Dataquest 35 Years: Making Of Indian IT – Twenty Five Years Of Excellence

We should not be surprised if an Amazon, or a Google, or something even bigger comes out of Indian firmament as its IT industry’s focus scales greater heights. I am most bullish on it

By: Dan Gupta, Chairman Emeritus, UST GLOBAL

Future belongs to those who use most modern technology, said Pundit Jawaharlal Nehru. The visionary first Prime Minister of India was truly committed to rapid growth of the Indian economy with the help of the most advanced technology in every sphere. Bhakra Nangal dam, creation of Chandigardh, setting up of Rourkela Steel Plant with LD converters and establishment of IITs are just a few examples of his thrust to introduce the latest technology in the country.

He was immensely interested in computers or Electronic Data Processing, EDP as it was known in late 1950s. His meeting with Dick Watson, Chairman, IBM World Trade Corporation in 1958 paved the way for India to become one of the 8 countries in the world to have an IBM manufacturing plant. Later, he personally visited an IBM Education Center in Faridabad to understand how computers present a huge potential to improve India’s industrial productivity, national planning, and scientific research.

Going Back in Time

India’s rendezvous with computers, in the true sense, started in 1961 when ESSO installed an IBM 1401, followed by an IBM 1620, with the Defense Research and Development Organization. Between 1960 and 1974, India installed over 180 computers to serve industry, education, scientific and space research and government. CDC, Honeywell, Russia, ICL and IBM provided the coveted machines, cooled by air conditioning plants and installed on raised platforms in glass houses. By end of 1974, India had more computing power than all of ASEAN countries, Hong Kong, Taiwan and Korea put together, according to the UNDP report published in 1974. Indian IT industry was growing at over 35% compound rate between 1964 and 1974.

The doyen of Indian industry, JRD Tata, took the lead in the use of computers in Telco, TISCO, and TCS. TCS, under the dynamic and far-sighted leadership of F.C. Kohli, ushered in the current phase of Indian IT software industry that the world admires today.

Dr. Vikram Sarabhai’s lead was notable in space research and development. He laid the foundation for Indian space programs aided by an IBM 360/44. State Bank of India’s installation was the biggest east of Suez to Japan and made it possible for the Bank to more than triple the number of branches to serve rural areas of the country. These are just some of the highlights, but many more sectors including airlines, life insurance, and manufacturing were able to undertake much needed growth with the help of computers.

The 70s Slowdown

In mid-seventies, the change in Indian government’s policy towards computers significantly slowed the growth of computing power in India. Several factors were responsible for the slow down. Computers were considered responsible for creating unemployment among the educated. Approval of import of computers was controlled by Department of Electronics. Corpo­rations were required to get their labor union’s consent before they could submit their justification for the need to import a computer.

A committee appointed by Department of Electronics- and not the corporation actually using the computer- decided which computer and of what size, could be imported. Local manufacturing of computers was very limited, and not very advanced. The U.S. government put stringent scrutiny and restrictions on the export of all computers to India except the very smallest. IBM had to cease its commercial operations in India since its proposals to comply with Foreign Exchange Regulation Act (FERA) were not approved by the Indian government. By mid-1980s, Indian IT industry was lagging far behind Hong Kong, Taiwan, South Korea and all ASEAN countries. Singapore’s IT industry alone was more than five times bigger than the Indian IT industry in 1984.

Much Needed Redemption

The winds of change began to blow when Rajiv Gandhi became the Prime Minister in 1984. “Mr. Computer Jee,” as he was nicknamed, announced that computers create employment and not unemployment. “Indonet” – India’s first computer network connecting three computer centers in New Delhi, Mumbai, and Chennai was set up. Very large computers were installed by ONGC and RBI in second half of eighties. But the most significant event, though opposed at the time, was formation of NASSCOM in 1988. For the first time, NASSCOM aggressively promoted the development of IT software in the country as an industry. Otherwise, MAIT represented IT industry and it was mainly focused on hardware issues such as imports, assembly, and duties. In the 1980’s the import duty on hardware was more than that on whiskey!

The  Roaring1990s

The beginning of the current era of the Indian software industry started in early 1990s. It was sparked by a $700,000 UNDP funded landmark study on the potential of software development in India. IDC was selected for this study and Pradeep Gupta, Chairman Cybermedia, lead it. It concluded that India had huge potential for software development and could far exceed Ireland, which was leading globally in offshore software development at that time, provided Indian Government adopted many measures it recommended.

Fortunately, N. Vittal, a very decisive and bold IAS officer, had just taken over as the Secretary, Department of Electronics. He implemented most of the recommendations of the report. Also, he set up Software Technology Parks so that the latest hardware and software was available to Indian software developers on a time share basis. They did not have to make massive investments which they did not have. He also set up a much-needed training center in Trivandrum equipped with IBM 3090 so that software engineers could get training on MVS, DB2, etc. It helped Indian software companies get offshore software development work since they now had access to hardware, software, and training. Indian software industry started to get traction.

Under the visionary leadership of Dr. Manmohan Singh, Finance Minister from 1991-1996, the import duties on software and hardware were substantially reduced and import regulations for computers and software were liberalized. IT software industry started to gain the strength and momentum we see today.  This momentum was acce­lerated by the Y2K phenomenon. Indian IT industry which was $51 million in 1991, consisting primarily of hardware, is today $155 bn. However, today, it essentially consists of software development and exports, and has directly created 3.9 mn jobs.

Looking Forward

The twenty-first century will be known as the century of information technology. Fourth wave economic revolution driven by cloud, AI, quantum computing and nanotechnology is here. Indian IT industry must harness it. It has a very strong potential to achieve $1 trillion mark by 2030, provided it changes its focus and direction. To achieve this target, it needs to increase its annual growth from 8.6% to an achievable 15%. Indian government working in close cooperation with NASSCOM may consider focusing on changes required and take appropriate action to achieve the $1 trillion goal.

What Needs To be Done?

India needs to increase its domestic IT spends. India’s figures were 1.2% compared to 3% of the U.S. in 2010, and 1.5% now ($38B). Increased IT use by domestic organizations will help Indian IT companies to develop and test solutions which they can deploy globally. It is also likely to spur the growth of the Indian economy. According to University of California study, there is 86% correlation between IT use and GDP growth. It was seen to be true in case of Japan during 1964-1984. Indian government may consider giving full depreciation in one year for IT spends to spur the use of IT technology.

IT is a resource, which helps manage all other resources more effectively. The study below suggests that the inherently competent Indian managers may benefit from better IT management tools. Technology resides in people. IT training is the dire need of the country. India’s working age population will continue to increase until 2050 according to United Nations Population Division. It will be significantly larger than any other country. It will be appropriate for the Indian government to provide strong incentives, including a ten-year tax-free status to organizations providing certified high quality IT training and apprenticeships. It can be provided by the Indian companies, and already present, major international IT organizations, IBM, Cisco, Oracle, Google just to name a few. Companies setting up training organizations may be required to employ part of the personnel it trains.

India produces more engineers than Russia and the U.S. combined. However, the focus needs to be on the quality of engineering education and appropriate disciplines. For example, at least 10,000 microelectronic engineers should be trained annually. Quality education will help the engineers design innovative ASIC chips that can be copyrighted and patented globally. Use of ASIC chips is growing geometrically, and Indian IT industry should focus on becoming a global leader in its design.

With a fast-growing GDP and a large, well-trained IT workforce, and significantly larger domestic IT spend, Indian IT companies and IT entrepreneurs will have vast opportunities to explore, develop, and grow, IT products, software and services.

Indian IT companies and entrepreneurs would reap the fastest growth if the solutions focus on “value add” rather than mostly on “cost reduction”. The global trend in the use of IT is moving from B2B to B2C. Companies want to reach their consumers directly. Amazon has proven the value and effectiveness of this strategy. Eighty percent of customer data is untapped. Artificial intelligence is the key skill and technology needed in effective use of IT in the coming years. In addition, cyber security is of critical importance. Focus on these technologies, and significant investment in the development of “value add” solutions, will double the growth rate of Indian IT industry needed to achieve $1 trillion mark by 2030. This growth will also create at least 15 million additional direct jobs in IT industry.

Most importantly, the suggestions discussed in this article, and many more, would evolve and develop to accelerate the growth of Indian IT industry if the Indian government considers establishment of three wings charged with Vision, Strategy, and Execution, under the Ministry of Information Technology. The Vision wing would have a small team of three to five internationally renowned IT visionaries to lay down the Vision. The Strategy team would determine the strategy to make the Vision a reality. The Execution team will be responsible for policy formulation, implementation, and measurement. Japan used this approach for the growth of its IT industry during its heydays of 1964-1984.

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