Computer Software: India8217;s ticket to the big time

All industry pundits seem to agree that computer software exports will reach a figure of about around 2,564 millions in the financial year 1998-99. Compare this with the foreign exchange earnings of other major exporting segments in India in 1997-98, which are as follows see table below.

As astute government and a pro-active finance minister will see a unique opportunity for India in this segment, particularly since virtually the entire export earnings are from hard currency area. This now acquires greater importance in view of the sanctions recently imposed on India by the USA and some other countries.

International trade today constitutes about 16 per cent of the world GDP and this percentage is increasing every year. The world is becoming more inter-dependent. It is globalising. The Berlin Wall has fallen, and many other such walls are falling. Even the relatively protective India has become a signatory to the WTO Agreement and is committed to bringing down all import tariffs of information technology products to 8220;zero8221; by the year 2005. The implications of these are serious and far-reaching. To succeed, we will have to be internationally competitive. Therefore, each country will have to ask itself the question as to 8220;What are we competitive at?8221;. Such competitiveness sometimes can be derived from the availability of natural resources such as oil in the Gulf. Some such commodities from India8217;s prospective are high grade iron-ore and mica.

However, I venture to suggest that the most abundant and competitive commodity that India has today is its teeming and well qualified manpower. Recently, our minister of trade Ramakrishna Hegde said so in as many words at the WTO meeting held on 18 May, 1998.

At present, India8217;s comparative advantage lies primarily in the service sector, mainly due to the availability of skilled and educated man power at relatively low prices. This is the main reason behind a relatively large contribution of high labour component industries like gems and jewellery and ready-made garments to total exports from India. Exports of polished diamonds is a typical example of export of services. We all know that India exports diamond polishing8217;, not diamonds.

In fact, the Indian policy makers need to look at the entire service sector as an opportunity. Services today constitute over 50 per cent of the world GDP and international trade in services is increasing at a faster rate than that of products. For example, tourism is one industry where India can exploit the opportunity of increasing trade in services.

According to the World Travel and Tourism Organisation, tourism generated a revenue of US3,300 billion in the year 1996-97 and provided employment to 262 million persons, ie, 10.5 per cent of the world labour force. Even the tiny island of Singapore earned US9,400 million from tourism whereas the corresponding figure for India was US2,800 million. We have not understood the potential of generating foreign exchange through services as yet.

Computer software industry constitutes a component in the services sector. The performance of India in exporting computer software over the past six years is given below see table.

These statistics bear testimony to both the competitiveness of the Indian computer software industry as also the international potential thereof. Fortunately, the market conditions are also favourable since there is a shortfall of 190,000 software professionals in the USA, 50,000 in Germany. This gap is unlikely to be bridged at least in the short term. This is a unique opportunity for India. There are two ways in which this opportunity can be leveraged: by exporting manpower itself.

by setting up large off-shore software factories developing software via telecom links for the overseas client. India has had the far-sightedness to increase the number of computer graduates. Today our educational institutions produce over 60,000 computer science graduates every year. Even the USA produces only 26,000. Philippines which is potentially becoming a competitor to India, produces about 19,000 computer science graduates annually.

India has an almost inexhaustible reservoir of students enrolled in both high schools and universities. The number of students enrolled in schools is over 160 million and in universities is over 10 million. Therefore, the student population in India itself is almost equal to the entire population of Germany, UK and France put together.

In order to become a dominant player in the field of computer software and information technology enabled services, it is imperative that we take a global and long term view of the emerging situation.

There is a need to enact legislation and implement fiscal and monetary policies that would provide added stimulus and thrust to exports from this sector. India has primarily leveraged the export of computer software.

Besides computer software, there are the following other opportunities that are also available to the country which are information technology related:1 Information Technology

2 Information Technology Enabled Services

If these sectors too are targeted, then India can target an export in excess of 25 bn per annum in the entire information technology sector. One of the key enablers for success in the export of the aforesaid services would be the quality, speed and cost of telecom links from India. All of us are aware of the high tariff structure of Indian telecom services.

Though the international high speed links are fairly competitive, their competitiveness are blunted by surcharges and unreasonable restrictions. There is currently a surcharge of 25 per cent on such links, if they are used for voice connection. Today, many applications including multimedia, medical transcripts and others, have voice as their key element.

Therefore, this surcharge needs to be totally eliminated. Similarly, there is a 100 per cent surcharge if direct links are networked. In today8217;s day and age, everything is networked. There is absolutely no justification in this networking surcharge. Local high-speed links unfortunately no justification in this networking surcharge. Local high-speed links unfortunately cost between 3amp;5 times more than what they are elsewhere. This is counter to the national objectives of the dispersal of I.T. industry to smaller cities. Therefore, the government needs to take a good and hard look at the cost of telecom links, both domestic and overseas, if this sector isto reach its full potential.

There are understandable reasons, as to why the government may not wish to reduce telecom tariffs across the board. Therefore, one way to reduce the telecom tariff for this sector, is to insist on payment in foreign exchange to qualify for reduced tariff.

India8217;s export processing zones have demonstrated the impetus that can be given to exports from such zones. Today the majority of India8217;s computer software exports are from such zones. Indian bureaucrats have a mania to control everything. This manifests itself in the export zones. These zones need to be liberated. Therefore, there is a pressing need to convert them into Free Trade Zones better still, India can build Dollar Designated Free Trade Zones, similar to what China has done.

All transactions in such Dollar Designated Free Trade Zones can be in dollars. These could include salaries, and even payments in the canteen. Consequently, it may be possible to in fact have separate legislation for such Dollar Designated Free Trade Zones which the government may find impossible and politically inexpedient. Two examples of this can be changes in the industrial disputes act and income-tax benefits to employees on account of their earnings in foreign exchange.

I venture to suggest that such Dollar Designated Zones can result in a deep acceleration, not only to information technology services export but to the entire export sector in the Indian economy. The definition of computer software should include data processing and information technology enabled services to avoid harassment and provide clear guidelines to the income-tax department. There is a very dangerous move by the WTO, to which the government of India appears to be succumbing.

The WTO is protesting that Indian exporters should not be exempt from paying income-tax. This needs to be resisted. Exemption from income-tax is not a subsidy. Virtually, all Gulf countries do not charge any income-tax. Using WTO logic, all exports from these countries including oil, should be banned! We need to project the correct position to the WTO.

In conclusion, India is globally competitive in the services sector. We can leverage this sector to India8217;s advantage. Fortunately, the rate of increase in the export of services exceeds the rate of increase in exporting products. Since, over 50 per cent of the world8217;s economy today constitutes services. This can be India8217;s opportunity to leap-frog over other nations and make its presence felt in the global economy.