In an excellent article, one of my favourite economists, Ashish Arora argues: “…many of the leading Indian firms have tried to develop products, with limited success. The lack of success ought not to surprise anyone. Penny pinching and risk averse management habits ingrained while growing in an infrastructure and capital scarce and labor abundant environment are unlikely to make for successful technology innovators. Development organizations geared to fulfill requirements laid down by clients are unlikely to be able to divine the needs of as yet unknown buyers of their product, and nor are sales organizations used to answering RFQs best suited to sell a product that the customer has not yet felt a need for.”
On a different note, I had a heated exchange last night with a friend who argued that the initial impetus for the software sector in India came from favourable government policies and an enlightened bureaucarcy. I countered, arguing otherwise: the key reason why software firms sprung off so well at the initial stage was because of less interference (“benign neglect”) by the government. In other words, software firms didn’t need a specific “license” to operate in a “license raj” era. Also, since they operated as “services”, a number of regulations on “manufaturing” carved out by the Fabian socialist state model engendered by Pandit Nehru did not apply to them. On this point, Arora argues as below:
“Athreye (2005a) argues that during the crucial years of its development, the software industry flew “under the radar”. The domestic market was small (and therefore there was little to be gained from protection) and as a service, it was naturally exempt from many of the laws and regulations that have stifled the growth of Indian manufacturing.
Neither were the large investments in the 1960 and 70s in science and engineering directed at software. Instead, the objective was to supply the manufacturing sector, whose slower-than-hoped-for growth resulted in the excess supply of engineers described to earlier. In more recent years, of course, the software industry and its industry association, NASSCOM, have come to exercise substantial political influence and helped craft favorable public policies. But that is the consequence of its success, not its cause.”