Export of Software and Business Process Outsourcing from Developing Countries: Lessons from the Indian Experience*

* This paper was prepared by Dr. Nagesh Kumar, Director-General, Research and Information System (RIS) for Developing Countries, Core 4B, India Habitat Centre, Lodi Road, New Delhi-110003, India, email: [email protected], [email protected], and Mr. K.J. Joseph, Visiting Senior Fellow, RIS, email: [email protected]. I emergence as a globally competitive supplier of software and services has attracted worldwide attention. Against that background, this paper explores the contribution of this sector to the economy and highlights the role of policy initiatives and institutional interventions undertaken by the State in accomplishing this unique success, with a view to drawing lessons for other developing countries. It is shown that the software and service sector not only contributes significantly to export earnings and GDP but also emerges as a major source of employment generation in the country. Besides, the information technology (IT) sector has served as a fertile ground for the growth of a new entrepreneurial class with innovative corporate practices and has been instrumental in reversing the brain drain, raising India’s brand equity and attracting foreign direct investment (FDI) leading to other associated benefits. These and other benefits, the paper argues, have had an opportunity cost in terms of the adverse impact on other sectors competing for skilled manpower. It is also argued that India’s success owes largely to the cumulative investments made by the Government over the past five decades in building up a national innovation system, which laid the foundation for the development of skilland technology-intensive ABSTRACT