In early days, since software development could not come to India, Indian programmers were sent to developed countries. It began in 1974 when Tata Consultancy Services (TCS) export programmers to US clients. Other firms followed including foreign IT firms.
Initially, the exported programmers worked for global IT firms. Later in the decade, as IBM grew itself in market shares, clients such as banks approach Indian firms to implement migrations for existing applications software into IBM-compatible versions. By 1980, there were 20 software development firms with annual exports of nearly $4.5m.
The market state remained hostile to the software industry through the mid-1970s. Import tariffs were high (approximately 135% on hardware and 100% on software packages) and software’s were not looked as an “industry”, so that exporters were ineligible for bank finance. However, these protectionist policies favoured established firms with conglomerate interests and access to finance over small firms. Bombay (Mumbai), the country’s commercial capital, became the primary centre of the business. 7 of the top 8 exporters in 1980 were headquartered in Bombay with a 90% market share
While protection results to labour exports, it slowed down the inflow of new skills into country. The industry learned global skills mainly through programmers returning from overseas projects and assignments, but this was further slowed because most of them chose to remain overseas. For example, in 1986, 59.3% of top IIT graduates in computer science and engineering (CS) migrated.
An important, though very thin resource, was the return of U.S.-educated engineers, who teaches advanced project management and engineering skills. In summary, despite access to a large stack of programmers and engineers, the industry’s value-addition measured by average revenue per employee remained very low. The activity of the industry during its first decade consisted of little other than recruitment of engineers.
As a producer of IT, the government failed. Its protectionist policies were intended to benefit SOEs and crowd out the private sector. Although the private sector discovered a way out, the solution forced on domestic firms was to opt for the lowest end of the business, one that reduced opportunities for learning. It was not till the mid-1980s that redemptive policies, including freer entry for TNCs, helped the sector. Education policy, moreover, has not much succeeded.
In retrospect, origination needs bundling of the required skills from several local resources.
First, the pioneering firms chose work which needs simple managerial skills and low project finance: they recruited software engineers and programmers who were exported for short periods at a time to clients that determined their use.
- Second, newly-trained returnees provided advanced engineering and project management skills.
- Third, foreign IT firms, that served Indian markets until the 1973 laws shut them down, became the first overseas clients.