The rate of growth in India’s software and services exports is declining. Exports grew by 18 per cent in 2010-11, are likely to grow by 16.3 per cent in the current year 2011-12 — and, according to a projection by the industry association Nasscom, growth will be just 11-14 per cent in the coming year, 2012-13. This sits a bit uneasily with the claim that India’s share of global outsourcing business has gone up in the last year by three percentage points to 58 per cent, and needs explaining. But what sits well with the export scenario is the fact that the domestic market has been growing at a faster rate than exports in the last three years (2009-12). At a time when the global economy is in the doldrums, by doing better domestically and with huge prospects of domestic growth ahead, the IT services industry is derisking itself by relying slightly less on the global market — though global sales still remain its mainstay. In this scenario, the strategy for the industry and the government has to be to speed up the adoption of IT in the country, so that the growing importance of the domestic market does not turn out to be a flash in the pan. Currently, the Chinese software industry is larger than India’s, but India is ahead in exports. So remaining ahead in exports while beefing up domestic revenues will enable the industry to enjoy the best of both worlds.
In order to promote the domestic software market, the government needs to follow a few simple straightforward priorities, over which there is wide consensus. One is to promote IT penetration so that more and more Indians have access to electricity and a computer to run it. The Indian government’s attempt to make a success of the Aakash tablet computer, priced at less than Rs 2,000, does at least show intent. The initial hiccups and controversies surrounding the project, and the considerable criticism of the final product, should not be allowed to affect the commitment to increasing the penetration of computing and of broadband internet. The second policy plank is to speed up the government’s use of IT, and devote greater commitment to taking e-governance to every corner and strata of society. Greater use of IT in government has huge externalities. Not only will it make growth more inclusive, efficiency gains for the economy as a whole will raise the overall growth rate. Another area that needs attention to give a boost to domestic IT demand is the small and medium enterprises sector, which is already doing its bit and does not need any more convincing.
On its part, the government also needs to avoid or quickly end the type of turf war that has occurred over the future role of Aadhaar. There are also reports that the food ministry does not want to use the Aadhaar number and an independent IT system to computerise its public distribution system, and prefers to work with its own plan in collaboration with the National Informatics Centre. This is unfortunate. The speed, efficiency and transparency with which the Aadhaar system is emerging should be enough to discourage ministries that like to have their own little IT fiefdoms over which they can preside. This comes in the way of what should be the government’s vision: an integrated, forward-looking IT sector, which balances external and internal demand and serves as an engine of growth and inclusion.