FOREIGN TRADE AND POLICY

PROBLEMS, PROSPECTS, OPPORTUNITIES AND

POST-LIBERALIZATION ERA OF INFORMATION
TECHNOLOGY INDUSTRY

SUBMITTED TO: SUBMITTED BY:

PROF. N.R VAID PRIYANKA BANSAL

PGP 09-11

Acknowledgement
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 I take immense pleasure in completing this project and submitting the final
project report. This project has been a platform in my learning about the
Foreign Trade Policy and gave the platform to acquire knowledge in this area.
I am deeply indebted to my institution FOSTIIMA BUSINESS SCHOOL,
Delhi to provide me an opportunity to undergo such a project, which gave me
thorough insights.

A successful project can never be prepared by the single effort of the person to
whom project is assigned, but it also demand the help and guardianship of
some conversant person who helped the undersigned actively or passively in
the completion of successful project. In this context as a student of FOSTIIMA
BUSINESS SCHOOL, Delhi, I would first of all like to express my gratitude to
Prof. (Col.) N.R.Vaid (Project Guide) for assigning me such a worthwhile topic
“Problems, Prospects and Opportunities of the Information Technology Industry
” to work upon.

Total number of words outlining the matter of the report is 2,748.

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 Table of Contents

S.NO. TOPICS PAGE NO.

1 IT Sector – An Overview 4

2 IT Industry in India 5

3 Factors in India’s emergence as IT player 6

4 Major Trends in IT 7

5 SWOT Analysis 8

6 IT Success Factors 9

7 Future Prospects of IT Industry 10

8 Problems faced by IT Industry 10

9 Current Challenges of IT Industry 12

10 Post Liberalization of IT Industry 13

IT Sector - An Overview
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Career Prospects 
The Indian IT sector is growing rapidly and it has already made its presence felt in all parts of
the world. IT has a major role in strengthening the economic and technical foundations of
India. Indian professionals are setting up examples of their proficiency in IT, in India as well
as abroad. 

The sector can be classified into 4 broad categories:

1. IT Services
2. Engineering Services
3. ITES-BPO Services
4. E Business

IT Services can further be categorized into Information Services (IS) outsourcing, packaged

software support and installation, systems integration, processing services, hardware support
and installation and IT training and education.

Engineering Services include Industrial Design, Mechanical Design, Electronic System

Design (including Chip/Board and Embedded Software Design), Design Validation Testing ,
Industrialization and Prototyping. 

IT Enabled Services are services that use telecom networks or the Internet. For example,
Remote Maintenance, Back Office Operations, Data Processing, Call Centers, Business
Process Outsourcing, etc. 

E Business (electronic business) is carrying out business on the Internet; it includes buying

and selling, serving customers and collaborating with business partners.

IT Industry in India
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Information Technology (IT) industry in India is one of the fastest growing industries. Indian
IT industry has built up valuable brand equity for itself in the global markets. IT industry in
India comprises of software industry and information technology enabled services (ITES),
which also includes business process outsourcing (BPO) industry. India is considered as a
pioneer in software development and a favorite destination for IT-enabled services. 

The origin of IT industry in India can be traced to 1974, when the mainframe manufacturer,
Burroughs, asked its India sales agent, Tata Consultancy Services (TCS), to export
programmers for installing system software for a U.S. client. The IT industry originated under
unfavorable conditions. Local markets were absent and government policy toward private
enterprise was hostile. The industry was begun by Bombay-based conglomerates which
entered the business by supplying programmers to global IT firms located overseas.

During that time Indian economy was state-controlled and the state remained hostile to the
software industry through the 1970s. Import tariffs were high (135% on hardware and 100%
on software) and software was not considered an "industry", so that exporters were ineligible
for bank finance. Government policy towards IT sector changed when Rajiv Gandhi became
Prime Minister in 1984. His New Computer Policy (NCP-1984) consisted of a package of
reduced import tariffs on hardware and software (reduced to 60%), recognition of software
exports as a "delicensed industry", i.e., henceforth eligible for bank finance and freed from
license-permit raj, permission for foreign firms to set up wholly-owned, export-dedicated
units and a project to set up a chain of software parks that would offer infrastructure at below-
market costs. These policies laid the foundation for the development of a world-class IT
industry in India. 

Today, Indian IT companies such as Tata Consultancy Services (TCS), Wipro, Infosys, HCL
et al are renowned in the global market for their IT prowess.

Major Factors in India's emergence as Key Global IT Player

Indian Education System

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The Indian education system places strong emphasis on mathematics and science, resulting in
a large number of science and engineering graduates. Mastery over quantitative concepts
coupled with English proficiency has resulted in a skill set that has enabled India to reap the
benefits of the current international demand for IT.

High Quality Human Resource

Indian programmers are known for their strong technical and analytical skills and their
willingness to accommodate clients. India also has one of the largest pools of English-
speaking professionals. 

Competitive Costs
The cost of software development and other services in India is very competitive as compared
to the West.

Infrastructure Scenario
Indian IT industry has also gained immensely from the availability of a robust infrastructure
(telecom, power and roads) in the country.

In the last few years Indian IT industry has seen tremendous growth. Destinations such as
Bangalore, Hyderabad and Gurgaon have evolved into global IT hubs. Several IT parks have
come up at Bangalore, Hyderabad, Chennai, Pune, Gurgaon etc. These parks offer Silicon
Valley type infrastructure. In the light of all the factors that have added to the strength of
Indian IT industry, it seems that Indian success story is all set to continue.

Major Trends in IT

 Trends in Hiring

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The bar chart shows that the recruitment of engineers and IT professionals in the industry is
growing at the Compound Annual Rate of 14.5% approximately.
In the FY06, the direct employment in the IT-ITES sector was 1.3 million people and the
indirect employment was 3 million approximately.

 Trends in Salary Hikes

Along with abundant growth opportunities, IT sector is one of the highest paying sectors. The
average increase in salary in IT sector across the levels was around 16% and the average
increase in the ITeS BPO sector across the levels was in between 16%-18%.

 End to poaching

 Review of compensation according to the skills 

 Developing talent in-house

 Entry of talented freshers in the industry 

SWOT Analysis

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 Strengths Weaknesses

1. Highly skilled human resource 1. Absence of practical knowledge

2. Low wage structure
2. Dearth of suitable candidates
3. Initiatives taken by the Government
(setting up Hi-Tech Parks and 3. Less Research and Development
implementation of e-governance projects)
4. Many global players have set-up 4. Contribution of IT sector to India's GDP is

operations in India like Microsoft, Oracle, still rather small.

Adobe, etc.
5. Employee salaries in IT sector are
5. Following Quality Standards such
increasing tremendously. Low wages benefit
as ISO 9000, SEI CMM etc.
will soon come to an end.
6. English-speaking professionals
7. Cost competitiveness.  

 
Opportunities Threats

1. High quality IT education market 1. Lack of data security systems

2. Increasing number of working age 2. Countries like China and
people Philippines with qualified workforce making
3. India 's well-developed soft efforts to overcome the English language
infrastructure barrier
4. Upcoming International Players in IT development concentrated in a few
the market cities only

   

Information Technology Domestic Markets

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The market for enterprise networking equipment in India is estimated to grow from US$ 1
billion in 2008 to US$ 1.7 billion by 2012, recording a compounded annual growth rate
(CAGR) of 15 per cent during this period, according to a study by Springboard Research titled
‘Epicenter of Growth–Indian Enterprise Networking Equipment Market Report' released in
December 2009.

Investments

Between April 2000 and September 2010, the computer software and hardware sector
received cumulative foreign direct investment (FDI) of US$ 10,406.16 million, according to
the Department of Industrial Policy and Promotion.

Government Initiatives

Setting up of Software Technology Parks of India (STPIs) in 1991 for the promotion of
software exports from the country, there are currently 51 STPI centers where apart from
exemption from customs duty available for capital goods there are also exemptions from
service tax, excise duty, and rebate for payment of Central Sales Tax. But the most important
incentive available is 100 per cent exemption from Income Tax of export profits, which has
been extended till 31st March 2011

Government is also setting up Information Technology Investment Regions (ITIRs). These

regions would be endowed with excellent infrastructure and would reap the benefits of co-
siting, networking and greater efficiency through use of common infrastructure and support
services. Moreover, according to NASSCOM government, IT spend was US$ 3.2 billion in
2009 and is expected to reach US$ 5.4 billion by 2011. Further, according to NASSCOM,
there is US$ 9 billion business opportunity in e-governance in India.

IT: Success Factors

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 1. Increasing number of skilled professionals in IT.

2. The demographic factor. Approximately 60% of the population of India lies in the age
group of 15-65. More than half of the population of India is below the age of 25. So in
the future, the number of working people is going to be more than the number of
dependents.

3. The vast academic infrastructure of India. In the year 2006, Total Enrollment in
colleges was 9.3 million and India produced 441,000 Technical graduates.

4. India has the second largest English-speaking workforce in the world.

Future Prospects of IT Industry

The Indian information technology sector continues to be one of the sunshine sectors of the
Indian economy showing rapid growth and promise.

The exports component of the Indian industry is expected to reach US$ 175 billion in revenue
by 2020. The domestic component will contribute US$ 50 billion in revenue by 2020.
Together, the export and domestic markets are likely to bring in US$ 225 billion in revenue,
as new opportunities emerge in areas such as public sector and healthcare and as geographies
including Brazil, Russia, China and Japan opt for greater outsourcing.

Problems faced by IT industry

In information technology, it is easy to cite examples of companies and individuals who have
triumphed over threats. Knowing what issues you face is the first step in dealing with them.
Ignoring threats is playing the Russian Roulette.

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Working in IT (the information technology sector) seems to be a constant game of “two steps
forward and one step backward”. And that’s on the good days. On other days, it’s most
definitely one step forward, two steps backward and you trip over because you didn’t see
somebody sneaking up on you and that somebody treads on your face while you are lying on
the ground.

Thinking about the problems faced by the IT industry, the following are noteworthy:

1. The stifling innovation: IT almost by definition is about innovation; the only constant in
this industry is change. The industry is worth more than USD 2.5 trillion annually worldwide
and yet faces constant attempts to thwart its success.

Whether it’s the lies of the entertainment industry or the cynical people designing business
strategies around patents rather than actual innovation (or even work) or companies spreading
fear, uncertainty and doubt about its competitors or companies pursuing increasingly spurious
lawsuits to “protect” their businesses, it has the same effect. Comparatively tiny vested
interests are threatening the continued growth and prosperity of the vast majority, until we
stop seeing this rubbish as “good business” and recognise it for what it is - a shakedown,
everyone’s future is at risk, that is.

2. The obsession with technologies and methodologies over results: The fundamental
disconnect between a technologist and a business person often narrows down to focus. We
geeks love our gadgets. A Southern Baptist preacher ain’t got nothin’ against a hardcore geek
evangelising about his favourite technology. Here’s a hard fact for many IT people: The right
technology is the one that gets the job done. The average business person has no interest in the
programming language, operating system, hardware or methodology that you believe is the
one true path to the promised land.

3. Arrogance: Here’s a tip - if you’re trying to explain technology to someone and they
don’t seem to understand, treating them like they’re stupid isn’t going to help anyone, you,
least of all. It doesn’t matter if they really are stupid; the IT industry’s reputation for
arrogance has been earned by the frequent display of grossly unjustified arrogance by many IT
practitioners. And if you think arrogance makes you “strong”, just stay the hell away from me.

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Besides making an average (non-arrogant) geek’s life miserable, quite a few major companies
have been destroyed due in no small part to arrogance.

4. Hype over substance: There’s no getting around it - IT is exciting. The rate of change
and the explosion in computing power have opened so many possibilities; it’s dizzying,
sometimes literally. It seems that “irrational exuberance” is an occupational hazard in IT.
Sure, it’s a great way to get media attention and investment capital but it seriously hurts your
credibility if you can’t deliver on the hyperbole.

5. Constantly focusing on “the now”: While IT development is arguably about creating

the future, I’m always astonished at how many colossal blunders are perpetrated by thinking
only about the present. The Y2K issue was created by programmers deliberately introducing
an appalling limitation into systems essentially because it wasn’t a problem for them -
someone would fix it in the future. Arguably, this turned out to be true but this issue is a
perfect illustration of how short-sighted thinking in IT could have long term consequences.

Current Challenges of IT Industry

Many IT giants and solution developers are in the market as well small scale IT service
providers. Hence it is required for IT industries to live in market where competition is high.
Problems like on-line distribution of softwares(piracy) which affects the revenue of company
and the growth of rupee value against that of the dollar are crucial. This drives IT companies
to think of novel strategies.

The biggest thing the IT sector is facing is global recession. Much of the software produced is
used in financial sector and global recession has affected the financial sector badly therefore it
will effect software industry.

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 Post Liberalization Factors of the IT Industry

The most pervasive way to disseminate technologies is by trade. By purchasing and selling
products and services, individuals and corporations disperse their underlying technologies all
over the world. This is true of consumer goods and services, such as high-definition television
sets or mobile phone services, and of capital goods and components, such as industrial car-
wash machines or enterprise resource planning systems.

Foreign direct investment is another way to disseminate technology. Investments sometimes

take the form of capital equipment and related services by which a multinational corporation
decides to invest in production facilities elsewhere. Technology also travels in the
relationships between buyers and suppliers. Contributing or feeder technologies become part
of the supply-chain of other products and services. For example, microprocessors, hard disks
or video cards are necessary parts of assembled laptop computers. In some cases both of these
exchanges take the form of technology licensing or assistance agreements by which a party, a
multinational corporation or technology vendor, lets others use its technology know-how,
processes and components in exchange for compensation.

Legally or not, those who are eager to innovate pay close attention to those who have
innovated first. By closely examining the business models, products and services of the
pioneers, others may be able to replicate them and even improve them. As the saying goes,
“copying is the greatest form of flattery.” Often, simple copying is not possible due to
technical complexity and trade secrets. This is when scientists may resort to reverse
engineering to decompose a product or service with the idea of learning how to build a similar
or better one.

Education and training are great ways to disseminate technologies. When scientists, engineers
and technicians learn about processes and products from the innovators, they are then able to
produce them and even improve on them. This education takes place in the form of corporate
training, academic education, joint research projects and mentoring relationships. Often times,
these training activities take place around trade shows, conferences, professional meetings and
even distance learning over the Internet.

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