Resilience Of The Indian It Industry Economics Essay

This paper focuses on the IT industry roar in India merely before the recession and through it. The hypothesis of the paper is that ‘Resilience of Information Technology to Economic Turmoil is Better Found in Decentralized Systems ‘ . The range of the paper limits itself to India as it provides a great theoretical account for decentalisation and being a developing state it provides possible for similar successful theoretical accounts for other developing states. The chief intent of this paper is to analyse the factors working in favour of this sector that proved good & A ; fruitful in the clip of the recent Global crisis. The paper briefly describes the apprehension of economic resiliency and the Indian scenario with regard to the IT industry. It chalks out the methods and economic theoretical accounts used and referenced in the analysis subdivision of the paper. It aims at following out the nutriment way of the Indian IT industry by saying the established stages of the IT industry so far, accordingly reexamining the available literature and analysing the advantages working for India so as to assist place commonalties in available resources which may assist develop similar resiliency theoretical accounts in other decentralised economic systems.

Economic resiliency is the ability of a company, industry, economic system or any money generating/receiving organic structure, to retain map and rise from any sort of a reverse that they may confront due to economic prostrations of their associations that may impact their multi-level operation and gross coevals and that of others. The uncertainness with which major economic systems run and map presents, resiliency is a forced virtuousness. With the push for mechanization and cyberspace over the past decennary, the IT industry has had more of a double-digit growing particularly during the recession.

Despite their huge growing degrees in about every sector and aspect US based coders were difficult to happen due to increased college costs ensuing in deficiency of handiness of inexpensive skilled labour. Due to the deficit of US based coders during this period, many mid sized houses were forced to use the services of Indian houses. IT industry has been regarded as an highly safe investing for the simple ground that sing the dependence that the multitudes have reached on information engineering, they merely can non afford to set a palpebra on it. The IT growing is rapid, efficient and flourishing. But holding an IT industry endorsing like India ‘s, non merely contributed towards alleviation during the recession for us but besides helped bail out many falling giants. The Indian Information Technology and Information Technology Enabled Services ( IT-ITES ) industry has been lending its function in the economic development of India since station liberalisation epoch. The gait growing of this industry is considered as a growing driver for the economic system.


To place and grok the asymmetrical cause-effect relationship of the recession and the Indian IT industry this paper uses economic theoretical accounts like the Lewis growing theoretical account. It explores established statements of Lewis like the deficiency of accomplishment of the transferred labourers is a impermanent job as they can get preparation within a short period of clip. It besides uses the Rostow ‘s analysis of the dependance of rapid growing of the taking sectors on the presence of four basic factors like an addition in the effectual demand, the creative activity of new production maps with a capacity to spread out, a sufficient sum of capital and investing net incomes in the prima sectors and the debut of enlargement of end product in the other sectors through proficient transmutations of taking sectors.

It besides looks analyzes the Romer theoretical account of growing as a characteristic of the roar of the Indian IT industry.

Secondary informations available on the cyberspace and from assorted economic documents has been analyzed to pull the attendant illations of this paper.

Phases of IT Growth

Phase I

The Indian package industry had been nonexistent boulder clay 1960. Built-in systems provided easy public-service corporation for the sort of work go oning so with a few participants ruling the market scenario. Import responsibility on IT and IT-es was besides really high suppressing its advancement. The demand for replacing for constitutional systems was non felt boulder clay 1960, in the West. Soon after India followed suit.

PHASE II ( 1980 – 1990 )

This stage witnessed slow growing as package exports ‘ were n’t picking up despite major authorities enterprise. Software exports were to a great extent dependent on imports of hardware. Establishing IT fastness was non merely dearly-won but cumbrous. Added to that were deficiency of instructional installations for development.

PHASE III ( 1990-2000 )

This decennary made several important alterations in the economic system, including trade liberalisation, opening up of Indian economic system to foreign investing, devaluation of the rupee and relaxation of entry barriers. During this period due to the entry of many participants in the Indian market, the competition got intensified. Therefore, the participants started puting in research and development to separate their services from others. Off-shore provisioning of services was made available with the formation of the Off-shore Development Centre

PHASE IV ( Post 2000 )

The planetary jobs like the Y2K, the dotcom clang and recession in the US economic system, proved to be a blessing to Indian IT industry. The Y2K job demanded the bing package to be compatible to the twelvemonth 2000. Many mid sized houses were forced to encash the services of Indian houses, due to the deficit of US based coders during this period. This had placed the Indian IT industry on the planetary map. Post 2002- 03, the industry had registered a robust growing rate because of addition in the figure of clients, big sized contracts and a strong planetary bringing theoretical account. Indian IT industry had placed itself on the map with a progressive growing rate.

Literature Review

Alexander Budzier states that the IT industry is peculiarly prone to high cost over-runs on norm as surveies have indicated in the yesteryear. It ‘s really that an remarkably big proportion of them incur monolithic overages- a disproportional figure of black swans. “ If you ignore black swans, you ‘ve got nil. “ ( Taleb,2008 ) .

Nassim Nicholas Taleb ‘s “ Black Swan Theory ” plays a important function in gauging the resiliency of the Indian IT industry as a representative of a decentralized economic system. Taleb ‘s Black Swan Theory seeks to buildA ” hardiness ” A to the utmost negative impact of certain sorts of rare and unpredictable events ( outliers ) that occur and being able to work positive 1s. Taleb explains that Bankss and trading houses are really vulnerable to risky Black Swan Events and are exposed to losingss beyond those that are predicted by their faulty fiscal theoretical accounts.

The NASSCOM-A McKinsey study on the IT industry of India, undertakings that package exports from India are expected to turn in approaching old ages. In a study, ‘Perspective 2020: Transform Business, Transform India ‘ , prepared by Mc Kinsey, the export grosss of Indian IT industry will touch US $ 175 billion by the twelvemonth 2020. The domestic gross revenues gross will besides lend US $ 50 billion by the twelvemonth 2020.

The fact nevertheless remains that the sky rocketing statistics of IT sector has reinforced the position that India may be universe category in IT. At the same clip India ‘s fastness in footings of per capita income ( PCI ) and human development index ( HDI ) remains hapless. Puting such high marks and anticipations may hold its benefits in short tally of the Indian economic system. However if these established theories and political orientations are able to prolong long tally costs and turn out their resiliency to black swan events termed by Taleb, such as the Recession, so along with our system of successful decentalisation we will be able to raise up a full-proof IT sector that is resilient to such volatile economic convulsion.


India being a hub for some of the major IT giants in the universe cushioned the blow of the recession for the IT industry. Sing India ‘s population size and its resource handiness, holding a recession in the offing made it a premier mark for an economic day of reckoning. However when the whole universe witnessed the negative growing, Indian IT industry still managed to register a growing of 5.5 % ( EW, 2012 ) . So why has the IT industry in India survived the recession?

Advantage India

Technically Skilled Professionals:

Few of the grounds of advantage India are foremost the abundant handiness of skilled work force. The cost of skilled Indian work force is moderately low compared to the developed states. This makes the Indian IT services extremely cost efficient and this is besides the ground as to why the IT enabled services like concern procedure outsourcing and knowledge procedure outsourcing have expanded significantly in the Indian occupation market.A India has a immense reservoir of technically sound work force. This has proved to be one of the most critical success factors for Indian IT sector. This growing is besides complimented by the demographic profile of India, where over 50 per cent of the population is below 25 old ages of age.

Robust Telecom Infrastructure:

The telecom industry in India is good established. The handiness of superior, robust and dependable telecom connectivity has added to the success of the whole industry in India. Reduced import responsibilities on package and hardware merchandises have been deemed good excessively.

English talking population:

One of the most recognized agencies of communicating in India is English. This has proved to be boon to the industry as English-speaking states like the US and the UK depend on the Indian IT industry for outsourcing their concern processes.A India is the 2nd largest state in the universe in footings of English talking population, foremost being USA. Almost cyclically prevalence if IT houses in India led to growing of English talking population and vice-versa. This besides facilitated a rise in a batch of short-run and long-run literacy degrees.

Rendering Customized, End to End and Niche Services/ Solutions:

Due to the increasing pervasiveness of IT and immense potency for gaining foreign exchange, Indian houses have easy graduated from giving customized solutions to stop to stop services and besides niche solutions/ services. Some mid size participants have adopted this theoretical account where they render specialised services instead than offering terminal to stop services. This helps them to distinguish themselves amongst other participants.

Lower costs of seaward outsourcing:

The initial driver for off-shoring to India was cost. But, India has proved to present quality services at low-cost costs. Harmonizing to AT Kearney, off-shoring to India consequences in salvaging 25- 60 per cent of the base cost.

Favorable Governmental Policies:

After the liberalisation of Indian economic system, entry barriers for foreign investors have been removed. Therefore, liberalized FDI policies, revenue enhancement freedoms, basic substructure, subsidies etc. from the authorities has decidedly given a encouragement to the constitution of the industry in India. The high influx of FDI ( Foreign Direct Investment ) in the IT sector is expected to go on in approaching old ages. The influx of immense volumes of FDI in the IT industry of India has non merely boosted the industry but the full Indian economic system in recent old ages.

Quality Orientation:

Indian companies are attesting themselves with ISO 9001, Six Sigma, and Just in Time, COPC enfranchisements to pull foreign clients.

Amalgamations and Acquisitions:

M & A ; A aid in consolidating the whole industry. It enables houses to spread out, heighten its accomplishment sets, spread out its service offerings and enter new geographicss.

M & A ; As can besides assist bail falling giants. The economic roar made many IT companies flourish and make their extremums ; nevertheless the Ponzie strategy can besides be looked to analyse how growing fuels concentration of even the unhealthy sort. The buildup of an IT giant like Satyam lasted merely till the 2nd twelvemonth of the recent planetary crisis. However Satyam did supply a rebuttal to its destined ruin after its amalgamation with Tech Mahindra which put it back on the growing path.

Exports Vs Domestic Market:

The information engineering industry is one of the major beginnings of foreign currency or India. Domestic gross revenues dominated the Indian scenario possessing a portion of 57.14 % in 2001. This bit by bit decreased to 24.41 % in the first twelvemonth of the planetary crisis supplying exports a domination with 75.59 % ( refer to fig ( I ) of the Appendix ) .

Export is the major country of benefit that the future growing in the IT industry can bring forth for the Indian economic system which presently contributes around 75 % of the entire gross of the IT industry in India. There is still immense range of growing in the domestic market which can be tapped in the future.A The IT and IT enabled services industry in India has recorded a growing rate of 22.4 % in the last financial twelvemonth. The entire gross from this sector was valued at 2.46 trillion Indian rupees in the financial twelvemonth 2007. Out of this figure, the domestic IT market in India accounted for 900 billion rupees. So, the IT sector in India has played a major function in pulling foreign financess into the domestic market every bit good as set uping a strong domestic market base.

Indirect part to the Indian economic system

Indirect employment has been generated at the rate of 4 extra occupations that have been created for every one occupation created by the Indian IT sector. The industry presently employs around 1 million people and provides indirect employment to around 2.5 million people. It is expected to add another 1, 50,000 occupations in the following financial harmonizing to NASSCOM. Owing to this more than 75 % of the work force employed are SSC/HSC or less educated. While this has proved to be a major beginning of employment encouragement it has besides had its portion of bipartisan societal consequence on the workers of the Indian economic system.

On one manus where IT sector has facilitated literacy in English it besides facilitated creative activity of employment chances in smaller towns/cities and encouragement of employment of differently-abled. Subsequently non merely did this sector helped open up chances for non-technical forces but besides promote adult females empowerment and supply high growing chances for the young person thereby making chances for the ‘out-of-the-mainstream ‘ campaigners.

Whereas on the other manus the roar witnessed an employment displacement with a rush into the IT sector nevertheless making ( inconvenient ) occupation vacancies in other sectors of the economic system as the feasible human resource were allured by the enticing benefits of this sector. Almost 70 % of the IT industry revenues come from USA. Therefore, any downscale in the US market, adversely impacts the Indian market excessively. E.g. recent retrenchment and occupation cuts due to recession in the US market.

An pressing undertaking of the survey of globalisation and migration is to understand the international labor system of the working economic system. With the of all time spread outing and enhanced multinational connexions, the critical issue for current research of skilled in-migration may non be mensurating “ encephalon addition ” versus “ encephalon drain ” of a peculiar state, but analyzing dealingss between the planetary and local sector across boundary lines. With respect to the Romer theoretical account, what it did place was that cognition was a partially-excludable but non-rival good. Subsequently this implies that the market would under-provide this as a affair of class but besides provide us excessively small invention in footings of new merchandises. It besides showed that this would take to an extra and ongoing deformation to the labour market for cognition intensive workers. It would basically restrict growing rates both within a state but besides across them as skilled workers migrated.

However with regard to the “ encephalon drain ” , which is the human capital flight or the large-scale out-migration of technologically skilled workers from developing states to developed states with established industries and better installations, it is assumed that high skilled occupations will stay in the developed economic systems and high skilled workers will migrate to such economic systems. In the Indian IT sector, this has traditionally been so. Recently high skilled workers have shown increased inclination in their desire to return, or so, non go forth to get down with. Causes of these are the higher rewards and later richer criterions of life within the IT industry. This led to the displacement and gradual resettlements of the research and development research labs of some of the largest engineering companies. As economic growing thrusts criterions of life higher, there will be a major decelerating down of the migration of high skilled people from urban India.

The IT industry in India has besides had a multiplier consequence on other sectors of the economic system. Some end product multipliers have shown to be brought about through the non-wage operating disbursals, capital outgo and ingestion disbursement by professionals of the IT sector of India. Approximately, 15.85 billion USD spent by the IT/ITES industry in the domestic economic system in FY06. This managed to bring forth an extra end product of 15.5 billion USD.

In apposition of these statistics it has been found that this the balance of regional development has been encouraged by agencies of gradual enlargement of concern operations to smaller Tier II /III metropoliss ensuing in higher employment and gross coevals. Not to bury the aid of this sector in bettering the supply of endowment and development of non merely physical but besides societal substructure. The IT sector has besides fuelled the growing of PE/VC support and is besides the cause for spurring first coevals entrepreneurship therefore emerging as a forepart smuggler in practising good corporate administration.

Some of the biggest challenges posed to India are to guarantee pecuniary and financial stimulation work, returning to fiscal consolidation, back uping drivers of growing and managing policy this globalizing universe.

The Indian IT participants are pre dominantly involved in rendering lower terminal services to their clients. Therefore, the industry can turn merely when it starts traveling up in the value concatenation. Soon, the Indian IT industry is fundamentally concentrating on the Application Maintenance and Infrastructure Management. But the focal point on rendering higher terminal services will assist in beef uping the trade name image of the industry.


The chief of this paper has been to measure the possible function of IT in wide based economic development of India. From the analysis, obviously IT has the potency of non merely easing the acceleration of the Indian economic growing by its proved resiliency but besides to advance wide based holistic economic development. While measuring the major hubs of IT in India, Bangalore & A ; Hyderabad proved to be the highest subscribers to the IT-enabled GDP growing nevertheless, in apposition, the part from North-Eastern sector of India is nil. Apart from geographic barriers non many grounds for besieging the potency of cheap skilled labour from this portion of India remained available for the survey of this paper.

In the last 10 old ages the Information Technology industry in India has grown at an mean one-year rate of 30 % ( EW, 2012 ) . The indicants are besides that the following decennary will be really different from the last one, with structural displacements in demographics that will reflect more conspicuously in international trade and economic sciences. Technology development and acceptance is expected to witness some riotous alterations as the Internet coevals takes over the work force.

The success of the IT industry of a decentralised system like India can be attributed to the favourable authorities policies, burgeoning demand conditions, healthy growing of related industries and competitory environment prevalent in the industry. If the recession has proven anything, it is that corporate giants can non trust on studious rules and traditional concern norms to remain afloat. With believing from a different horizon, forbearance, invention and an occasional brutal alteration, one can crush the recession and come off with a net income even during the roughest of times. With increased employment, the mean purchasing power of the common people of India has improved well. The ingestion disbursement has recorded an all-time high. The aggregative demand has increased as a consequence. All these have improved the gross production of goods and services in the Indian economic system. Hence, it can be said that the growing of India ‘s IT industry has been instrumental in easing the economic advancement of India.

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Fig ( I )