TURNING POINTS: Setting the Tiger’s Pace

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. 

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. 

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

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.

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.