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The Rediff Business Special/Nirupam Bajpai, Navi Radjou

Leveraging India's strategic importance in infotech

Part I: Infotech prospects for India

Realising the strategic importance of IT for the country, the Indian government has set itself an ambitious target of making India a global IT power and a key contributor to the world IT industry by 2008.

In 1998, a National IT Task Force was set up and a National IT Policy formulated. The policy calls for raising the software industry's turnover to $ 85 billion by 2008, $ 50 billion of this coming from exports.

It also proposes to strengthen the country's human infrastructure through the establishment of an Indian Institute of Information Technology or IIIT in every state.

Emboldened by the thrust given by the federal government to IT development, 14 of the 26 state governments have already come up with their own IT policies that aim to leverage the comparative advantages of their states.

Eager to climb up the value chain, the Indian IT industry is at present aggressively pursuing two hot segments: e-commerce and IT-enabled services.

Internet and e-commerce opportunities

With Internet access now liberalised, Indian IT firms are eager to tap into the lucrative Internet software and services market.

Goldman Sachs Asia predicts that India will have 9 million Internet users and 400 ISPs by 2003. E-commerce is also taking off in India. According to IDC India, Indian e-business revenues will grow from $ 14 million in 1999 to $ 51 million in 2000 and reach $ 162 million in year 2001.

Intel's chief executive officer Craig Barrett has recommended to the Indian National IT Task Force to focus on value-added Internet software applications if it seeks to become a global software leader.

The National Association of Software and Services Companies or NASSCOM forecasts that India could earn at least $1 billion from exports of e-business software solutions in year 2002.

IT-enabled services or ITES

Value-added 'remote services' like back office operations, call centres, medical transcription, etc, could some day make India's $ 3 billion software exports in 1998 look like a paltry figure.

The worldwide ITES market is poised to grow from the present $10 billion to $180 billion by 2010.

According to NASSCOM, 25,000 Indians are currently employed in remote services. McKinsey & Company thinks that this number will rise to 1 million to 3 million people within ten years.

Tamil Nadu is likely to surge ahead of Karnataka, Andhra in IT

Within India, Tamil Nadu has great potential and is very likely to surge ahead of both Karnataka and Andhra. A late entrant into the Indian IT revolution, Tamil Nadu has nonetheless made remarkable progress in the past five years.

Building on the state's inherent advantages -- large reservoir of IT skills, low-cost of living, investor-friendly public policies, better-than-average infrastructure -- the Tamil Nadu government has multiplied efforts to attract foreign investment into the local IT industry.

In 1998, the state announced a far-reaching, industry-friendly IT policy and set up a state-level IT Task Force to implement it. All these efforts have paid off well: software exports have zoomed from nowhere to over $ 300 million in 1998.

The state's ambitious target for IT hardware alone for the year 2002 is set at $1.25 billion: if this target is reached, the region's contribution will represent about 30 per cent of the entire Indian hardware production.

Tamil Nadu has always been a front-runner in the industrialisation process in India, both in terms of industrial output and also of encouraging various new large-scale projects.

At present, the state accounts for over 11 per cent of India's industrial output and contributes to 15 per cent of the country's exports. Its economy is poised to become the second-largest in India by 2000.

It boasts of the second best infrastructure in India, a large reservoir of talent that has earned it the reputation of 'intellectual powerhouse' within India.

These strengths, combined with a global orientation and investor-friendly bureaucracy, have allowed Tamil Nadu to emerge as a top destination for foreign investments in India.

Latest CMIE (Centre for Monitoring Indian Economy) statistics indicate that TN now holds the number 1 rank in the country in investment, cumulatively from mid-'91 to April '99.

Tamil Nadu has already leveraged its strong industrial foundations to emerge as a manufacturing hub within India, particularly in the automotive industry, attracting major players like Ford and Hyundai.

Tamil Nadu is now trying to climb up the value chain of innovation and intends to become a major player in the global IT industry. Its government has recognised IT as a thrust area that has the potential to accelerate economic development of the state.

It has multiplied efforts to create a business environment in the state that is conducive to rapid IT development. In 1997, it became the first Indian state to announce a comprehensive IT policy; and it later set-up a special Task Force, with representatives from government, industry and academia, to oversee its implementation.

It has also established an IT department -- another first in India -- to speed up the adoption of IT within the entire administration.

What makes Tamil Nadu's IT policy unique is its dual focus on both the 'demand' and 'supply' side of the IT market, as well as its willingness to address both the 'physical' and 'institutional' infrastructure issues, an objective often neglected by other Indian states.

The IT industry in Tamil Nadu has lately been performing extremely well, growing at a higher rate than its competing neighbour states.

In 1998, its software exports valued at $ 300 million, contributed to 15 per cent of the country's software exports. Tamil Nadu today has the largest number of software professionals in India and also boasts of the largest mainframe computing capacity in the country.

Madras, the state capital, is fast emerging as a prominent development centre for multimedia software applications: PentaMedia Graphics (formerly called Pentafour Software), a local IT firm, now designs multimedia content for Hollywood animation movies.

International software majors like Alcatel, EDS and IBM have already opened office in Madras. Domestic software giants like TCS, Infosys and Wipro, too, operate large development centres in Madras.

A NASSCOM study has rated Madras as the best location for setting up software projects within India.

Undoubtedly, the first step in a successful state-level IT development strategy is the creation of an institutional infrastructure that supports the establishment of an IT industry.

The Tamil Nadu government scores high in this regard. It has set-up a forward-looking technocratic structure that acts as a major catalyst for IT development in the state.

This structure is made up of the IT Task Force which provides IT policy guidance, the IT Department which oversees the implementation aspects of the IT policies, and the Electronics Corporation of Tamil Nadu or ELCOT which acts as a "single-window" agency for all IT-related investments in the state.

The key strength of this technocratic institution is its determination to drum up grass-root support in the administration for each of its IT policy initiatives before implementing it.

Seeking such widespread endorsement is a good move and needs to be maintained since grassroots support is very critical for the success of major IT projects such as "e-governance," which aims to make the administration more efficient and responsive.

Another favourable factor for Tamil Nadu in joining the knowledge revolution is the advanced level of preparedness of its society. The state today boasts one of the highest literacy rates thanks to the emphasis on universal education by successive state governments.

It also has a high teledensity, with 75 per cent of rural areas having access to telephones. Moreover, PC (personal computer) penetration rate in both business and society "has traditionally been higher in the state compared to the rest of India."

Recent introduction of computer science as an elective in all state high schools is a step in the right direction to achieve the government goal of 100 per cent computer literacy in Tamil Nadu within 10 years.

Furthermore, the 1,000 Internet Community Centres or ICCs being set up by WorldTel all through the state will ensure that even remote areas reap the benefits of the Internet.

Finally, the adoption of a coding standard for the Tamil font, along with other initiatives -- e.g., Tamil Virtual University -- aimed at using IT as a tool to promote the Tamil language and culture will go a long way in raising IT awareness in the society. All these government initiatives should help enhance public knowledge, and understanding of IT.

Any developing country that wishes to become a knowledge-based economy needs to make infrastructure development its top priority. Tamil Nadu, relative to other Indian states, has some of the best infrastructure facilities.

The government is deeply committed in attracting foreign investments in this sector. Actually, 60 per cent of all new investments that Tamil Nadu attracted during the 1990s were in its infrastructure sector.

Lately, Tamil Nadu has been actively upgrading its telecom infrastructure. VSNL is already making huge investments to upgrade facilities in Madras with additional earth stations to increase the bandwidth. However, major improvements are still needed.

Once the state-wide high-speed fibre optic network by WorldTel is laid out, the Tamil Nadu government could try to convince the central government to let the local railway authority and electricity board provide the last-mile access.

The telecom bottleneck is a "national" issue and therefore the state government can't address it directly. The central government needs to realise that the services revolution places a premium on the development of a competitive telecommunications system.

Hi-tech parks are another important part of an information infrastructure. Regional development theorists have pointed to the significance of high-technology zones as contributing to general economic welfare, through the diffusion of economic benefits.

Consequently, the Tamil Nadu government is setting up TIDEL, a 1 million-sq ft software technology park in the heart of Madras at a cost of $ 75 million, as well as two other IT parks near Madras. Once these IT parks are completed, Madras will be much more competitive in attracting software projects coming to the Indian sub-continent.

However, two points need a mention: first, in addition to Madras, the Tamil Nadu government needs to actively create infrastructure for software development in other major cities like Coimbatore, Madurai and Trichy. This will ensure that Madras does not become congested and will also help spread the benefits of IT development across the state.

Second, in addition to IT Parks, the government may wish to promote 'IT Zones'. Companies that wish to settle in IT zones would be free to build their own facilities, according to their own specifications. This 'grow-as-you-need' model with help foster a stronger sense of 'community' among its occupants.

To successfully integrate into the global knowledge economy, a country also needs quality work force. Tamil Nadu however seems to have no dearth of talent. It has the largest number of software professionals in India and produces 4,000 computer science graduates every year.

There is no denying the fact that in terms of talent availability in the field of IT, Tamil Nadu rates much higher than most other Indian states. The 1997 IT policy has also provided for the diffusion of IT know-how throughout the state.

Moreover, in order to fill the gap between formal academic training and industry demand, the government has set up Tamil Nadu Institute for Information Technology or TANITEC. Modelled on Stanford University, TANITEC's objectives are to upgrade the quality of IT training in Tamil Nadu and accelerate the computerisation of the state administration.

Besides offering undergraduate and graduate training programmes, it will also conduct cutting-edge research and will provide software testing certification services. TANITEC's equity ownership is equally split between government and industry.

This shareholding mechanism allows TANITEC to extend technology into industry and other institutions in the state. The idea is to make TANITEC propel Tamil Nadu into becoming an 'intelligent state', the ideal that Singapore is close to achieving.

Tamil Nadu has been quite successful in developing both its 'soft' and 'hard' infrastructure. Its telecommunication infrastructure however still needs to be improved, but this can't be done without strong support from the Central Government.

By marshalling its inherent strengths, however, Tamil Nadu should be able to integrate well into the global knowledge-led economy.

Nirupam Bajpai is Research Fellow and Director of the India Programme at the Centre for International Development or CID at the Harvard University. Navi Radjou is a consultant at the Harvard Institute for International Development.

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