Contractual Jobs Affect Indian Software Industry, Says World Bank
The prevalent trend in the Indian software industry of sending its personnel to work abroad in clients' offices is detrimental for the growth of the sector, says the World Bank.
A Bank study of the Indian software industry, a copy of which was obtained by IANS, cautions against contractual programming at the clients' premises which, till a few years ago, accounted for 80 to 90 per cent of India's software exports.
Shortage of software engineers in many industrial economies, coupled with a trend towards outsourcing non-core operations have been the driving force behind the growth of the software industry in developing countries, including in India, notes the study, titled India in the Global Economy.
These types of exports bring a degree of technology and skills transfer and build up credibility with potential clients. However, profitability is relatively low. More damaging, it leads to the loss of personnel who choose to stay abroad, an important factor contributing to the slow rate of assimilation and diffusion of information technology throughout India, it says. Currently the share of on-site exports has declined to around 50 per cent of total software exports. This is believed partly to be a result of US visa curbs on Indian temporary workers and also because Indian software firms are graduating to higher value addition.
The report also said there was need to overcome the mismatch between skills taught in India and those demanded in global software markets. The quality of training in some institutes has been poor in the past, the study added. It said franchise training centres set up with Microsoft, Novell, Apple, IBM and Silicon Graphics should go some way in addressing these deficiencies. The study says India has one of the world's lowest concentrations of computers because the hardware market was highly protected till recently and also because of its inefficient telephone network.
It, however, mentioned Intel's estimate that India would cross the one million personal computers mark in 1997 and climb to annual sales of three million by 2001. India starts from a very low base and is years behind other developing country exporters in terms of the sophistication of its domestic market, the study said.
Pointing to global software sales of $100 billion a year, the Bank said the First World-dominated sector still offered countries like India a chance to carve out niche segments. Over a 10-year horizon, (India's software) export growth in dollars will slow from its current pace of 50 per cent to a more sustainable rate of around 25 per cent per annum, said the study.
India needs to build a strong, discriminating domestic market to encourage development of increasingly sophisticated products, the study said. India's software exports have grown from around 30 per cent a year in 1986-93 to nearly 50 per cent a year in the past two years.
The jump in the last two years has pushed software export earnings to around $750 million, the Bank estimates.
The study said that dedicated satellite links had made it possible to
overcome India's vast communication bottlenecks and this had substantially helped increase confidence in outsourcing information technology work to Indian software firms.
It also refers to the recent surge of foreign investment and joint ventures into India by multinational information technology groups like Oracle, Novell and Motorola.
The study noted a rise in the share of custom-made software for off-shore clients. The export of application software packages is by far the most difficult segment of the international software market to penetrate. But it is the main driving force and accounts for the largest proportion of traded software, it said.
India's package exports may account for a tenth of total software exports, the report said. Capital, managerial and marketing skills needed for this are higher compared to other segments of the market, but the level of profitability and skills transfer are greater as well, it pointed out.
It said India's main competitive advantage in the global software market was its low cost, skilled, English-speaking work force. Compared to Britain's software engineers' average earnings of 26,000 pounds sterling a year, in India the average earnings were 1,000-2,000 pounds, it said.
The cost of many of the jobs done for off-shore clients