WTO and impact on the Indian software industry

Abstract

The software industry is the fastest growing segment within the Indian industry and is earning India valuable foreign exchange. The Indian software sector has reached a massive size of Rs 243.5 Bn during the financial year 1999-2000. The sector grew by 53% during the year. The growth during the last six years has been awesome — in 1995 the size of the whole software industry was just Rs26.05bn. This translates into an annualized growth of more than 56%. The domestic market accounted for Rs 72 Bn while exports accounted for Rsl71.5 Bn in the current fiscal. While the domestic software has grown by 45% (46% annualized during the last 5 years), exports have grown by 57% during the year (62% annualized over the last five years)1. The export segment has been the star performer driven by increased prominence of India in the world as a quality supplier of software services. India currently exports software to some 95 countries around the globe and 203 of the Fortune 500 companies have outsourced some part of their software requirement to India. In fact, software exports have become a major foreign exchange earner for the country and account for a substantial 10.5% of India's total exports. However, the share of the Indian software industry in the world market is quite low. To achieve a larger share of the global software market, the Indian software industry needs further growth. However, the industry faces certain barriers — both domestic and external - that may slow the pace of growth. This paper discusses these barriers to the growth of the Indian software industry in general and its exports in particular. The objective of this paper is to assess the opportunities and understand the constraints to trade in software services in India, to recommend a strategy for the Indian government in its negotiations on this sector at the WTO, and to suggest areas for domestic reform to strengthen the sector. The subsequent sections discuss the existing structure of the Indian software industry with an emphasis on exports, the competitive advantages enjoyed by the industry, the emerging global opportunities for India, and threats — i.e. constraints (domestic and overseas) faced by the industry in its growth and suggestions on how it can overcome these obstacles and sustain its growth. The paper discusses the growth and importance of the service sector in the Indian economy and the role for software services in this sector in section 2. The next section (Section 3) discusses the trends in the global software industry and then in Section 4 we discuss the rise of software outsourcing and the recognition of India as a location for software outsourcing. Section 5 concentrates on the Indian IT and software industry. In this section, we will discuss the germination of the Indian software industry (Section 5.1), the growth of the Industry in the last decade (Section 5.2), the domestic and export components of the industry (sections 5.3 and 5.4) and the role played by quality consciousness and adherence in the industry's growth, (section 5.5). Finally, section 5.6 helps understand the opportunity and future outlook for the industry. Section 6 presents an introduction to the WTO, its various treaties and the commitments made therein by the member nations. The next section (Section 7) analyzes the barriers raced by the software industry and section 8 suggests some measures to overcome these barriers. The appendices at the end of the paper give a more detailed understanding of some relevant issues.