The Rangarajan Committee Report
With one of the largest banking systems in the world, the banking and
finance seg ment in India always had the potential to be one of the strongest
verticals for the IT industry.
In 1969, the Indian Government nationalized the country’s major commercial
banks to channel investment funds into priority sectors, such as small business,
agriculture, and distressed areas. Each bank became, in effect, a
"development bank."
Government control also led to dramatic expansion
of banking in rural areas. In the early 1980s, the RBI commissioned the
Rangarajan Committee to investigate modernization of the banking sector. The
committee submitted two major reports–the first in 1984, the second in 1989.
It called for eight main banks to be fully computerized–the State Bank of
Bikaner and Jaipur, the Bank of Baroda, the Bank of Maharashtra, the Central
Bank of India, the Bank of India, Canara Bank, Union Bank, and Vijaya Bank. It
recommended that 2,000 to 2,500 branches should be computerized by the end of
1991, and 15,000 branches by the turn of the century. The Committee called for a
system of teller-operated on-line terminals that would be linked by
minicomputers, with IBM-compatible mainframes at central locations for back
office work. Computers would be used to update credit information, plan personal
investing, manage bank budgets, investment plans and cash flow. A data
communication network called Banknet would link 28 public sector banks in major
cities. Indian banks would also tie into the Society for Worldwide Inter-bank
Financial Telecommunications to transmit messages overseas. The execution fell
short of the plan, except for pockets of progress. Not surprisingly, there was
panic and PSU banks had no option but to adopt IT in order to remain at the
fore.
The committee also recommended standardizing banking systems on UNIX, then an
unperfected operating system compared to MS-DOS. The government floated a tender
for 400 Unix systems and set off a scramble among Indian companies to come up
with a Unix platform. Though the local part of the contract eventually went to
Sunray Computers, the report had led local vendors into the Unix arena and would
eventually lead to India’s transformation into a "Unix country".
According to an IDC study, 1400 Unix systems were shipped in 1987-88 compared to
just 480 the year before–a whopping 191% growth.
The Siva PC
Available at a shockingly cheap price of Rs 33,000, the Siva PC hit the
market in 1987.Â
The price war triggered by Sterling computers led to all vendors slashing
prices and by 1988 there were more than 70,000 microcomputers in the market.
Siva Sivasankaran - the young son of a schoolteacher discovered Sinclair, the
grand old man of computers, and introduced the home PC to India. Then in the
1980’s, he made an amazing breakthrough by creating a Siva PC costing less
than Rs 30,000. This led to breaking down the barriers that had prevented PC
prices from dropping in India
By 1990, he was the fourth largest PC manufacturer and was exporting
globally. Recognition followed in the form of awards from the Government of
India. He diversified into horticulture, food, finance, banking, real estate,
holiday resorts and created a fast growing enterprise- the Sterling Group of
companies.
With the coming of cellular communication wave, he won licenses for Delhi and
North India. Subsequently he went on to build a formidable cellular network in
Tamil Nadu and then created ETH.
Pounds of Panic: The Y2K Bug
All that this fancy sounding term stands for, is —the Year 2000. Even as
the rest of the world geared up with festivities to usherin the new millennium,
a panic button had sent the IT industry in a tizzy. Experts forecasted that
disaster would strike every digitized aspect of life when the two-digit number
we use in computers would switch from 99 to 00 that midnight. Computers had
installed software programs written years earlier (when storage limitations
encouraged information economies such as writing the last two digits of a year
as against all four). Program logic assumes that the year number gets larger,
not smaller - so "00" was anticipated to wreak havoc in a program that
had’nt been modified to account for the millennium.
In the process of sorting this problem, systems were checked for time-related
functions. A ‘work around’ test involving shifting the system date (say 28
years) or putting off the system before the critical date and restarting
afterwards was done. Software patches (a program which modifies existing files
and makes the operating system Y2K compliant) were verified and validated. And
with the urgency to set this right across systems and networks, billings of
service companies-especially in the backyards of Indian IT, were ticking away.
Ironically, India which earned $2.5 billion providing Y2K software solutions to
advanced countries, was itself spared the millennium bug.
Once the Unshakable: The Training Giants
When companies want professionals skilled in the hottest of technologies,
and that too, yesterday, what do you do? You trainthem in those technologies,
and fast. The need for skilled manpower coupled with the MNC vendor push for
spawning a breed of professionals proficient in using their software products,
had set the Indian IT training industry blazing in the late 90s. The number of
Microsoft professionals for instance, grew from 470 in 1996 to 4,700 in 1997 and
83,100 in 1999! Besides, the certifications offered by the likes of Sun,
Microsoft, Oracle, SAP, Lotus, Novell and Cisco and IBM offered private training
institutes credibility, which they did not enjoy earlier.
As the worldwide demand for ERP-trained software professionals shot up in
1998, as many as 45 ERP training institutes cropped up in Hyderabad! In
1999-2000, the Internet did the same to e-commerce and Java. In 1999, DQ listed
more than 3,000 training centers and 35 training vendors catering to 700,000
students. In 2001, training companies were hit hard interest and registrations
fell and revenues slipped 37%. Only the big guns survived.
The message that an IT education is "essential for a successful
career" had led droves of students to pick up the basics of Office suite
operation at Rs 3,000, with some database operations and ‘historical knowledge’
thrown in for good measure. There was no employment at the end of this road and
a majority of students today see no reason to invest in something that can be
learnt in a few informal interactions with a computer. This is one of the
reasons why the training industry’s frenzied growth of the late 90s cannot be
matched for some time to come. Today, this high-volume, low-value segment has
spread thinner in a bid to reach out to territory it has not ventured into
before–the home user, the housewife, the senior citizen, under a fresh hat
called IT literacy, and at prices never seen before.
The Birth of Offshoring
Software development had traditionally taken lace at the client site. Given
that the cost of maintaining a workforce at the site is high, the cost advantage
of outsourcing development work to India were obvious. This had not taken off,
one of the reasons being that overseas clients wanted to see the work at various
stages of development. In 1991, Satyam Computer did what would probably be a
true "outsourcing" pilot for Deere & Co within the US. Initially a
software solutions company, Satyam’s breakthrough happened in 1992 through its
association with John Deere in Chicago. When Satyam proposed its OSD initiative,
which meant developing the software in India and uploading it onto John Deere’s
computers during the night, the client was skeptical. Ramalinga Raju put ten
Satyam engineers in a house near the John Deere plant. They were barred from
seeing or speaking to JD staff. They had a satellite link to JD’s mainframe,
but worked only during the night. The exercise, named ‘Little India’, was an
experiment in simulating the work conditions in India. The results surprised
John Deere. In fact, it worked better than when the Satyam engineers were on
site.
In 1993, the US Immigration and Naturalization Service proposed changes to
the regulation that would make it difficult to get B-1 visas. The new H-1 visa
required a certification from the US Department of Labor that prevailing market
wages were being paid to immigrant workers. Its direct impact- clients would
have lesser incentive to hire software engineers from India. Also, Indian
software professionals were brought under the ambit of the Immigration act of
1990 and had to pay social security taxes amounting to 21% to the US.
Eventually, what came to pass was a watered-down H1B visa.
Success Permit: The H1B Visa
The 90s saw this little piece of paper ruling the Great Indian Marriage
Market. More important than a fat bank balance and a fancy employer name, the
H1B visa became an absolute must-have for every Indian IT professional worth his
salt. For it was this document that would take and keep the young geek in the
Mecca of IT-the US of A, ensure that he earned his greenbacks there and imprint
the mark of an overseas assignment on his resume. The H1B visa (or simply called
H1 Visa) is a non-immigrant employment based visa for workers coming to the USA
to perform a "specialty occupation." The H1B status allows foreign
workers to work in the USA for a maximum of six years, is granted for three
years and can only be renewed once for an additional three years.
What makes the visa attractive to those seeking permanent resident status is
the duration of validity. Starting in the 90s and continuing to 2001, the
tremendous demand for a good quality and relatively inexpensive Indian workforce
saw body shoppers processing H1B visas with practised ease. The downturn struck
and INS (Immigration and Naturalization Service) records showed that H-1B
petition requests had dropped by half to 16,000 as against 32,000 petitions in
February 2000. Subsequently, the cap on H-1B visas raised to 195,000.
The Information Technology Act
With the enactment of the Information Tech nology Act in June 2000, India
joined a select group of 12 nations to have legislation in this arena. The Act
provides legal recognition for transactions carried out by means of electronic
data interchange and other means of electronic communication, (electronic
commerce). This act also applies to any offence committed outside India by any
person. The enactment of the Act also led to events like the establishment of
India’s first Cyber Police Station in Bangalore (which registered 45
complaints in the ten months of its existence).
This act addresses crucial issues like offering legal recognition to
electronic records, digital signatures and publishing rules in the electronic
gazette.Â
However, it has been criticized for its tendency to
"over-regulate". For instance, it empowers police officers to enter
and search the premises of person suspected or about to commit any offence. This
could be misused. The Act is only a first step in the amalgamation of the
Internet into India’s legal framework. There is still a long way to go before
the Indian legal system integrates and accepts the Internet fully.
Sunny Side Up:
The HP-Compaq Merger H-P’s acquisition of Compaq in May 2002 re-sulted in California
becoming CEO and chairman of the new entity, and Compaq’s chairman Michael
Capellas was the new president. But the new HP that the Indian IT industry saw
after the $25-billion deal in May 2002 has far more of Compaq than HP–former
Compaq chief Balu Doraisamy is at the helm, and Compaq team members in strategic
positions and of course. This is not surprising considering that Compaq’s
share of the merged HP-Compaq revenue pie is a healthy 57% and that even in this
year, Compaq’s performance superceded HP. For Compaq’s Indian operation,
there is an element of poetic justice in today’s takeover. In 1998, it was the
dominant partner in the merger with Digital Equipment Corporation, another well
known US name in minicomputers. Today, the Digital operation in India is purely
in the software arena–it self-destructed the hardware business in Compaq’s
favour. With combined revenues of Rs 3,301crore in India,, the new HP will
become the third largest company in India after Tata Consultancy Services and
Wipro.
The Conscience-keepers:
Corporate Governance What stops an individual from doing wrong, especially
when he knows that there’s little chance of being caught? The same sense of
right and wrong that drives ethical behavior among people, found its way in
Indian corporate corridors in the late 1990s. The winner of several Corporate
Governance awards, Infosys, led by NR Narayana Murthy, was the first to advocate
corporate transparency. Corporate governance guidelines began in the 1990s in
the UK and the US. The Cadbury Report of the UK, the General Motors Board of
Directors Guidelines in the US and the Dey Report in Canada proved to be
influential sources for other guidelines.
In India, CII took the lead in framing a desirable code of corporate
governance in April 1998. This was followed by the recommendations of the
Kumarmangalam Birla Committee on Corporate Governance appointed by Sebi— the
recommendations were accepted in December 1999, and they are now part of Clause
49 of the Listing Agreement of every Indian stock exchange.
MILESTONES
Department of Electronics came into existence.
Apple Macintosh was launched.
The country’s first one stop-computer shop, Computer Point was started.
Insurance Corporation introduced an Electronic Equipment Insurance Policy
to cover the perils involved in EDP.
DoE (Department of Electronics) announced a software policy.
exclusive satellite international gateway for the export industry was set
up.
The Government of Karnataka became the first Indian state to announce an
IT Policy.
Budget removed export earnings from the provisions of MAT and reduced
custom duties on computer parts and color monitors.
The Government sets up a 100-crore venture capital fund for software
companies.
India’s first processor Ankoor was developed by TI design center in
Bangalore.
The Election Commission deployed IT in the general elections for the first
time. Electronic voting machines were used for the first during the
by-elections in 1999.
Minister Atal Bihari Vajpayi included IT as a key element in his
five-point program.
IBM
exits India
After having established a strong presence in India and emerged as a leading
player in the Indian market, IBM along with several other multinational
companies, exited India in 1977. The company left the country in a huff
following a government decision stipulating that all MNCs operating in India had
to list on the country’s stock exchanges to be able to continue operations. If
misguided policies had not led to IBM’s exit, India would probably have been
an even bigger player in the global IT arena today.
However, in a way, this proved to be a blessing in disguise for the
development of the Indian industry and the post-IBM era saw the emergence of
several new companies. Pioneers such as Shriram and Usha, ICIM and CMC among
others, took the plunge in order to fill the void. IBM returned to India only in
1992 and it was 1997 before the company along with other multinational players
like Compaq could finally overtake home grown brands like HCL and Wipro in the
consumer segment.
N
Vittal becomes DoE secretary
One of the early recipients of the Dataquest IT Man of the Year awards, N
Vittal took over as Secretary of the Department of Electronics (DoE) in 1990 and
set a $400-million target for software exports. Vittal came in when the industry
was facing a difficult period and he changed the DoE completely. Known in IT
circles as an activist, he lobbied for the cause of liberalization with the
government. It was largely due to his efforts that the government came to
realize the importance of software exports. In 1994, N Vittal was transferred
from the DoT. His selection as the chairman of the Telecom Commission was looked
upon as the first step to speed up the process of privatization of the country’s
telecom sector.
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The RailNet plan conceived
In 1984, the Indian Railways decided to establish a ‘Corporate Wide
Information System’ (CWIS) connecting the Railway Board, Zonal Railways
headquarters, Production Units and Centralised Training Institutes, etc. called
the Railnet. The idea was to be able to provide smooth flow of administrative
information. The Railnet facilitated the exchange of messages, files and e-mail
between key Indian Railways locations. The internal web-site also encouraged
officials in the Railway Board and Zonal Railways Headquarters to access manual
procedure orders and policy directives. Nearly Rs 8 crore was allotted by the
Railway Board for the purpose.
IT
ministry formed
In 1999, the Ministry of Information Technology was formed combining India’s
National Informatics Center, which directs IT policy, with the Electronics and
Computer Software Exports Promotion Council.
And since the country’s first-ever ministry of IT came into being, IT
minister Pramod Mahajan has become a key lobbyist for the IT industry. He has
pushed legislation and made sure that the government’s juggernaut of reforms
rolls on. Cyber laws, the Convergence Bill and the IT Act have been significant
steps in the direction. Mahajan was presented the Dataquest IT Man of the Year
Award in January 2002.
VSNL launches Internet services
Videsh Sanchar Nigam Limited (VSNL), the public sector company with a monopoly
over overseas communications, launched its Internet Gateway in 1995. With VSNL
announcing its Internet services, the Web began to emerge as the new tool that
was all pervasive. This was also the beginning of the ‘e’ era. Two years
later, VSNL cut down excess charges for lease lines and dial-up modems. Internet
services were privatized in 1997 and Satyam Infoway became the first private
ISP. Private ISPs got a gateway facility in 1999.
Nasscom
formed in 1988
Nasscom (National Association of Software and Service Companies) was first set
up as a break-away association from MAIT (Manufacturers Association of
Information Technology) with an initial charter to lobby and obtain concessions
from the government on tax matters. The body steadily grew in prominence after
its late president Dewang Mehta took over in 1991. For every year since 1992,
Dewang Mehta spearheaded one campaign after another for the software industry,
with the active support and encouragement from various players. Starting with an
active public awareness campaign against software piracy in 1990, Nasscom
intensified its effort in 1994. It started work on an amendment to the copyright
law in 1995 to make India an attractive destination. Nasscom also became an
early advocate of offshore software development as a strategy to provide India
the competitive edge. But for the relentless publicity campaigns conducted by
Nasscom, India may not have emerged as a software powerhouse that it is today.
Booster Shots
Government initiatives that contributed to the growth of the Indian IT
industry over the years
l In 1983, the
Indian government brought down duties from 184% to 135% heralding PCs below the
3 lakh mark.
l The computer
policy announced in 1984 aimed at facilitating indigenous manufacture of
computers based on latest technology at prices compared with those prevailing
abroad. Under this policy, import duties were reduced for peripherals, foreign
equity participation was allowed, import of computers was liberalized and
software was recognized as a separate industry. This Computer Policy reflected
the government’s keenness to promote IT by easing the policy constraints long
faced by users and manufacturers.
l The Software
Policy defined in 1986 aimed at making the export commitment of software
exporters more stringent, de-licensing the domestic industry, defined ‘body
shopping’ as software exports, laid emphasis on training and opened up
software imports.
l This was
followed in 1988 with the World Market Policy with a focus on software
development for export; telecommunications policy reform; privatization of the
national long-distance and mobile phone markets; and development of a more
comprehensive approach to ICT.
l The government
established the Software Technology Parks of India (STP) scheme.
l In order to
attract foreign direct investment, the government permitted foreign equity of up
to 100 percent and duty free import.
l In 1999, major
legislation was passed to protect intellectual property rights in harmony with
international practices.
l The government
issued a deadline for the computerization of all ministries.
l The Government
established a Software Development Promotion Agency to give impetus to growth of
software development both for export and local requirements.
l In 1998, the
government announced major tax incentives for the information technology (IT)
sector. The Government also exempted from customs duty computers and computer
peripherals imported under 100 per cent EOU/EPZ/STP/EHTP schemes when donated to
recognized educational institutions, government organizations and registered
charitable hospitals after use for a period of two years from the date of
import. In 1998, the government further announced a series of measures for
information technology (IT) industries and NRIs investing in India.
l The late Rajiv
Gandhi, who became Prime Minister in 1984, began to liberalize the Indian
economy by opening the country to more imports in high-technology industries.
Gandhi offered significant tax incentives and concessions in duties on hi-tech
products, especially computers. He made desktop personal computers (PCs)
standard equipment for every senior bureaucrat. As a result of these
initiatives, PCs costing an exorbitant $5,000 came crashing down to $1,000 and
less.