The Indian Economy Blog

November 2, 2005

Software – More Than Just An Industry

Filed under: Growth,Miscellaneous,Science and Technology — Amit Varma @ 4:39 am

Richard Celeste and Geoffrey Garrett write:

Skeptics are wont to claim that India’s successes in software are not “scalable,” and cannot be the basis for countrywide development.

But software is not a mere “industry” in the traditional sense of steel or textiles, to focus on two of China’s strong suits. An uber-industry, software is increasingly in everything.

Consider the automobile, the poster child of 20th-century manufacturing. Today’s cars don’t have much in common with the Model T. They are designed on computer screens, manufactured by robots, and drive using a dizzying array of intelligent features — all made possible by software.

If potential global demand for software is so great, can India supply it? India’s pool of English-speaking and well-trained engineers is already much larger than that in the U.S. and it is growing all the time.

Read the full piece, in which Celeste and Garrett also rebut the notion that India’s infrastructure problems are a major impediment to the progress of its software industry.

What do you think? Any counter-arguments, or supporting ones?

(Link via email from Gautam Ghosh.)

11 Comments »

  1. The argument is well made, but like Thomas Friedman’s similar argument in his recent book, overlooks a few critical aspects. Innovation and services can only pull the economy up to a certain level – beyond that, the infrastructure limitations (and that includes not only the physical infrastructure such as roads, airports, ports etc but also social infrastructure such as education and healthcare), legal framework (e.g. labour laws) and bureaucratic efficiency will cause the economy to stall. This is because in a country where the majority of the population lives on less than a couple of dollars a day, as the incomes rise, demand for basic products – clothes, food, vehicles – will rise faster than demand for services. Lack of infrastructure will not allow Indian manufacturing to meet that demand at a low cost (the Chinese are more efficient at that). So whereas India’s service sector will lead the growth for some time to come, eventually that will need to translate into manufacturing growth to keep the economy on an upwatd track.

    Comment by Aniruddh Gupta — November 2, 2005 @ 5:52 am

  2. Ashutosh Sheshabalaya wrote this book, “The Rising Elephant“, where he dealt with various topics related to Indian software and knowledge industries. Among the topics:

    Myth I
    This new sucking sound is an echo of the previous round. Americans have to somehow ride it out.

    Myth II
    Relocation of white-collar jobs began after the dotcom bust and downturn.

    Myth III
    America’s white-collar jobs will go to many places, and it does not really matter where.

    Myth IV
    India is home to a low-end software coding industry.

    Myth V
    India’s success is easy to duplicate in other developing countries.

    Myth VI
    India is like Japan-high impact on a few sectors but slight overall.

    Myth VII
    Pressure on India to stem the jobs drain would be straightforward, given it is poor and a geopolitical lightweight.

    Myth VIII
    Such a seismic shift in power has no precedents, and may therefore be unsustainable.

    This book is worth looking into. Like the authors Richard Celeste and Geoffrey Garrett, Ashutosh also says that there is more to the Indian software industry then merely providing services to IT companies.

    Comment by piyushgupta — November 2, 2005 @ 8:36 am

  3. Though the achievements of the Indian service sector are impressive, a nation ultimately cannot “export its way to prosperity”. Today, any significant revenue for the Indian IT firms comes from providing services to corporations in developed nations. This helps these developed nations enhance productivity and consequently deliver a higher standard of living to its citizens. That is not ofcourse to bemoan or deny the achievement of this sector but it is simply not a precursor to overall economic prosperity for India.

    Real prosperity for India will mean Indian entrepreneurs and businesses producing (and importing) goods and services for the Indian market, and achieving a high degree of productivity through innovation and competition. This will also mean that a significant portion of the revenue streams for TCS, Infosys and Wipro derive from the Indian market.

    As Adam Smith told us 230 years ago, wealth of nations is not gold (or dollars) flowing in but the goods and services produced within.

    Comment by Vivek G — November 2, 2005 @ 8:47 am

  4. I think the issue about not having an infrastructure or manufacturing base is not as severe as the issue of government interference in each and every thing. I think the software industry has somewhat evolved in the frustration of the inability to do anything in the manufacturing side.

    Instead of bemoaning the lack of infrastructure or export of ‘real’ goods, we should investigate and push out every bit of ‘meddling’ hurting our natural creativity & entreprenuership.

    Also, it is not an achievement of the ‘Indian software industry’, it is rather the success of a few IT firms. Ultimately it comes down to individual firms. And I’m confident they’ll find a way, and the most efficient way out of the lack of infrastructure.

    One way I see towards that is greater economic independence to the states. Of course that wouldn’t be in the interest of our great government.

    Comment by Abhi — November 2, 2005 @ 10:07 am

  5. At the risk of sounding too harsh, this article displays little understanding of the role of the software industry. Software as a technology is a tremendous human achievement, but when it comes to the bottom line software as a business is not the be all and end all. For one in terms of revenue generation the industry is not at all uber, in fact it is roughly the same size as the un-uber steel industry. Moreover software has at least two disadvantages when compared with steel. For one, software’s export prospects (though improving) are worse than steel’s; it is still the case that much of software’s “large global demand” is filled locally and on-site. Second, software demands more “highly intelligent people” per dollar of revenue generation, and thus functions as a sink for valuable human resources that could otherwise be deployed elsewhere. There is no better illustration of this than current media darling Google which occupies an outsized proportion of the world’s brightest minds for a mere $3 billion in revenue. To be sure, Google puts out very interesting and significant products, but one shouldn’t confuse this with its value as a revenue generation engine.

    If there is an uber-industry a better choice is electronics. It is much larger than software, has better export prospects, has limitless growth potential, and demands fewer very bright minds per dollar of revenue.

    Comment by walker — November 2, 2005 @ 11:56 am

  6. The article starts with a stupid question “Will India be the next China?”. Not sure if the authors fully understand what position china is in now..

    China’s gross domestic savings rate is close to 50% of GDP. This is an unprecedented number..
    The vast majority has been invested in the domestic Chinese economy. Gross capital formation was around 45% of GDP last year, and it powered an economic expansion that saw GDP rise by 9.5%

    The investment scenario in china is excellent ….in addition to its own investment, the government finances investment via capital transfers to state-owned enterprises in the power, electricity, water, transport, andother infrastructure sectors.

    Comment by Navin — November 2, 2005 @ 6:58 pm

  7. If software is the uber-industry, who needs manufacturing? Can’t we just be the uber-country of the world :-)

    Indian manufacturing and services sectors are still way behind in the evolution ladder. What software is accomplishing right now, is bringing a lot of more knowledge into the country. There are tons of Indians who now know how industries like financial services, telecoms, transport, energy function in the developed economies. This expertise is sure to get transferred (trickle down effect!) to Indian industry slowly.

    Once that happens (indeed, it has already begun) and a critical mass is acheived, there will be an explosion in Indian productivity the likes of which have never been seen before anywehre in the world.

    ~$20 billion (our IT revenues) are a pittance compared to what lies ahead for all of us.

    China grew its manufacturing industry on the basis of FDI, India will grow it on the basis of acquired knowledge. Thats going to be a jumpstart if ever there was one.

    Comment by Pranay Manocha — November 3, 2005 @ 10:58 am

  8. The article says that the software industry can be the basis of countrywide development and that this industry is not impeded in any significant manner by India’s bad infrastructure.

    Logical conclusion: It is possible to lay a sound foundation for a country’s economic development without developing the country’s infrastructure. Oh oh.

    Comment by Ranjith Jayaram — November 4, 2005 @ 2:45 am

  9. My belief is India can continue to see great economic gains. I believe software development, engineering, phone support desks, medical diagnostics, investment banking analysis… are large industries that hold potential for great growth. While I am far from an expert on India to say software the only industry going forward is not something I believe. India has potential for great growth as a manufacturer (there is no doubt infrastructure weakness makes this more difficult). Infrastructure weaknesses will slow such growth. Poor economic policies will slow such growth.

    Economic growth is the effect of the combined influence of interdependent factors, such as those noted above (and things like the education system, health care system, legal system…). India has huge advantages and huge disadvantages. China does also. The success of the last 10-20 years could very well continue but it is far from certain. The recent gains seem to be about as good as can be reasonably expected so going forward the gains may well slow down.

    There are many important factors to success but large countries (like China, India, USA…) cannot do with huge weaknesses (such as substandard infrastructure) without great reduction in economic growth and risk to future economic success.

    Comment by John Hunter — November 20, 2005 @ 3:37 am

  10. Leave India alone… Let the so-called Intellectuals keep guessing about India.. When it comes to India, time stops? It takes a different meaning… The Western people were always wrong and would always be about India… They have big money and they want fast access to Indian market… So they want good distribution systems very fast.. But guess what they are not going to have it.. At least in the near future.. Bad infrastructure is good for Indian economy… It gives chance for Indian companies to establish and carve a chunk out of the market.. If you are frustrated with India then leave her alone, go and sell your products somewhere else and stop lecturing Indians how they should progress.. Bad infrastructure coupled by progress in Information technology is the best combination one can ask for… We don’t want the Walmarts to sell our own products to ourselves.. Look at what’s happening with the TV industry.. Sony Entertainment India is making all the money. Soon they will set up their Movie Studios and sell our own movies to ourselves… Why can’t Bollywood movie making families don’t make a distribution studio I still don’t understand.. If we improve our infrastructure fast without improving our democracy then there would one day where the Americans would sell us our own Samosa like they have done to the Italian Pizza or the Mexican Taco… The World should accept whatever the pace at which Indian economy is growing and stop dictating us as a colony.. If you want to sell you products to India then Shut up and start adjusting to the Indian pace.. The ineresting part about India’s infrastructure argument is that I always see the Western people frustated but not the Indian people… Until the Indian people are not frustated nothing is going to changed and that’s the way it should be and not the other way around. If you are worried about the Infrastructure then don’t invest your IT dollars in India.. go to Mexico or Russia or Thailand or Brazil… Let the European companies establish market in India…

    Comment by KK — December 23, 2005 @ 2:17 am

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    Oversee.net is profiting from a very hot field called search engine conference facility that is conference facility venture capital from investors.

    Comment by conference facility — October 19, 2006 @ 11:01 am

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