a range of services has witnessed massive growth in the past two decades.

Over the past seven decades, India’s IT journey was propelled by high-quality technical education, availability of trained manpower, entrepreneurial spirit, favourable government policies, skill shortages in the west, proactive role of the Indian diaspora and rising domestic consumption. The challenge now is to keep up the momentum and move up the value-chain in product development and innovation.

Timeline of IT revolution

1953: Samarendra Kumar Mitra and Soumynedra Mohan Bose at ISI develop India’s first analogue electronic computer.

1956: Scientists at the Indian Institute of Science design and fabricate PREDA, an analogue computer.

1960: TIFR scientists led by R Narasimhan develop TIFRAC, India’s first digital computer.

1961: ISI and Jadavpur University develop ISIJU, a second-generation computer.

1963: IIT Kanpur acquires IBM 1620 and sets up the Computer Centre.

1967: Electronics Corporation of India Limited was established to commercialise Trombay Digital Computer developed by BARC.

1975: Microcomp was established to make microcomputers in the private sector, it later became HCL.

1985: Texas Instruments begins operations in Bangalore, demonstrating the feasibility of software exports via satellite data links.

1991: STPs with dedicated satellite links facilitate software exports by small firms.

1998: The IT Task Force recommends opening up the communications sector and new centres like IIITs.

1998: Microsoft opens its India Development Centre in Hyderabad.

2000: Successful completion of Y2K projects by Indian companies opens new vistas.