W-2.2

R E S E A R C H A R T I C L E

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

Gaurav Gupta . Amit Basole

Accepted: 26 November 2020 / Published online: 19 January 2021

� Indian Institute of Management Calcutta 2021

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, out-

sourced/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 technol-

ogy value chain as well as future opportunities for the

industry in the context of relocation of global manu-

facturing value chains and growth of the domestic

market. We also discuss the likely impact of technol-

ogy 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.

Keywords Exports � IT-BPM value chain � Job creation � Services-led growth

JEL Classification L8 � O4

Introduction

The Indian economy is at a critical stage in its process

of structural transformation. The share of value-added

as well as employment in agriculture continues to fall

along expected lines, but the manufacturing sector has

failed to expand correspondingly. The sector’s contri-

bution to value-added remains low at around 15%, and

its share of employment too has been more or less

stagnant since the 1980s at less than 15% (State of

Working India 2018). Further, there is evidence to

suggest that the Indian experience is part of a global

trend of ‘premature deindustrialization’ (Rodrik

2015), wherein peak share of manufacturing in

value-added as well as in employment is being reached

at a much lower level of per capita income than in the

past.

Earlier phases of structural transformation in

Western Europe, as well as the late industrialisers in

East Asia, relied primarily on labor-intensive manu-

facturing to move a large agricultural workforce into

more productive non-farm activities. Industrialization

was thus seen to be the prime mover of structural

change (Storm 2015). There were two important

G. Gupta (&) � A. Basole Bengaluru, India

e-mail: [email protected]

123

Decision (December 2020) 47(4):341–361

https://doi.org/10.1007/s40622-020-00269-z

aspects to this: first, the property of manufacturing to

display ‘unconditional convergence’ to global stan-

dards, and second its ability to create employment in

relatively large numbers for workers without high

levels of formal education. This neatly met two key

needs: productivity growth and employment that

matched the profile of the labor force (Rodrik 2011).

Today’s structural transformers face two major

constraints: one is that they have to compete in a

relatively more open economy with several more

advanced industrialized countries, and two, manufac-

turing is no longer as employment intensive, partic-

ularly with respect to relatively unskilled labor and

therefore further away from the comparative advan-

tage of these countries. Both these may contribute to a

failure of manufacturing to lead the process of

structural change by drawing labor away from low-

productivity sectors.

Several writers have advanced the proposition that

countries like India may be experiencing an alternative

process of structural change wherein the service sector

leads economic growth as well as structural transfor-

mation (Economic Survey of India 2014–2015; Ghani

and O’Connell 2014; Amirapu and Subramanian

2015; Dasgupta and Singh 2005). The question that

arises here is, do service industries possess the

attributes necessary to drive structural change, the

way manufacturing industries have done in the past?

In this respect, Amirapu and Subramanian (2015) have

proposed that, rather than manufacturing or services,

the relevant dimensions are ability to achieve high

levels and growth rates of productivity, domestic as

well as international convergence, expansion of a

sector in its use of inputs, comparative advantage and

exportability.

It is in this context we evaluate the potential of a key

Indian service sector industry, Information Technol-

ogy and Business Process Management (hereafter IT-

BPM). Surprisingly, given the industry’s high profile

and public visibility, it has not attracted much

scholarship, particularly since the early 2000s (e.g.,

Kambhampati 2002; Kaushik and Singh 2004; Singh

2005). The present paper seeks to fill this gap.

Before proceeding further, we take a moment to

define the industry. The IT-BPM industry is made up

of the following segments: IT services, Business

Process Management (BPM), Packaged software

products, Engineering Research and Development

(ER&D) and Hardware. Packaged software products

and ER&D includes all activities that relate to

generation of Intellectual Property (IP). The IT

services segment includes Custom Application Devel-

opment Management (CADM), Infrastructure Ser-

vices Outsourcing (ISO), Testing, Support and

Training, System Integration, IT Consulting and other

related activities. Hardware includes all the business

and personal user equipment including servers, net-

work equipment, desktop and laptop computers, etc.

The BPM market includes all activities in a company’s

value chain that are standardized, usually not core and

are subject to commercial benefit from remote deliv-

ery outside a firm’s physical or organizational bound-

aries. This includes low-skill/manual activities: voice

and non-voice (transaction fulfilment), as well as high-

skill/cognitive activities: knowledge intensive tasks

such as researching on stocks and bonds. 1

Between FY09 and FY16, IT-BPM grew faster than

overall GDP with the result that its contribution to

GDP increased from 6 to 9%. Total IT-BPM exports

grew 152% from USD 50bn to USD 126bn between

FY10 and FY18. Notwithstanding the relatively low

levels of employment in this industry (it employs

around 4 million workers or less than one percent of

the workforce) and India’s hitherto low-end position in

the global value chain, a policy focus on the IT-BPM

industry can have spill-over effects on other services

subsectors such as Tourism, Retail, Real Estate,

Financial Services as well as on driving competitive-

ness of local Industry and Agriculture.

Two questions are relevant here. First, what is the

potential of the IT-BPM industry for expansion? And

can this expansion also result in a wider transforma-

tion of the Indian economy, reducing the share of

workers engaged in agriculture and other informal

activities?

In this article our focus is largely on the first

question. We analyze the past performance and future

1 Voice refers to all conversational interactions between a

company and its customers, e.g., a bank’s customer seeking

clarification on charges levied on his/her credit card- queries that

are standard and usually have a scripted solution from the bank.

Non-voice work refers to processing of customer transactions,

e.g., processing related to loans disbursed by banks. Other non-

core and standard activities amenable for execution outside an

organzation’s physical boundaries include payroll processing,

pre-recruitment employee background checks, operational

finance, etc. The BPM segment also includes jobs which are

knowledge intensive and often need professional qualifications

such as in Accounting and Financial Analysis.

342 Decision (December 2020) 47(4):341–361

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potential of India’s IT-BPM industry and show that, to

an extent, it can make up for the absence of a strong

manufacturing sector. Contribution to income, exports

and employment by IT-BPM can increase further as

general-purpose-technologies such as industrial

automation and Internet-of-Things penetrate deeper

and as governments, including that of India, spend

more on IT-led delivery of public services. We also

argue continued policy support is important for the

industry to remain a driver of structural change and

economic growth in India.

This article is organized as follows. Section ‘‘Man-

ufacturing and services: an increasingly weak distinc-

tion?’’ briefly reviews the relevant literature on

structural change and economic growth and makes a

case for doing away with the traditional policy choice

of manufacturing versus services. In ‘‘IT-BPM: role of

policy and importance to the Indian economy’’

section, we discuss the importance of India’s IT-

BPM industry and the role of policy. Section ‘‘India in

the global IT-BPM industry and the way forward’’

evaluates the present position and future prospects of

the industry including India’s position in the technol-

ogy value chain as well as future opportunities for the

industry in the context of relocation of global manu-

facturing value chains and growth of the domestic

market. In ‘‘Potential for job creation’’ section, we

discuss the likely impact of technology on jobs in the

overall economy, direct and indirect job creation

potential of the IT-BPM sector and the spill-over

effects of technology as an enabler of new business

models. Section ‘‘Key takeaways for policymakers’’

draws on lessons from relevant literature for effective

industrial policy and ‘‘Conclusion’’ section concludes.

Manufacturing and services: an increasingly weak

distinction?

India’s rapid growth in the last two decades has come

from an expanding services sector rather than from

manufacturing. Workers leaving agriculture have been

absorbed in low-productivity services such as con-

struction and retail and not in manufacturing, espe-

cially of the labor-intensive variety (State of Working

India 2018). Manufacturing’s share in GDP as well as

in employment has remained below 15% since

independence.

The Indian economy can be viewed as having a

traditional sector including much of agriculture,

unregistered or unorganized manufacturing, construc-

tion, retail, and hotels and restaurants. These parts of

the economy have low productivity, their output is

usually non-tradable, and are characterized by surplus

labor in the Lewisian sense (Lewis 1954). The modern

sector includes registered or organized manufacturing

(relatively more skill and capital-intensive compared

to unregistered manufacturing) and highly productive

services such as IT-BPM, business services, real estate

and financial services and insurance. This modern

sector has high levels of productivity, output is usually

tradable, employs skilled labor and some key subsec-

tors such as skill-intensive manufacturing and IT-

BPM are constrained by inadequate supply of labor.

Economic growth in such a dual economy can be

thought of as two distinct but inter-related processes

(McMillan et al. 2016): growth due to structural

change (Lewis process) and growth due to accumula-

tion of physical and human capital (Solow process).

Rapid industrialization or movement of resources

to high productivity sectors alone without focus on

fundamentals will fuel growth in the short term and

then plateau as has been the case with India. On the

other hand, investment in fundamentals will help in

the long-run but investment only in fundamentals

ignoring structural change will give only modest

growth. South Korea, Taiwan and Hong Kong are

examples of countries that have had sustained periods

of prosperity owing to their focus on both (McMillan

et al. 2016). In India’s case, Ahsan and Mitra (2016),

using data from 1960 to 2004, show that contribution

of structural change to overall productivity growth has

been small and within-sector growth has been a

volatile but major contributor especially in the 2000s.

Advanced economies in the West as well as in Asia

have all taken the manufacturing route to structural

change and economic growth. This is a less effective

option now for developing countries primarily because

of rapid diffusion of technology leading to lesser

employment in manufacturing. As a result, there is a

lack of consensus on whether reliance on manufac-

turing-led growth is still worth pursuing or whether

services-led structural change can also drive economic

growth. At one end of the spectrum are economists

such as Rodrik (2011), who argue that manufacturing

is the vehicle for economic growth. Rodrik shows that

manufacturing, unlike economies as a whole, exhibits

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rapid growth leading to unconditional (i.e. notwith-

standing geographic or country-level influences) con-

vergence toward the frontier. This implies that

manufacturing in poorer countries and less productive

manufacturing activities grow more rapidly than

manufacturing in richer countries and more productive

manufacturing activities.

On the other end of the debate are Ghani and

O’Connell (2014) who have analyzed data for various

countries including India and show that services

growth has shown much stronger convergence

between countries compared with manufacturing

which has shown only mild convergence.

Amirapu and Subramanian (2015) conclude that the

question is not of manufacturing versus services-led

structural transformation but that of comparative

advantage defying or comparative advantage deifying

activities-led growth. They identify five conditions a

subsector needs to satisfy to be a driver of economic

growth: high level of productivity, high growth rates

of productivity and domestic as well as international

convergence, expansion of a sector in its use of inputs,

comparative advantage and exportability. We repro-

duce a summary scorecard on their assessment of

various parts of the Indian economy on these condi-

tions between 1984 and 2010 (Table 1). The last row

on IT-BPM has been added by us.

The table shows, for example, that Registered

Manufacturing in India has potential for structural

transformation by virtue of having very high levels of

productivity compared with unregistered manufactur-

ing as well other parts of the economy. With respect to

convergence, i.e., labor productivity growth being

negatively correlated with initial level of labor

productivity, registered manufacturing exhibited

strong unconditional convergence within India. How-

ever, international convergence is elusive as the

subsector exhibits labor productivity growth that is

several percentage points below the international

frontier. With respect to its ability to absorb labor,

India is experiencing premature de-industrialization

and the share of industrial employment has failed to

increase. Registered manufacturing also employs a

disproportionately high share of labor with relatively

higher levels of education which is not in alignment

with India’s comparative advantage. While the output

is clearly exportable, the inability to converge to the

international frontier and to absorb labor and misalign-

ment with India’s comparative advantage have held

the manufacturing sector back from being a driver of

economic growth.

In the rest of the article, we examine the IT-BPM

industry’s past and potential performance along these

dimensions and demonstrate how it is well-placed to

be a driver of India’s economic growth.

Table 1 Evaluation of subsectors. Source: Amirapu and Subramanian, 2005

1. High

productivity

(level)

2.a Domestic

convergence

2b. International

convergence

3. Ability to

absorb labor

4. Comparative

advantage

5.

Exportability

Registered

Manufacturing

Yes Yes No No No Yes

Trade, hotels and

restaurants

No Yes No Somewhat Somewhat No

Transport, storage and

communication

No Yes No Somewhat Somewhat Somewhat

Financial services and

insurance

Yes Yes Yes No No Yes

Real est. and business

services, etc.

Yes Yes Yes Somewhat No Somewhat

Construction No Yes Yes Yes Yes No

IT-BPM Yes Yes Yes No No Yes

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IT-BPM: role of policy and importance

to the Indian economy

The role of industrial policy

Indian manufacturing has had a few success stories

over the years, such as Pharmaceuticals and more

recently Automobiles. But overall, there is agreement

that, a combination of political economy, suspicion of

private entrepreneurship, and lack of a well-coordi-

nated industrial policy failed to develop India’s

manufacturing sector and, had a negative effect on it

through restrictive rules and myriad regulations

(Bhagwati 1993; Chibber 2003; Nagaraj 2017). On

the other hand, there is considerable disagreement

regarding contribution of India’s policy regime in

growth of the IT-BPM industry.

Some researchers (Lin 2012; Kapur 2002; Balakr-

ishnan 2006; Heeks and Nicholson 2004) point to a

more facilitating role played by government in IT-

ITES (IT-enabled services) as compared with inter-

ference in manufacturing. This includes greater labor

market flexibility, establishment of Software Tech-

nology Parks since 1989 with world-class infrastruc-

ture, heavily subsidized technical education, tax

breaks, an overall export enabling infrastructure,

efficient collective action by industry body NASS-

COM (National Association for Software and Services

Companies) working jointly with the government and

existence of rules such as the MRTP Act (Monopolies

and Restrictive Trade Practices) which restricted large

industrial houses from getting bigger by setting up IT

companies. Indefinite designation of English as

India’s other official language after the 1950s ensured

that by 1970s, the country had a large pool of English-

speaking labor force (Kapur 2002).

While the above-mentioned items helped the

industry in its infancy, the reforms of 1991 provided

a serious impetus. Software firms which lacked

collateral had hitherto found it difficult to borrow.

After 1991, they were granted freedom to raise equity

capital domestically as well as from markets abroad.

Even in its somewhat matured state now, IT-ITES

industry continues to get favorable policy treatment

from various state governments. 2

On the other hand, Dossani (2008) is of the view

that the industry’s growth has been a result of private

entrepreneurial skills and that the state in India played

a restrictive role. He documents the government’s

suspicion of IT using the case of Texas Instruments-

one of the earliest MNCs in India in this space. The

company was subjected to daily end-of-day inspec-

tion, of export of software code to its head office in the

USA. Private enterprise had proven its capabilities

since the 1970s and could establish more trust with

clients in the western world during the Y2K boom in

demand for IT services. In conjunction, drastic

reduction in IT/Telecom infrastructure costs facili-

tated the offshore delivery model.

Nilekani (2009) has a more balanced view of the

government’s intent in that Rajiv Gandhi govern-

ment’s New Computer Policy of 1984 was seen as a

move in the right direction and gave wings to fledgling

companies such as Infosys in their efforts to tap export

markets. He also acknowledged the resistance in

overall government machinery regarding adoption of

IT and lack of basic infrastructure such as electricity

that never allowed IT to take off in the domestic set-up

till the early 2000s. Lee et al. (2014) attribute Indian

IT’s success to initial catch-up followed by leap-

frogging to high value adding work via innovation,

critical events in the technology landscape such as the

Y2K problem and to support from government

policies such as those related to foreign exchange

and special economic zones.

Nevertheless, it seems fair to say that, at least in part

as a result of industrial policy at the Central as well as

the state level, India now has a strong and competitive

IT services industry. Its contribution to India’s GDP

at * 7%, share in exports at * 30% and share in service exports at 60% underscores what the sector has

achieved in comparison with other segments of the

economy. However, the industry is not a big direct

contributor to job creation—direct employment at 4

million is less than 1% of India’s workforce. Consid-

ering indirect effects, total jobs created including

2 Directed toward job creating investments, states provide

single window clearance, assured power supply, world-class

telecom infrastructure, as well as liberal incentives in the form

Footnote 2 continued

of reduced stamp duty, exemptions from land zoning regula-

tions, incentives on training, reimbursement of quality certifi-

cation costs, preference in government procurement, investment

subsidy, exemption from Industrial Employment rules and

others (AP Govt ICT Policy 2002–2005, 2005–2010,

2010–2015; Karnataka ICT Group 2020 Report; Kandalam

2019).

Decision (December 2020) 47(4):341–361 345

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those due to significant investments in the IT industry

are estimated to not exceed 10–13 million. For

comparison, construction employs around 50 million

workers. Looked at this way, the industry perhaps does

not offer much hope in alleviating India’s jobs crisis.

However, as we discuss below and as also argued by

Dossani (2018), a large part of the world IT spending

has still not been outsourced or offshored and the

growing digitalization of businesses the world over

including new purely digital business models and

technology-based platforms offers tremendous scope

for direct and indirect job creation in the Indian IT

industry. Finally, while we do not discuss this in this

article, we do acknowledge contributions of the IT-

BPM sector in developing an aspirational middle class

in India as well as a tool for better governance and

delivery of public services.

Contribution to exports

India’s service sector as a whole clearly stands out for

its high share in exports relative to its share in GVA

(Fig. 1). Services sector’s contribution to exports as a

proportion of its contribution to GVA was 0.77 in

FY07 which, although lower in FY17 at 0.7, is still

much higher than the world average at 0.3 in FY07 and

0.34 in FY17. This is in large part attributable to the

IT-BPM sector. Its share in exports is * 30%, its share in service exports is * 60%.

Indian IT-BPM industry is primarily an export

dominated story with total exports at USD 136 billion

more than three times of domestic sales at USD 41

billion for FY19. In FY10, domestic revenues for the

industry at USD 24 billion were nearly half of exports

revenues at USD 50 billion and the gap has grown over

time (Fig. 2).

Total IT-BPM exports grew 152% from USD 50

billion to USD 126 billion between FY10 and FY18.

During the same time, software products and engi-

neering R&D services segment grew the fastest

(? 211%) from USD 9 billion to USD 28 billion

followed by IT Services (? 141%) from USD 29

billion to USD 70 billion and BPM (? 133%) from

USD 12 billion to USD 28 billion. As a result, the

share of software products increased over the period

from 18 to 22% (Fig. 3).

Given the weakness in manufacturing exports, the

IT-BPM sector has consistently been contributing

toward foreign exchange earnings- a much needed

cushion to compensate for India’s price inelastic oil,

gold and electronics imports. In the 10 years between

FY10 and FY19, IT- BPM exports have increased

much faster than overall services exports, merchandise

exports and total exports. While total exports almost

doubled in value over this period, IT-BPM exports

increased 2.7 times (Fig. 4).

In terms of regional break-up of gross exports, the

US as a market dominates with 62% share (Fig. 5)

followed by Europe at 23.5% and East Asia at 7.2%

Fig. 1 Share of service in exports to share of services in GVA. Source: India’s Economic Survey (2019)

346 Decision (December 2020) 47(4):341–361

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(Gupta et al. 2017). However, when looked at as value-

added in final demand, these three regions contribute

equally. This is in sync with our understanding of

business models of Indian IT companies i.e. mainly

focussing on offshore outsourcing business for IT

majors in the USA, a relatively lower value-added

activity. Interestingly, India’s IT exports looked at as

value-added in the gross exports of major regions of

the world reveal East and South-East Asia on top

with * 55% share. This means that a large proportion of IT-BPM exports to this region are of a higher value-

added variety than those going to the USA and Europe.

The foregoing demonstrates how the IT-BPM

industry fulfils the ‘exportability’ condition listed in

Table 1 and has been a strong pillar of India’s

economic growth.

Employment, wages and firm size

Of India’s total workforce of * 480 million, total employment in the IT-BPM industry is * 4 million. Given its high contribution to GDP (around 7%), the

sector thus has a low ‘job intensity’. Job intensity is

defined as a sector or industry’s share in total

employment divided by its share in value-added. As

Fig. 2 Trend in domestic versus export revenues for Indian IT-BPM. Source: India’s Economic Survey (2019)

Fig. 3 Changing composition of IT-BPM exports (% share). Source: India Brand Equity Foundation

Decision (December 2020) 47(4):341–361 347

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shown in Fig. 6 using data for 2019, Construction

leads the way here with a job intensity of 2.1, followed

by 1.9 for Hotels and Restaurants, 0.95 for Trade and

0.3 for Business Services (which includes IT-BPM).

Note that job intensity is essentially the reverse of

relative labor productivity. Thus, in terms of the

desirable conditions from Table 1, the IT-BPM indus-

try demonstrates very high levels of productivity

though, thus far, its ability to absorb labor in large

numbers has been poor.

IT services require far more technical skills and

technology-oriented degree education as compared to

BPM services which normally employ English-speak-

ing graduates from all streams. This is in line with

availability of a skilled talent pool, but by itself, this

segment is not labor-intensive globally.

Despite the low direct employment provided by the

industry, however, IT-BPM also has substantial mul-

tiplier employment effects on other sectors of the

Indian economy. Academic research and leading

consulting organisations (Tholons 2011; NASSCOM;

Dahlman 2009) estimate the multiplier effect to be 3 to

4 i.e. every new tech job creates 3 to 4 additional jobs 3

in the overall economy.

As compared to most of the service sector,

however, the industry employs labor with a much

Fig. 4 IT-BPM exports have risen faster than overall as well as other service exports. Source: India’s Economic Survey (2019)

Fig. 5 Buyers of India’s software exports (% share in gross & value-added terms). Source: Gupta et al. (2017)

3 These jobs are in construction, retail, restaurants, transporta-

tion, hospitality, healthcare and other sectors.

348 Decision (December 2020) 47(4):341–361

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higher level of formal education. Hence wages are

higher than in other sectors and working conditions are

in line with those prevailing internationally, thereby

indicating that the sector offers better quality work

opportunities. Based on a survey conducted by a

leading human capital consulting firm (Monster India/

Paycheck.in with IIM- Ahmedabad as research part-

ner), wages in IT services are substantially better than

other sectors within services and manufacturing. 4

Looking at data for the eight sectors covered in this

report, highest median gross hourly wages were paid

in the IT services sector standing at INR 317.6

(* USD 4.5) in 2017. While well-paying in the Indian context, it must be noted that these wages are

low and competitive in the global context as we

discuss later in Sect. 4.2.

Wages in the IT-BPM sector are higher than the

average wage in the economy for both entry-level and

senior positions (Fig. 7). Khatiwada and Flaminiano

(2019) note that entry-level salaries 5

were 2–3 times

and senior-level salaries were 4–15 times more than

median salaries in the economy.

Lastly, we note that, based on industry body

NASSCOM accounts, a few large and medium sized

firms (Table 2 based on data for 2019) contribute a

bulk * 80% of the industry’s exports revenues (* 65% employment) and small and emerging firms employ * 33% of the industry’s workforce (* 20% revenues).

This indicates the tendency toward larger sized

firms in an economy otherwise dominated by micro

and small enterprises. A different source, the All-India

Quarterly Employment Survey of the Indian Labour

Bureau reported that, as of 2016, nearly 4% of firms in

IT-BPM had more than 5000 employees, far greater

than any other sector. Manufacturing was a distant

second at 0.26%. Thus, despite being much smaller

than manufacturing, IT-BPM accounts for 48% of

establishments with more than 5000 workers (State of

Working India 2018). Since quality of work is known

to improve with firm size due to more regulated labor

practices, taken together these data point to better

quality and well-paid job opportunities in this sector.

Fig. 6 Job Intensity (share of employment/share of VA). Source: KLEMS Database

4 The sample used for the analysis consists of 20,994 respon-

dents, 82.3% of which are men and 17.7% women. Employees

from different age groups, industries, and various hierarchical

positions in their respective occupations are included. 5

The authors use 5775 data points collected directly from

employees, users, and job advertisements posted on Indeed.com

(a leading job portal) over a period of 36 months. For senior

Footnote 5 continued

level salaries, they use an existing study of more than 3000

executives.

Decision (December 2020) 47(4):341–361 349

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Fig. 7 Wage premiums in IT-BPM (2018). Source: Khatiwada and Flaminiano (2019)

350 Decision (December 2020) 47(4):341–361

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It should be clear from the foregoing that the IT-

BPM industry is worth focusing attention on as a

leading service-sector industry to aid India’s structural

transformation. However, the question is, what are its

prospects for growth and employment generation? We

turn to this question next.

India in the global IT-BPM industry and the way

forward

World spending and India’s share

Indian IT caters to a small portion of world spending

but has a high share of ‘global sourcing’. The global

IT-BPM market of USD 4.5 trillion is made up of the

following segments: IT services (USD 694 billion),

BPM (USD 198 billion), Packaged software products

(USD 515 billion), Engineering R&D (USD 1954

billion) and Hardware (USD 1113 billion). India’s IT-

BPM industry has high shares in the global market for

IT services at 13% and BPM services at 18%. The

industry’s shares in Engineering R&D and Hardware

sub-segments are minuscule at 1.8% and 1.3%,

respectively, with negligible share in the packaged

software products market.

The Indian IT-BPM industry is at the frontier in its

chosen domain and over the years has converged to

productivity standards in the more advanced markets

thus satisfying the condition for ‘international con-

vergence’ from Table 1. Looked at as a share of global

outsourcing (as opposed to the entire market) India has

an impressive 64% and 38% share in IT services and

BPM, respectively. But these activities are relatively

low value adding and low skilled within their respec-

tive domains and more amenable to automation.

India’s share in the relatively higher value-adding

software products and engineering space is low at

1.4%. China has a much larger share given its

dominance in the manufacturing sector. India’s share

in hardware pertaining to IT-BPM sector is 1.3%.

Again, China is much stronger here. This segment of

the market is employment intensive and China also

benefits by embedding/bundling indigenously pro-

duced software with hardware.

While India is a leader in the world IT services

market, China has been rapidly growing its share of

world exports (Fig. 8). While India started from a

higher base, between FY04 and FY17, China’s IT

services exports have risen 10 times (from USD 2.2

billion to USD 27 billion) whereas India’s have

risen * 5 times (from USD 17 billion to USD 79 billion) and growth in India’s revenues has plateaued

over the last few years. Released in 2015, China’s

‘‘Made in China 2025’’ industrial policy is aimed at

rapidly expanding ten high-tech sectors and develop-

ing its advanced manufacturing base. The main aim of

this policy is to reduce dependence on foreign

technology and achieve a dominant position in global

markets. 6

We now look at the different segments of the

market more closely. Software product and Engineer-

ing R&D includes all activities that relate to genera-

tion of Intellectual Property (IP). Given the nonlinear

payoffs from R&D, high investment requirements and

an enabling ecosystem to encourage research,

returns/margins are typically much higher. This also

includes managing the product lifecycle. 7

Packaged

software products, in particular, include off-the-shelf

and standardized products that cater to a very large

market and their development process must typically

have foreseen requirements of all potential users.

Table 2 Size distribution of IT-BPM firms. Source: NASSCOM Strategic

Review 2019

Category Players (Nos) % of Exports revenue % of total employees

Large 11 47–50% ([ USD 1 bn) * 35 to 38% Mid 85–100 32–35% (USD 100mn- 1 bn) * 28 to 30%

Emerging 450–600 9–10% (USD 10 mn- 100mn) * 15 to 20%

Small/start-ups [ 4000 9–10% (\ USD 10mn) * 15 to 18%

6 We have compared India’s performance to only China and

USA—the former because of a large domestic IT market and a

potential threat to India’s dominance in the global market and

the latter because of its high share in overall world IT-BPM

spending. Other countries such as Philippines, Poland and others

have not been considered as they are much smaller than the

Indian IT-BPM industry and given that they do not cover the

entire spectrum of IT-BPM services, do not pose an existential

threat to Indian IT-BPM. 7

This includes decisions related to timing of introduction,

withdrawal or upgrades in existing products.

Decision (December 2020) 47(4):341–361 351

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Accordingly, large software products companies are

domiciled in markets such as the US with the

maximum end-users.

Often these standardized products also need some

level of customization and further development,

integration with existing systems or software already

in use in end-user environments. This and activities

such as testing software before a software products

company launches it to end users, managing a firm’s

existing IT infrastructure, implementation of software

products, training end-users, software related docu-

mentation and troubleshooting are collectively a part

of IT services. This is the segment in which Indian IT

firms have a very high share in the global market. The

IT services revenue of Indian IT-BPM industry is

broken-up as follows: CADM- 47%, ISO- 21%,

Testing- 8%, Support and Training- 7%, System

Integration- 3%, IT Consulting- 3% and others- 11%.

The hardware market includes all the business and

personal user equipment including servers, network

equipment, desktop and laptop computers, etc. India is

virtually absent from this market at a global level.

Very little of the USD 14.5bn Indian hardware market

is produced in India and the rest is all imported.

Following Buxmann et al. (2013), we note that one

way to classify software 8

is on the level of standard-

ization i.e. custom or standard software. India mainly

deals in custom software and as noted above, the lack

of a domestic market means it must compete with

players in the global market. Standard software is

produced for the mass market- for example, Oracle

and SAP. Even standardized software can be cus-

tomized to some extent often through something

called integration software. The licensing side of

software business (‘‘Inventor’’ in Fig. 9) is more

profitable than the services side (‘‘software re-seller’’

in Fig. 9). Software can be reproduced cheaply

because variable costs are close to zero. While

licensing is far more profitable business than providing

services, over a period, pure-play product companies

have also increased the share of services in their total

revenues. Indian IT players are primarily involved on

the IT services side which relates to the implementa-

tion and operating software sides of the ecosystem. In

their role as consultants and integrators, they act as

resellers of software. We note that high-end activities

i.e. product research, product development, marketing

and documentation are usually carried out by software

creators themselves. Lower value-adding activities

such as implementation, training, pre-sales support

and maintenance are usually outsourced.

India’s position in the value chain

Indian technology industry has historically been on the

lower side of value-added. The ‘Smile Curve’

(Fig. 10) represents India’s position in the global IT-

BPM value chain (Jui 2010). On the y-axis is the value

added in the IT software value chain and on the x-axis

are the major steps starting with innovation, product

Fig. 8 World IT services exports (USD bn). Source: India’s Economic Survey (2019)

8 Software can also be classified on the basis of how directly it

interacts with the hardware: system software, middleware and

application software.

352 Decision (December 2020) 47(4):341–361

123

definition, software development, deployment and

integration and activities involved in reaching the end

customer. A bulk of the work done by Indian IT

companies falls in the middle, low-value-adding

segments of the chain highlighted in red.

Though undergoing a revamp now, the hitherto

widely followed Global Delivery Model of India’s

major technology companies involved high value

activities delivered onshore and relatively low value

adding and labor-intensive activities performed off-

shore in locations such as India. Table 3 shows a

representative split of activities in software develop-

ment for Infosys Technologies.

India’s dominance in the relatively lower end of

activities in the technology sector are also a reflection

of the R&D and innovation ecosystem in India. Based

on data up to 2014, global consulting firm PWC

released the 100 Global Software Leaders Report. At

that time, total revenues of all software companies

globally were * USD 385 billion. Of this, the Global

Top 100 had revenues of USD 272 billion (71% share).

The Top 100 list is dominated by firms from the US

with no representation from India. The Top 30 list

from emerging markets is dominated by China (USD

2.2 billion) and Russia and other Eastern European

countries (USD 2 billion). There were only 4 Indian

companies in the emerging markets list.

Based on data from the US-based National Science

Foundation’s Science and Engineering Indicators for

2018, worldwide expected expenditures in 2015 on

R&D 9

were USD 1.9 trillion. Of this, spending by US,

China and India was USD 497 billion, USD 409 billion

and USD 50 billion, respectively, in PPP terms. The

inadequacy of India’s USD 50 billion R&D expendi-

ture can be judged from a comparison with that of

some large firms such as Huawei (USD 14 billion),

Fig. 9 Software business-role of inventors and re-sellers. Source: Author’s own understanding of the industry

Fig. 10 Smile curve. Source: Jui (2010)

9 This includes all kinds of R&D expenditure though a large

part of it is tech-driven across industries and not just specific to

IT industries.

Decision (December 2020) 47(4):341–361 353

123

Amazon (USD 22.6 billion), Alphabet (USD 16.6

billion), Intel (USD 13.1 billion), Microsoft (USD

12.3 billion) and Apple (USD 11.6 billion). 10

India’s

stock of current patents is at 60,000 in comparison

with 2.9 million for the US and 2.1 million for China.

However, what makes India’s position competitive

is the significantly lower wages (Buxmann et al.

2013). In 2010, the annual salary of an IT project

manager in India was EUR 15,000 which is approx-

imately 1/4 th

of that in USA (EUR 59,000) and

Germany (EUR 55,000). Salary for this profile in

China was EUR 20,000 in 2010 and has shot up rapidly

in the years after that.

There are two key avenues for expansion of Indian

IT-BPM under the present circumstances. First, with

relocation of manufacturing value chains from China

to other Asian countries, an opportunity opens to

expanding IT exports that support these GVCs. And

second, the Indian domestic market remains quite

underdeveloped even in industries where IT has

become part of core functioning, such as Banking.

Despite the historical positioning of Indian firms in

the IT-BPM industry, an aspect that deserves discus-

sion is the work done by early stage privately held

firms. We quote one such example of a firm—

Automation Anywhere (AA), that originated in India

(Baroda in Gujarat) but moved base to San Jose in the

USA. AA is among the top 3 players in the world in

software for Robotics Process Automation (RPA).

According to a leading IT Consulting firm Gartner 11

(2020), the RPA software market is one of the fastest-

growing segments in the enterprise software market,

with a rising competitive bar and many new entrants. It

grew 63.1% in 2018 and 62.9% in 2019, compared

with the 13.5% and 11.5% growth, respectively, of the

overall enterprise software market. The RPA software

market includes more than 45 vendors as of mid-2020

with the ten largest RPA software vendors accounting

for over 70% of market share in the worldwide RPA

market. AA is among the four ‘Leaders’ on the Gartner

Magic Quadrant for Robotics Process Automation (out

of sixteen vendors) well ahead of much bigger players

in the IT industry such as Microsoft, SAP, NTT,

Edgeverve Systems (part of Infosys). The other

categories in the Magic quadrant are Challengers,

Visionaries and Niche players.

From an employment perspective, AA creates jobs

in India for engineers from Tier 2/Tier 3 institutions

who find RPA a more attractive career option than it is

for engineers from the Tier 1 institutions. Primary

reason attributed to this is the relatively ‘easier’

technology behind proprietary RPA solutions i.e. it

requires simple coding skills akin to those required for

Visual Basic for Applications (VBA) coding in MS-

Office. Given the technology, AA’s implementation

partners (large Indian IT Services firms) are able to

hire from several rural locations and have observed

them grow on to previously inaccessible job roles such

as that of a Solution Developer. 12

Relocation of manufacturing GVCs

and opportunity for IT exports

Growth of China’s software industry has been driven

by captive demand from its hardware industry (Jui

2010). The manufacturing sector in general has also

provided a captive market for the Chinese software

industry. With the trade wars between China and the

US, several companies are relocating from China, and

this presents an opportunity for Indian IT. A study by

analysts at investment bank Nomura recently identi-

fied 56 companies that exited China over a seventeen

Table 3 Activities in software development—

Infosys Technologies.

Source: NASSCOM

Onshore Nearshore Farshore

Architecture Requirements analysis Detailed design

Requirements High-level design Code development

Change management Prototype building Testing and integration

Implementation Implementation support

10 Source: https://www.vox.com/2018/4/9/17204004/amazon-

research-development-rd. 11

https://www.automationanywhere.com/lp/gartner-magic-

quadrant.

12 Based on a telephonic conversation with Mr Sumeet Pathak-

Digital Evangelist, IMEA (India, Middle East & Africa) for

Automation Anywhere.

354 Decision (December 2020) 47(4):341–361

123

months period. 13

Only 3 relocated to India and a

majority moved to Vietnam and Thailand. Relocation

of GVCs to India and their continued success will

definitely need development and expansion of a robust

services setup supporting manufacturing such as

logistics, and warehousing.

As a starting point for potential for success of this

relocation strategy, we next look at the current level of

penetration in ‘factory Asia’ by Indian IT firms. This

section draws on work by Gupta, Oak and Mukherjee

(2017). A limitation of the study is that it is based on

input–output data till 2011. We consider the value of

India’s exports to South-East Asian countries, the total

world imports of IT services by these countries and

supply of IT services by their domestic industry. We

note that, at least as of 2011, Indian IT’s share of

overall demand in these countries is low (\ 10%) except in Indonesia. Most countries have a domestic

industry equal to or slightly larger than the purchases

from Indian IT industry. From this, it does not appear

that these countries individually are a threat to the

Indian IT industry and its prospects in the East and

South-East Asia market.

Indian IT and the domestic market

Using data from the database ceic.com, we next look at

how the IT-BPM sector’s exports and local sales as

well as workforce catering to exports and local

markets have grown over the 10-year period from

FY10 to FY19. In INR terms, both the exports and

domestic markets have more than doubled in the

10 years i.e. from a base of 100 to 272 and 252,

respectively (Fig. 11). However, since export rev-

enues start from a much higher base and grow faster,

the gap between them has grown. In FY 19, revenues

from domestic sources for Indian IT-BPM industry

were * 23% of total revenue. We have analyzed a sample of FY19 revenues of

top Indian technology firms (Table 4). India business

contributes to * 4% of their revenues. Focus is mainly the exports markets and the domestic market

is considered low margin and the government market

marred with elongated payment terms/heavy up-front

investments.

The domestic market is split as follows: IT services

(41%), BPM (10%), Software, products and engineer-

ing (13%) and Hardware (35%). A key point here is

that very little of this hardware expenditure is on

domestically produced hardware. As a result, domestic

capacity is grossly underutilised. Production units of

major personal computer manufacturers are utilized to

the extent of * 20%.14

Future growth in the domestic market is expected to

come from two sources, outsourcing of in-house IT and

upgrade in well-penetrated verticals. Four sectors account

for more than 60% IT spending 15

—Banking, Govern-

ment, Manufacturing and Telecom. Emerging sectors for

future growth are Education and Life Sciences and

Healthcare. For Telecom, IT is a core activity yet is

outsourced actively, Manufacturing has low penetration

of IT, Media is characterized by multi-vendor small

contracts and in Retail, IT spending is by the organized

segment only and hence, not as high as it should be.

Taking a closer look at Banking, 16

we see that only

17% of PSBs have required system capabilities (single-

view of customer transactions, Return on Equity calcu-

lation on deals, data warehousing for credit modelling

and CRM, workflow automation in HR processes and in

retail credit processes)- versus 67% foreign banks and

27% private banks (BCG-CII 2013).

Indian banks typically rely on multiple vendors for

their software requirements. Revenue-stream specific

Application Software is used by banks for collections

and liquidity management, risk management, capital

calculation, trade finance, etc. SBI uses both Infosys’

Finacle as well as TCS’ Bancs for core banking in

India and International business, respectively. While

most foreign banks also use a mix and match of

systems, their core banking systems are the same

worldwide and often developed in-house. The top

Indian banks use Infosys’ Finacle, TCS’ Bancs and

Oracle’s Flexcube. A large number of firms listed in

13 https://www.livemint.com/industry/manufacturing/why-

manufacturers-are-not-rushing-into-india-11570429217983.

html.

14 Source: https://economictimes.indiatimes.com/tech/

hardware/indias-pc-manufacturing-capacity-under-utilised-up-

to-80-as-per-industry-ravi-shankar-prasad/articleshow/

70363415.cms. 15

Spending by top verticals in Rupees crores for FY12 (BCG-

CII 2013) was as follows: Banking (18,500), Telecom (15,000),

Manufacturing (12,300), Media, Publishing & Entertainment

(10,700) and Retail (6600). 16

One of the authors (Gaurav Gupta) has worked for several

years in Banking. The following is partly based on his personal

knowledge of the industry.

Decision (December 2020) 47(4):341–361 355

123

Table 4 and other mid-tier firms cater to common

clients demonstrating ‘domestic convergence’ in pro-

ductivity, again satisfying one of the key conditions

from Table 1.

Potential for job creation17

As we saw in Fig. 11, there appears to have been a

healthy growth of jobs in both export and domestic

sectors over the past 10 years (an increase of 1.9 times

for export jobs and 1.6 times for domestic jobs). But as

mentioned earlier, the industry as such is not labor-

intensive and only employs around 4 million people in

India.

Further, around 20–35% of these jobs are estimated

to be at risk of redundancy with the deployment of

technologies such as robotics process automation i.e.

automation of rules-based tasks for execution without

human intervention, and intelligent automation i.e.

automation of tasks requiring judgement where

machines can be trained with large volumes of

historical data. Industry estimates project an increase

in employment in IT-BPM to 4.5 million by 2022

(NASSCOM Strategic Review 2019; Team Lease Jobs

and Salaries Primer 2019). Of this projected figure,

10–20% jobs are estimated to be new and 60–65% are

estimated to need new skills.

The likely impact of technology on jobs in key job

providing sectors of India’s economy is summarized in

Table 5. Key factors/trends that will shape the future

of employment in the IT-BPM industry and other

sectors include globalization and trade, FDI flows,

adoption of exponential technologies and their impact

on offshoring, demographics and increasing local

demand, and connected products and services.

Fig. 11 Revenues & Jobs Growth (exports & local sales): Index, FY 2010 = 100. Source: www.ceic.com

Table 4 FY19 total and domestic revenue of Indian IT-BPM firms. Source: Annual reports of companies, 2019

In Rs crores FY19 Revenue India Revenue

Wipro 59,000 3100

Infosys 83,000 2100

Tech Mahidra 35,000 NA

HCL 60,500 2100

Mindtree 7000 300

L&T Infotech 9500 700

Persistent System 3400 250

Total (rounded off) 404,000 17,000

17 In this section, we have quoted estimates of job creation

from different studies. However, none provide explicit details

of how those numbers have been arrived at.

356 Decision (December 2020) 47(4):341–361

123

With respect to manufacturing, the current stock of

robots globally is concentrated in capital-intensive

(and assembly using hard materials vs soft materials

like textiles) and high-wage industries (e.g., transport

equipment, electrical equipment vs textiles). In addi-

tion, not everything is economically feasible to

automate. Employment share of sectors such as

textiles, which are less amenable to automation is

much higher.

As far as India and other Asian economies are

concerned, new jobs from rising demand will com-

pensate for displacement of jobs by technology (ADB

2018). Reshoring is also not perceived to be a big

threat to jobs in India. Several new job titles show

creation of new jobs that did not exist a few years ago

(Karnik 2019).

We take a brief look at the estimate of direct/

indirect job creation including enablement of new

business models via IT-BPM.

FDI and job creation

Over the period FY01 to FY19, services sector overall

and the sub-segment ‘computers (including software

and hardware)’ attracted 50% and 9% of the total

Foreign Direct Investment into India of USD 421

billion, respectively. FDI can be directed toward two

purposes: setting up a new business or buying an

existing business. The former leads to net new job

creation whereas the latter could lead to net reduction

in jobs. We observe no direct relationship between

FDI inflows and job creation in India’s case.

FDI flows considered here pertain only to the

computer software and hardware industry and do not

include what has gone into business services or other

components of the IT-BPM industry. The average

inflows prior to 2015 have been * USD 1 billion after which it increased to USD 2.3 billion in 2015, USD 6

billion in 2016, USD 3.7 billion in 2017 and USD 6.2

billion in 2018. During this period of higher FDI

inflows, incremental new job creation has been going

down. From * 315,000 jobs created in 2014, incre- mental annual job creation in IT-BPM sector fell to

less than 100,000 in 2018 (source: ceic.com).

GVA and job creation

With progress in technology and consequent improve-

ments in labor productivity, there has been a decou-

pling of economic growth and employment growth.

Employment elasticity has declined sharply from 0.41

in 1980s to 0.2 between 1993 and 2012 (Exim Bank

2016).

A recent study by McKinsey on behalf of Ministry

of Electronics and Information Technology (Meity),

Government of India (2019) estimates that the digital

economy is likely to experience a fivefold jump in

GVA from * USD 200 million to * USD 1 trillion by 2025.

Industry revenues are expected to grow fast but

with the feasibility of automation technologies, job

creation will not follow the path it has been following

till now. Digital technologies 18

and businesses focuss-

ing on them are expected to dominate in future.

Revenues from digital technologies already contribute

to 20–25% of IT-BPM industry’s overall revenues. In

addition, these digital technologies will generate huge

volumes of data most of which will need to be housed

within India (for locally generated data) and India is

also emerging as a ‘‘co-location’’ for global companies

to store their data in India. This requires huge Data

Centres to be set up and will lead to opportunities for

real estate and other non-traded services as well.

Based on surveys of Indian IT-BPM firms, Indian

Staffing Federation estimates addition of 3 million

Table 5 Impact of technology on jobs-select

sectors. Source EY-FICCI 2017

New jobs New skills Redundant jobs

IT-BPM 10–20% 60–65% 20–35%

Automotive 5–10% 50–55% 10–15%

Textiles and apparel 5–10% 35–40% 15–20%

BFSI 15–20% 55–60% 20–25%

Retail 5–10% 20–25% 15–20%

18 Blockchain, Data Analytics, Artificial Intelligence (AI),

3Dprinting, Internet of Things (IoT), Automation & Robotics,

Cloud Computing.

Decision (December 2020) 47(4):341–361 357

123

tech jobs in the 5 years to 2023- this will be led by jobs

in digital technology areas mentioned above.

Exports and job creation

The employment intensity of services exports is lower

than that of manufacturing exports, and it has been

falling for both over the last decade or so. As per a

2016 EXIM Bank study, total exports-led employment

in India was 63 million in FY13 and services

contributed to * 20% of this at 12 million. Given the nature of technology-enabled work, highly skilled

workforce and the high productivity levels the IT-

BPM sector’s employment elasticity is low compared

to the rest of the services sector.

The EXIM Bank study estimates that for one crore

worth of exports, the Computer and related services

sector contributed to 6.7 jobs in FY08. This number

dropped to 5.3 in FY12.

Indirect job creation in other sectors and job

creation potential through new business models

made possible by technology

As noted earlier, IT jobs have an estimated multiplier

effect of 3 to 4. Estimates of indirect job creation will

be a function of the numbers of direct jobs created

influenced by a mix of FDI, contribution to GVA and

to exports.

While this is necessarily speculative, technology

also has the potential to transform the future of work.

Meity estimates creation of additional 60–65 million

jobs across sectors in the digital economy (new

employment opportunities enabled by internet and

exponential technologies) by 2025. E-commerce and

last mile logistics are another potential area of large-

scale job creation, as evidenced by the Alibaba

ecosystem in China which created 40 million ? direct

and indirect jobs in 2018 itself (Renmin University

2019). Lastly, there are examples of O2O (online to

offline) platforms, firms that started off purely online

are now rapidly establishing physical presence and

hiring staff for delivery and other functions (e.g.,

Lenskart).

A large volume of literature and discussions in the

popular press revolve around how platform businesses

in India such as those of Swiggy and OLA have

impacted lives in a major way, both from employment

and demand sides, by leveraging the power of

technology. However, what we would like to highlight

and briefly discuss below are two uncommon but

powerful examples of how Indian firms working on

solving problems in agriculture, industry and services

have embraced Advanced Technologies (such as

Internet-of-Things and Artificial Intelligence) and

Advanced Analytics in developing business models

that have the potential to be game changers within and

outside India. The two examples we discuss below are

those of Glocal Healthcare and Stellapps.

(a) Glocal Healthcare 19

: digital dispensary using

the power of IoT and AI

Glocal Healthcare- a chain of brick-and-mortar

low-cost hospitals in rural India, uses advanced

technology for medical decision support. Over the

past 10 years, the company has built ten fully

functional 100-bed multi-speciality hospitals in states

like Bihar, Uttar Pradesh, Odisha and West Bengal. It

has set up 250 digital dispensaries (HellolyfCX),

which provide video consultations, examination,

investigations and automated medicine dispensing.

These doctor-less clinics need only nurses to run them

but provide comprehensive primary care at prices

below $5 per episode. Glocal Healthcare Systems

models have also been implemented in Canada,

Ghana, Mali, Mongolia, Nigeria.

HellolyfCX Digital Dispensary (Healthcare-in-a-

box) offers end to end primary healthcare solution

based on the use of Internet-of-Things and Artificial

Intelligence. This solution recently won the presti-

gious Public Appreciation Award 2020 at the UN

Innovation’s Health Innovation Exchange (HIEx).

It is a portable digital clinic which is safe even in a

pandemic like COVID19, protected by UV-C light

disinfection, positive pressure and acrylic barrier

between the nurse and the patient. It does not require

a doctor. Doctors can see the patient remotely on

video, conduct examination remotely through Internet

of Things, all tests are done inside within 15 min using

Point of Care diagnostics, and medicines are dispensed

automatically from a machine.

19 https://www.ghspl.com/.

358 Decision (December 2020) 47(4):341–361

123

(b) Stellapps 20

: Data-led, internet of things based,

farm-to-consumer dairy supply chain

digitization

Stellapps is an India-based farm-to-consumer dairy

digitization service provider, improving farm produc-

tivity and milk quality and bringing supply chain

traceability to the industry. It is one of the two

companies from India recognized by the World

Economic Forum as part of Technology Pioneers

2020.

It leverages advanced analytics and artificial intel-

ligence through its full-stack internet of things plat-

form to enable dairy system partnerships (financial

and insurance institutions, veterinary services, etc.) to

drive significant value for each stakeholder, including

smallholder farmers. Stellapps digitizes 8 million

litres of milk daily and impacts 2 million dairy farmers

in 28,000 Indian villages.

Key takeaways for policymakers

India’s industrial policy needs to ensure that right

support is provided to industries that have proven their

capabilities at a global level, are best positioned to take

advantage of the technology-led business environment

and also have substantial spill-over effects on the rest

of the economy. Building on Rodrik (2007), we note

that the Central and State governments would do well

by continuing their active support for the IT-BPM

industry which satisfies the following Ten Design

Principles of Industrial Policy.

1. Incentives should be provided only to ‘‘new

activities’’: the IT industry is undergoing

another revolution with game changing/gen-

eral purpose technologies such as IoT and AI

having a near universal impact on every aspect

of our lives.

2. There should be clear benchmarks or criteria

for success and failure: IT-BPM industry has a

demonstrated track record of direct and indi-

rect contribution to the economy.

3. There must be a built-in sunset clause: as has

been the case with governments of industrially

successful countries across the world, given

the changing technology landscape, the Indian

IT-BPM industry continues to need policy

support in the initial stages as it positions itself

toward moving up the value chain.

4. Public support must target activities, not

sectors: technology is pervasive and touches

every aspect of our lives- not just new business

models but also better delivery of public

services.

5. Activities that are subsidized must have clear

potential of providing spill-overs and demon-

stration effects: as discussed in the initial

section of this article, IT-BPM sector has clear

spill-over benefits for other sectors of the

economy. Success here has also given Indian

companies the confidence to scale businesses

globally, as has been happening in the case of

new business models such as those of OYO,

Paytm, OLA.

6. The authority for carrying out industrial

policies must be vested in agencies with

demonstrated competence: Meity in close co-

operation with industry body NASSCOM

have demonstrated success in the past.

7. The implementing agencies must be monitored

closely by a principal with a clear stake in the

outcomes who has political authority at the

highest level.

8. The agencies carrying out promotion must

maintain channels of communication with the

private sector: NASSCOM plays a very

constructive role in the development of the

entire industry and is seen as a voice repre-

senting all types of players- big and small.

9. Mistakes that result in ‘‘picking the losers’’

will occur.

10. Activities need to have the capacity to renew

themselves, so that the cycle of discovery

becomes an ongoing one: technology by

nature is an evolving area where India has

managed, albeit to a limited extent, move up

the value chain starting from body-shopping to

project management within the software

space.

Indian Government’s Digital India Programme

(2015) and National Policy on Software Products

(NPSP 2019) are steps in the right direction. While

Digital India will help increase domestic penetration 20

https://widgets.weforum.org/techpioneers-2020/stellapps/

and https://www.stellapps.com/.

Decision (December 2020) 47(4):341–361 359

123

of IT, the NPSP envisages innovation-led tenfold

increase in the current low (\ 0.5%) share in the world software products market and creation of 3.5 million

direct/indirect jobs by 2025. However, there is little to

show by way of budgetary support or any material

change in the industry’s performance, especially with

respect to NPSP. Private initiative continues to bear

fruit. However, this time might prove to be different

and mere non-interference on the part of the govern-

ment may not be enough.

Conclusion

The world economy and the technology industry are at

the cusp of another internet-like disruption some of

which has already started to take shape. Industrial

policies of countries at the frontier 21

are focussed on

the interplay of new technologies, economic growth

and the future of employment. For example, as

Alcácer and Cruz-Machado (2019) articulate, Ger-

many’s Industrie 4.0 aims to work with a higher level

of automation achieving a higher level of operational

productivity and efficiency, connecting the physical to

the virtual world. It will bring computerization and

inter-connection into the traditional industry. The

future of manufacturing will involve more use of Big

Data and advanced technologies such as the IoT,

Industrial Automation, Cybersecurity, Cloud Com-

puting and Intelligent Robotics.

These kinds of digital technologies already make up

20–25% of revenues of India’s IT industry and Indian

companies are well positioned to capitalize on their

established position in the IT-BPM value chain, albeit

at the lower end. While the exports market will

continue to dominate, with the government’s focus on

better governance and delivery of public services and

transfers sans intermediaries, the domestic market will

also provide sufficient impetus for India’s IT-BPM

industry. New business models made possible mainly

because of digital technologies will be the new job

creators and technology can have a positive impact on

quality of work. What is required from the government

is a big push for developing the local IT industry as has

been done in China. India has always struggled to

retain talent within the country. To build an even more

robust IT-BPM industry, India would do well to retain

talent and create incentives for reversal of brain drain.

In conclusion, notwithstanding the large changes

afoot due to fourth industrial revolution technologies,

a continued and coordinated policy support for IT-

BPM has the potential to expand the industry and, in

the process create a large number of jobs in other

sectors as well.

Funding Not applicable.

Availability of data and material Not applicable.

Conflict of interest Not applicable.

Code availability Not applicable.

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