By: Prof. Pradosh Nath

The present paper locates the Indian software industry within the broad understanding of market and hierarchy, where outsourcing could be for knowledge complements or for knowledge of terminated specificity.  At the policy level, the author Prof. Pradosh Nath suggests that  ‘a strong incentive structure has to be created for industries to plan for wise spread application of IT’.  An ICSSR Fellow at  CCMG & Scientist at National Institute of Science, Technology and Development Studies (NISTADS), New Delhi, Prof. Nath may be contacted at  pradosh@nistads.res.in.

Employment in millions and export earnings in billions are the two most visible gains from the Indian software industry. The industry has withstood low value, low skill, and high volume tag to grow in size over last two decades. Separation of Chip fabrication and design companies have brought in certain jobs related to chip designing activities in India, albeit, restricted to a few companies. The industry structure, however, remained the same – the long tailed structure characterised by the small number of large companies and large number of small companies. In terms of the knowledge hierarchy the Indian software industry ranges from large share of the low knowledge level activities to small volume of high knowledge level activities- the basic dynamics being outsourcing by the first world enterprises who dominate the global market in their respective field of business.

Given this scenario the present article locates the Indian software industry within the broad understanding of market and hierarchy, where outsourcing could be for knowledge complements or for knowledge of terminated specificity. Both types are part of a dynamic process of building up competitiveness through creation of enterprise specific knowledge. The main distinction between the two, however, is where the former is closer to the process of creation of enterprise specificity; the latter is closer to the market pool of knowledge. Examining within these parameters the present article argues that the Indian software industry is at the bottom of knowledge hierarchy, where the bottom is highly segmented. Being alienated from the domestic manufacturing sector such a structure creates duality in the labour market as well as in the overall industry structure of the country. The distortions thus created disable the process of consolidation from the employment and income gains from the growth of the industry.

The paper argues that the political process, that successfully thwarted the automation of Indian manufacturing sector, has caused an irreparable damage to the global competitiveness, and has to be reversed to capitalise on the gains of the software industry across the whole economy.

For full paper, please click here .