Indias Development to Becoming a Computer Giant - Term Paper Example

India’s Development to Becoming a Computer Giant Introduction. In the beginning of its economic plans, after independence, India had adopted a socialist approach in its economic policies. The government had a strict control over the activities of the private sector. This control was also extended to areas such as foreign trade, and foreign direct investment. This scenario however, changed during the early 1990s, when a series of economic reforms were introduced. These reforms changed the face of the entire existing economic structure. A look at the changes brought about by economic reforms Economic reforms introduced in the 1990’s, resulted in deep and profound changes occurring in the industrial, trade, and financial sectors of the economy. Gradually, by implementing economic reforms, India reduced government controls on foreign trade and investment, thereby opening it’s markets. Further, changes were introduced through the privatization of publicly owned industries and the opening up of certain sectors to private and foreign interests. These changes helped India to achieve high growth rates. The political scenario was also conducive to reforms. There have been four different governments, since the 1990’s when the economic reforms were introduced. These Congress government which got elected in 1991 was the chief initiator of economic reforms. The United Front coalition (1996-98) which came to power in the following election furthered economic progress by continuing reforms. When the BJP-led coalition got elected in March 1998) took office in October 1999, they continued reforms and this idea is continued by the present Congress-led government. In short, India's political system is now, more than ever, in sync with the basic direction of reforms. The results of these events is felt in this decade, beginning with 2000 and ending in 2010, which is expected to be one of high economic growth, say, 7-8 per cent per annum. Characteristics of the Indian economy The Indian economy is a diverse economy as it includes a variety of sectors such as agriculture, industry, handicrafts, textile, manufacturing and a variety of service sectors. Each sector has contributed in its own way to economic growth and development in the country. It has been observed that about two-thirds of the Indian workforces are still earning their livelihood directly or indirectly through agriculture, but equally rising up, is the service sector. The service sector plays an important role in the growth of the Indian economy. The introduction of computers and the rising figures of educated well-read and well-learnt people in all social classes of the Indian society, has transformed India into an important 'back office' destination for global companies. India is now the leading place for outsourcing operations. The outsourcing company gains by way of getting their work done from a skilled, efficient and hard-working work force, at half the cost they would pay to their own people. India is a premier outsourcing destination for the west owing to it’s highly-skilled work force in software and financial services, and software engineering. India as an IT giant India has emerged as an IT giant in today’s world because of its economic reforms. It has a pool of highly qualified people in the science field, and many international corporations, have established large R&D centers all over in India to use the skills of such man-power resources. As India provides its services to the rest of the world, this feature has helped for integration of the Indian economy with the world economy. The rise of the IT sector has come about because of the rise in the demands for outsourcing. Today, India is the place for big domestic companies such as Tata Consultancy Services (TCS), Infosys, Wipro, Ramco Systems and many others, which are prime targets for Western companies that wish to, outsource IT projects. In order to keep the trend of outsourcing going, other infrastructure change have also been incorporated, such as the addition of nearly 2 million mobile connections every month due to which enormous successes of India's IT professionals. These small but significant changes have contributed to enormous successes of India's IT professionals. Today, 70 per cent demand for the worldwide business process outsourcing (BPO) lies in India. Indian programmers are providing IT support to US and European firms using satellite resources. Such support is provided in a range of activities which cover software development and maintenance, to providing services in back-office operations, data transcription and transmission, telemarketing, and other related areas. Firms in the United States and Europe in the fields of health, insurance and banking sectors are viewing India as their prime destination for outsourcing activities. They are quite satisfied with the quality of serve which they receive from the IT professionals which is a main motivation other than the cost factor. The reasons for success of India IT sector include: Traditional services such as ADM are quite in demand from India. India has the capability to provide new services such as EAI and package implementation. India is an area of growing engineering services for which the demand is rising. Indian companies are increasing their global service delivery capabilities by green-field initiatives, cross-border M&A, partnerships and alliances with local players. These factors make India a key target for foreign investments. Major IT leaders like Microsoft, Oracle and SAP have established their captive development centers in India and this means more knowledge for Indians in these domains. India accounts for 70 percent of the total offshore employee base for many leading MNC IT companies. India accounts for 16 percent of their delivery capacity. A survey by the National Association of Software and Services Companies (Nasscom) shows the following reasons as the keys to the Indian IT industry becoming a success story: The Indian IT-ITES industry has recorded 33 per cent growth in exports, which is about . US$ 23.6 billion in 2005-06. In the year 2005-06 the overall Indian IT-ITES industry (including domestic market) grow by 31 per cent and it showed revenues of US$ 29.6 billion. Of the total IT-ITES exports in the year 2005-06, IT software and services grew by 33 per cent, and they registered revenues of US$ 13.3 billion The ITES-BPO segment reached revenues of US$ 6.2 billion, recording a growth of 37 per cent. Engineering services and product exports increased from US$ 3.14 billion in the year 2004-2005 to about US$ 4 billion in the year 2005-2006. In India the retail sector has taken tremendously to using computers for carrying out their work activities and this is evident in the 27 per cent growth in retail outlets buying desktops, between the years 2000-01 and 2005-06. Since the demand in the local market is so high, the growth in factories manufacturing computers is by 46 per cent in the same period, while office locations saw a growth of 24 per cent. The overall growth trends in the IT sector, show that India is ready to face the global IT challenge. The projections made by Nasscom state that India’s software services will grow by 25-28 per cent, and this will bring in revenues worth US$ 36-38 billion in the year 2007. The IT-ITES exports are also expected to rise by about by 27-30 per cent for the year 2006-2007, and this will bring India revenues between US$ 29-31 billion. Introspect into the Indian economy India has moved from being a country much affected by problems such as child labor, high-illiteracy rate and drought, to bring one which has the fourth largest economy in the world, when it is measured by its purchasing power parity (PPP),. It has a gross domestic product (GDP) of US $3.611 trillion. Starting from the 1990’s and particularly the last five years after the millennium India economic growth has been steadily increasing. The Indian economy’s inherent characteristics, coupled with the opening up of markets due to economic reforms has resulted in the economy growing to such an extent that economic experts and various studies conducted across the globe predict that India (along with China) will rule the world in the 21st century. This is an enviable position, which was held by the United States for over a century ( the united states has been the largest economy in the world during this period), but major developments have taken place since then, in the world economy. This has lead to a shift of focus from the US and the rich countries of Europe, to India (and China). Rich countries of Europe have seen a big decline in their global GDP share by 4.9 percentage points. The US and Japan have also seen a decline in their global GDP of about 1 percentage point each. It is now predicted that during the period from 2005 -2015, India (which now holds the position of bring the fourth largest economy in terms of purchasing power parity), will overtake Japan and become third major economic power. India achieved a growth rate of more than 8%, during the year 2003-04. The growth rate continued during the period 2004 – 2005 as well. The reason for this was the high growth rates experienced by the Industry and Service sectors of the economy. At the same time, there was a slow growth in the world economic environment and this proved to be conducive to the Indian economy. Another important aspect was the steady prices. The strength of the dollar weakened had against the rupee in the past two years and this further contributed to its economic growth. Towards the second week of December in 2003, foreign exchange reserves crossed the US $100 billion mark. There was an increase of up to $142.13 billion by March 2005. Elements such as capital inflows, current account surplus and the valuation gains increase as a result of the appreciation of important non-US dollar global currencies, against the US dollar and this trend contributed to the increase in India’s Forex reserves. The capital account saw an increase as a result of banking capital inflows, foreign institutional investments and other capital inflows. There was an increase in reserve money growth, which doubled to 18.3% in the 2003-04, and this increase was mainly due to the increase in the value of foreign exchange assets of the RBI. During the financial year of 2004-05, India’s broad money stock (M3) increased by 7.4 per cent. There was a decrease seen in interest rates and this downward trend continued in 2004-05, with bank rate standing at 6% as on Dec 10, 2004. The bank recovery management has improved considerably with it’s gross NPAs declining from Rs 70861 crore in 2001-02 to Rs 68715 in the year 2002-03. All these figures are an indication of the growing trends in the economy, which are expected to continue into the future. Further changes that have to be made Since the time that India gained independence, the Indian economy has faced with many difficulties and strived hard to improve its pace of economic development. During the years from 1995 – 2005, the major metropolitan cities in India have seen a tremendous improvement in their infrastructure facilities, but still a lot more needs to be done in order to similarly upgrade the situation in the rural regions of India. If India wants to successfully attain the status of becoming a nation with a developed economy and show sustained growth and development to provide a more egalitarian society to its increasing population, it need to take appropriate measures such as the following changes: In the next five years, the economic growth should be maintained at about 7-8 %. The procedures and entry barriers for business activities must be further simplified to attract more foreign investments in India. India infrastructure needs to shoot up to become one that’s on par with world-class infrastructure, so that growth can be sustained growth in all the sectors of the economy Take steps to implement fiscal consolidation and to remove revenue deficit through revenue enhancement and expenditure management. The growth rate in industries must be by at least 10% per year, in order to integrate the surplus labor into the agricultural sector and to accommodate the increasing of women and teenagers who are joining the labor force every year. What the critics have to say According to critic and people who are against outsourcing, Indian IT services firms are merely body shops, which bring out young graduates, who are involved in doing mundane, repetitive, and ultimately not very demanding work. Therefore, the Indian IT sector is only fit for the outsourcing of some basic jobs. These ideas have come about mainly due to the insecurity that outsourcing will cut their jobs and reduce the need for local people in western nations. Phiroz Vandrevala, the Vice president Tata Consultancy Services, reacted to western criticism to outsourcing, with the following comments: “Western countries have to go up the value chain.” He points Western critics of outsourcing to the fate of steel: "The US went for protectionism, but today there's not much left of the US steel industry Future of Indian economic growth Looking futuristically, India’s share in world GDP India is expected to rise from 6 per cent to 11 per cent by the year 2025. The economy will complete its transformation into a tri-polar economy by the year 2035. It is expected that the Indian economy just a little smaller than the US economy but larger than that of Western Europe at this time and will also be a larger growth driver than the six largest countries in the EU. Referred Links: Information Technology. Tim Weber, Earning IT money the Indian way. < http://news.bbc.co.uk/1/hi/business/4071369.stm> India Economy Overview. Jeffrey D. Sachs, Nirupam Bajpai India in the era of economic reforms. Economy of India. Read More