India’s Software Industry in Transition

India’s Software Industry in Transition:
Lessons for other developing countries and implications for South-South Cooperation K J Joseph Centre for Development Studies [e-mail] A Background Paper Prepared for the Information Economy Report 2012

Centre for Development Studies
Thiruvananthapuram, Kerala, India
May 2012

India’s Software Industry in Transition:
Lessons for other developing countries and implications for South-South Cooperation

Contents
1. Introduction 2. Performance of Software Industry: Recent Trends 2.1 Trend in Production and Exports 2.2 Software and India’s GDP and employment 2.3 Changing direction of exports 2.4 Leading role by domestic firms 2.5 Opportunity cost of export 2.6 Trend in Domestic sales and domestic market orientation 2.7 Moving up the value chain? From services to products and embedded software 3. Software Industry in China: A Comparative Perspective 4. Recent Policies for Software Development 4.1 Legal framework 4.2 Working Group on IT for the Masses 4.3 The National e-Governance Plan (2006) 4.4 Further focus of Domestic Market: Draft ICT policy 2011 4.5 Role of Private sector and Industry Associations 5. In Perspective: Lessons for LDCs and an Agenda for S-S Cooperation 5.1 Lessons for other developing countries 5.2 South-South Cooperation in ICT and Software

India’s Software Industry in Transition:
Lessons for other developing countries and implications for South-South Cooperation K J Joseph Centre for Development Studies [e-mail] 1. Introduction It is generally perceived that the greatest contribution by the previous century in the sphere of technology to the current century and beyond is the revolutionary changes in the Information Communication Technology (ICT). While the genesis of such revolutionary changes could be traced to the technological changes in microelectronics, it has been sustained by the developments in software. The cumulative effect has been emergence ICT as the

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Annexure 1 E-Choupal: Harnessing ICT for Rural Development The e-Choupal is a success story of private participation for rural development in India at the instance ITC, one of India’s largest corporate entities is into the business of tobacco, hotels, paperboards, specialty papers, packaging, agri-business, branded apparel, packaged foods and other fast moving consumer goods. The ITC’s endeavor to use ICT for supply chain management in agro-products market for processing, marketing and delivery has created a win-win situation for both the corporate and the farmers in rural areas. While the ITC has gained in terms of efficiency the rural farmers have gained in terms of higher income. Moreover, the gains from ICT use have also generated positive spillovers in the economy. The success of this mission of ITC had secured ITC the Development Gateway Award for the year 2005, given for the exemplary use of ICT, the inaugural ‘World Business Award’ instituted in support of the United Nations’ Millennium Development Goals and the Wharton-Infosys ‘Enterprise Business Transformation Award 2004’ for the Asia-Pacific region. The e-choupal is an alternative to the Mandi system of marketing. The operation of the Mandi consists of a number of different stages, from the logistics of transporting grain to the market to quality inspection, auction, bagging and weighing, and payment. Various forms of inefficiencies burden the mandi system. Firstly, the farmers have no means to know the price trends of their product and since the sale of their product is by auction, there is little possibility of choosing another Mandi, in case of price differences. This apart, there is no scientific ways of quality testing of the crops. Most often they are by way of opinion of the commission agents or the direct buyer that the quality is determined. There are also costs related to bagging and weighing the crops, often leading to higher spillage and inaccurate weighing by the weighers. For the trading company the Mandi system posed another set of problems. The presence of agents meant that there was no direct interaction between the farmers and the trading company. This led to price and quality distortion of the product. ITC has conceived Echoupal as a farm centre with an Internet connected computer in the village. The e-choupal is run from a local farmer’s house, who is named the Sanchalak. Along with the Sanchalak there is also the Samyojak, a local commission agent, who provide the logistical support. The Sanchalak and the Samyojak are the two important interfaces between the trading company and the farmers. The Echoupal provides the farmer with some vital services. Firstly, the company provides the fair average price for the day based on the price in the Mandi , which is made available to the farmers through the e-choupal portal. The farmer can subject his product for quality assessment with the sanchalak, and choose to sell the product at the echoupal. The sanchalak issues a report of quality of the product and identity of the farmer. The farmer takes the note from the sanchalak and proceeds with his crop to the nearest ITC procurement hub, ITC’s point for collection of produce and distribution of inputs sold into rural areas, where proper weighing is done in the presence of the farmer and payments are made immediately. Thus the echoupal provides the farmer with an alternative from the inefficient Mandi for selling, quality checking and receiving fare and timely payments for the products. The e-choupal has become very popular among the farmers and its network reaches more than a million farmers in nearly 11,000 villages through 2,000 e-Choupals in four states (Madhya Pradesh, Karnataka, Andhra Pradesh, and Uttar Pradesh. The average usage is about 600 farmers per e-Choupal in the soya cropping area, with fewer in wheat, coffee, and shrimp. The incremental income from a more efficient marketing process is about US$6 per ton, or an increase of about 2.5% over the mandi system. For the company also the echoupal system brought in many gains. The cost of intermediation reduced from 2.5 to 3% in the Mandi system to less than 0.5% in the echoupal system13. Similarly, the payments made for transportation by the company directly to the farmer is only half of what ist used to pay to the intermediary. Removal of intermediary manipulation of quality and the ability to directly educate and reward quality in the customer base results in higher levels of quality in e- Choupal procurement. In the mandi system, there was a mark up of 7-8% on the price of soybean from the farm gate to the factory gate. Of this mark up, 2.5% was borne by the farmer while 5% was borne by ITC. With e- Choupal, ITC’s costs are now down to 2.5%. In absolute numbers, both the farmers and ITC save about US$6 (Rs 270) per metric ton14. There are also other vital information that are available for the farmers from the echoupal- the most important is the prevailing price of the crop in the local market as well as in neighboring markets. This critical information empowers the farmer with the choice of when and where to sell. It also facilitates the farmers to communicate among them and discuss on a range of issues relating to quality, price and innovations in cropping methods. One of the important ways in which eChoupals have become successful is the presence of the sanchalaks , who are part of the local farming community. Their presence and local expertise help in converting many of the ideas in the Internet to the local farm. The website also provides local weather information and agricultural best practices on specific crops. . The ITC does lab test for the samples collected and provides with customized feedbacks on improving the quality and yield of the crop. Another major impact is the power of information through the computers in transforming the rural life, be it for education, health, or entertainment. 13 14 Annamalai, Kuttayan and Sachin Rao (2003)p14 Annamalai, Kuttayan and Sachin Rao (2003) p15