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The software industry and India's economic development
Any type of content formally published in an academic journal, usually following a peer-review process.
posted on 01.01.2003by Ashish Arora, Suma Athreye
This paper assesses the contribution of software to India’s economic development paying
particular attention to the role of the software in the absorption of labour and the development of
human capital in the Indian economy. India’s specialisation in software has been driven by two
sorts of wage advantages that have reinforced each other: the lower wages for Indian software
developers relative to that of their US and European counterparts makes Indian software
cheaper in global markets, while the higher wages earned by software professionals in India
relative to that in other industrial sectors has ensured a steady stream of supply of software
professionals. However, the impact of this growth has been limited to a small section of the
Indian economy, and there are questions whether the current growth can be sustained without a
significant growth of domestic demand. We believe that export led growth is sustainable in the
medium term. On the other hand, the success of the software industry has contributed to an
increase in the relative value of professional workers – programmers, but also managers and
analysts. In turn, the growing importance of human capital has lead to innovative models of
entrepreneurship and organisation, pioneered by the software sector, which are slowly taking
root and spreading to other parts of Indian industry. A potentially important and under
appreciated contribution of the software industry is thus as an exemplar of good
entrepreneurship and corporate governance to the rest of Indian industry. Though less visible
than the macro contributions to employment and foreign exchange, this role is a source of
productivity improvement for all industry, which can have powerful long- term benefits for
India’s industrialisation and growth.