WITH a record growth of 54 per cent in 1995 over 1994, the Indian infotech industry has never had it so good. It has never had it so bad either.
Five years ago, the world's information technology (IT) giants eyeing the Indian market were talking about that magical threshold size beyond which—global experience shows—the infotech market does not grow linearly any more: it explodes. The Indian market size was supposed to be very close to that threshold. But even today, with every global Goliath here, from IBM to Intel, Compaq to Microsoft, the Indian market continues to belie expectations. It is growing impressively, but there has been no big bang.
To get a perspective on the issue, look no farther than China, where six million PCs were sold last year, 150 per cent more than in India. The Chinese IT market in 1995 was estimated at $7.2 billion, three times India's $2.2 billion. Per capita PC shipment in India is less than one-third of China. Once upon a time, India was ahead of China and even Singapore, in computerisation. And India has a larger IT corps than either of these countries. Where did we get left behind?
The instant answer that comes to mind is that China, Singapore and other South East Asian countries opened up their markets to the world several years before India. But this could be too simplistic an explanation. Computerisation is not an automatic by-product of liberalisation. The truth is that IT development and diffusion was a conscious, concerted policy formulated and executed by the governments of China, Singapore, Hong Kong and Taiwan. The same cannot be said of India.
In every country where the IT industry has boomed, it was treated as a priority area, like an infrastructure sector, points out Ajai Chowdhry, CEO, HCL-Hewlett Packard. But in India, for the Government as well as corporates, computers are last on the shopping list, he says. Agrees Arun Sogani, managing director, Unicorp Industries Ltd: "When there is a resource crunch in India, the first casualty is IT pro-grammes, where expenditure cuts are imposed by both the public and private sector." The point is that the fortunes of the IT industry affect the entire economy, not just the IT industry. As India opens up its economy further, information problems and slow transactions could cause significant losses and bottlenecks and undermine participation in the information-based global economy. Information scarcity leads to policy mistakes, poor decision-making, slow learning processes, barriers to foreign investment and joint ventures, and narrow participation in the development process. "
One million PCs were installed in schools in China in three years," says S.S. Oberoi, adviser to the Department of Electronics. "Though India also introduced the CLASS programme at the same time, the progress has been quite slow." The facilities given to computer hardware exporters in China is also a major driver of IT growth in that country. China now has a large capacity for overall IT export, India's advantage in software technology notwithstanding. Points out Bikram Das gupta, chairman, Global Synergies: "In fact, India is a strong match for China as far as domestic sales of PCs go—it's in exports that China scores and thus beats India in the total infotech turnover."
One of the major factors spurring computerisation in China is low customs duties on computer systems, ranging between 25 per cent and 30 per cent, compared with India's 40 per cent at present, says Prakash Chandra, country manager, Bay Networks International, a major global networking company. Despite liberalisation—duties were above 100 per cent even four years ago—India still has one of the highest tariff structures, notes Ashok Desai, Silicon Graphics' managing director for the SAARC region. Affordability is the single largest issue impeding growth of computers in India compared to China, feels Desai. However, the duty structure is just one part of the cost, says Veer Sagar, president and chief executive, DCM Data Systems. "More damaging are silent killers of efficiency plaguing the system like time for clearances, time for Letters of Credit to reach, high interest costs and so on."
The Chinese government has also contributed by being a major IT consumer. Says Chandra: "For instance, China has five to six 'Golden Projects' for the customs, academic institutions, banking sector, and so on, where the Government has gone the whole hog in computerisation." As many as 3,000 banks were computerised in one shot. But the Indian Government's approach to bank computerisation is, at best, half-hearted, he adds.
Of course, much has been changing. "About 200 banks in different cities have been fully automated, and computers have been introduced in more than 3,000 branches," says Oberoi. "Computers are being used in the insurance sector in a big way. The Bombay and Delhi Stock Exchanges are computerised. The railways passenger reservation system has been expanded. Data communication infrastructure has been developed and private sector companies have set up communication networks."
By 2001, the Indian IT industry will hit the $7 billion mark, according to projections by the Manufacturers' Association for Information Technology (MAIT). With China already estimated to have crossed the $7-billion mark last year, will India then lag behind China forever? By the year 2000, India can become an important player in the global infotech industry by marshalling its vast, human, industrial and technological resources, says a World Bank paper on the Indian IT scenario. Vijay Thadani, NIITCEO and MAIT vice-president, agrees: "By the turn of the century, India will have a fairly decent share of the world market—12 per cent of world exports in computer software and 2 per cent to 3 per cent of the world hardware market."
Indeed, Desai of Silicon Graphics is more optimistic than MAIT. He feels that MAIT has calculated India's growth on a linear basis, while in reality, the Indian IT industry growth would be exponential, as tariffs go down and awareness about computerisation increases. He is confident that by 2001, India will reach an IT turnover of at least $10 billion. "India will then be 30 per cent, at the most 40 per cent behind China, whose growth rate is now about 20 per cent to 25 per cent," Desai predicts.
But according to Dasgupta, in the long run, Taiwan and not China will be a major competitor for India. China is mainly a contract manufacturing base for transnational corporations (TNCs), whereas India has distinct competitive advantages—that of being a complete systems integrator, he points out. India is obviously better placed than China because of its skilled band of computer professionals, avers Dasgupta.
Thadani says that in the years to come "India could even record a 70 per cent to 80 per cent growth in IT in the context of our core competencies in offshore software development, contract manufacturing of motherboards, hard disks, power supplies—in fact, full computer systems."
Adds HCL-Hewlett Packard's Chowdhry: "India is strong in design and engineering and hence (as computerisation picks up), we could go for manufacture in greater volumes. With an export thrust and given the right policies, the sky is the limit." And as international computer giants spend fortunes on advertising their products, they will help build awareness of IT, which is sorely lacking in India.
Transnationals will also give India that much needed experience to make a dent in export markets and their presence should be welcomed, feels Desai. "Our growth should not be constricted by the low volumes at home; we should rather place our sights beyond Indian shores," he says. Infotech is not a country-specific industry, but one of the most global of businesses, adds Das gupta. Many Indian computer professionals are involved in the designing, engineering and manufacture of both hardware and software in countries like the US. Given this expertise, it may not be long before US firms shift operations to India to tap the global market from here, as in the case of Taiwan.
But for this reverse brain drain to take place, the country needs to provide a series of incentives to foreign investors, including concessions for new hi-tech ventures, relocation subsidy and post-production facilities, says Desai. Other industrial and developing countries are already targeting the world IT market and adopting aggressive programmes for development and marketing of IT. As the World Bank paper notes: "Singapore and China have teamed up to pool Singapore's strengths in applications software with China's low-cost computer professionals. Korea has set a target of $6 billion in annual software exports by 1996. Given such initiatives, India needs to respond soon with a coherent strategy that builds itself on its distinct competitiveness—or leave itself at a significant disadvantage."
Clearly, India has had enough debate on what infotech can do for the country, it is now time to act.
