India has built itself on traditionally rich academic learning’s of mathematics and science. Today, it has the world's largest technically skilled workforce with over 4 million engineers, scientists, and other technologists and the second largest English speaking technically equipped and professional workforce. This massive number of technical talent drives down the equilibrium wage in this sector. Less than three-fourths of these skilled workforces have technical or scientific jobs due to the lower wage and fixed number of jobs available. This occurs because a technically trained person views this wage as the opportunity cost for going to work in some other sector. A lower wage lowers this opportunity cost, which results the skilled workforce to shift into other sectors. With Indian programmers available for less than $15 to $18 per hour, Indian firms complete software projects for less than half the cost of in the United States. Therefore, by the theory of comparative advantage, the software IT industry should expand and grow since overseas firms see this lower wage as a free profit opportunity and exploit it. This creates a greater numbers of jobs in the industry and the skilled workforce reallocates itself back into this sector.

For 1995, the industry had sales of rupees 19.27 billion ($640 million) where ten years back it had less than rupees 400 million ($13 million), and it only employs around 140,000 people. The compound annual growth rate for the industry has been 45.5% with the export industry growing at 54.8 %. 61 % of the exports are to the United States, 17% are to Europe, 6% are to West Asia, 5% are to Japan, and 6% are to Southeast Asia. This implies that countries followed and did the same thing what the theory of comparative advantage predicts and took benefits of India's high endowment of skilled professionals.

The government had established several software technology parks in 1990 in several locations such as Bangalore, Madras, Kochi, and Delhi etc.

These parks make entry into the international software industry simple and only allow 100% export oriented units. Software firms in these parks can import goods duty free and for the initial six years without corporate taxes. The parks have centralized computing facilities and members get complete access to high speed data communication links and the internet. The leaders of the park provide the single governmental contact for all procedures such as licenses, import certificates, etc. enabling Indian firms to avoid the bureaucracy of the central government. In export processing zones, the government allows duty free imports, income tax holidays, and simplified procedures. The units maintain themselves independently from the profits they earn from the firms that use them. 

  Modified On Mar-15-2018 06:00:43 AM
  1. Thanks jeet for providing nice post about indian software industry.India is the topmost offshoring destination for IT companies across the world. Having proven its capabilities in delivering both on-shore and off-shore services to global clients.

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