India’s Tech History
November 24, 2013
It’s interesting to note that India wasn’t always so open to Western technology and markets, and started in a rather socialistic stance thanks the the governments at the time. These things have changed, obviously, but the history is interesting to note. This excerpt talks about it a little bit more in detail:
India has a long and varied history in computing, dating back to the mid-1950s. In a perceptive book on computing in India, C.R. Subramanian  notes that the first digital machine in India was a British-made valve-based HEC-2M with 1K memory imported in 1955. This was followed by a Soviet-made URAL and an IBM 1401 by 1964. Until the late-1970s, the supply of computers was dominated by IBM and International Computers Ltd. (ICL), U.K. In 1978, however, IBM decided to withdraw from India rather than comply with the Indian government’s requirement that foreign ownership be diluted to 40% of equity.
Overall, government policy until the early-1980s was shaped by Prime Minister Nehru and his daughter Indira Gandhi’s socialist vision of government-owned enterprises controlling the “commanding heights” of the economy. These policies discouraged imports and stressed self-reliance and controlled growth. In the IT industry, public sector units such as the Computer Maintenance Corporation and the Electronics Corporation of India Ltd. were favored by the government. After Indira Gandhi’s assassination in 1984, her technocrat son Rajiv Gandhi began to promote the growth of the private sector in computing. Imports of computer components, subassemblies and kits were encouraged through reduced duties, while protection for the local industry was guaranteed by imposing stiff duties and restrictions on the import of fully assembled computers and peripherals.
Since 1991, the new government under Prime Minister P.V. Narasimha Rao and Finance Minister Manmohan Singh has placed even greater emphasis on the growth of the private sector. Regulations and licensing requirements have been relaxed, and exports of software and hardware are encouraged through reduced duties on imported capital equipment and the removal of taxes on export earnings. Software Technology Parks (STPs) and Electronics Export Promotion Zones provide infrastructure such as data communication facilities to resident firms. Domestic IT companies can forge joint ventures with foreign corporations who are now allowed to acquire majority ownership. The most recent budget presented in February 1993 has further liberalized the economy. Earnings from exports can now be fully converted at the market rate and a five-year tax holiday has been given to firms located in software and hardware technology parks. Duties on imported components and subassemblies have been reduced.
However, the domestic hardware and software industries continue to receive protection, often to the detriment of the Indian consumer. Although import duties on software packages and fully-assembled PCs were reduced in the latest budget, they continue to be significant. Old notions of protection from foreign competition, coupled with powerful domestic lobbies, continue to make the Indian IT industry a “not-so-open” market, particularly for imports.
The government of India should concentrate its efforts on providing incentives–whether financial, work force related, or infrastructural–to firms (regardless of nationality) to establish operations in India. While the latest government policies show an encouraging movement in this direction, there is nevertheless a considerable dependence on revenues from import duties, which only perpetuates inefficiencies in the Indian IT industry.
The resolution of these two issues in the short term is crucially dependent on a continuation of the reforms taking place in the Indian economy. This in turn depends on the stability of the political situation in the country. In the long term, however, our expectation is that a basic underlying dynamic–the strategic necessity of opening up markets if one wishes to function successfully in an international industry where technological change is pervasive–will ensure that IT in India will gradually evolve in this direction. A key question is how much longer will this take?
Goodman, S.E., and S.R. Nidumolu. “Computing in India: an Asian elephant learning to dance.” Communications of the ACM June 1993: 15+