India’s Information Technology industry: prospects for growth and role in structural transformation

Abstract

The idea that service-sector industries, rather than manufacturing, can drive growth and structural change has caught the imagination of several scholars and policy-makers. For India, the Information Technology (IT) industry is often cited as an example of one such industry. However, empirical evidence for such claims is still weak. This article evaluates the Indian IT industry’s potential for growth. Most studies on the subject focus on the narrower segment of IT-Services in India while we take a holistic view and consider the potential of both software product and services, IT hardware, outsourced/offshored business processes, and activities involved in creation of intellectual property. We evaluate the present position and future prospects of the industry including India’s position in the technology value chain as well as future opportunities for the industry in the context of relocation of global manufacturing value chains and growth of the domestic market. We also discuss the likely impact of technology on jobs in the overall economy, direct and indirect job creation potential of the IT-BPM (Business Process Management) sector and the spill-over effects of technology as an enabler of new business models. Finally, we draw some lessons for effective industrial policy.