The Impact of Economic Reforms on Industry in India: a Case Study of the Software Industry
The Impact of Economic Reforms on Industry in India: A Case Study of the Software Industry
N. R. Narayana Murthy
The Indian economy, in the last decade, transitioned from an inward looking, closed economy, to a liberalized,export-oriented one. The software sector witnessed unprecedented growth, with exports growing at a compounded annual growth rate (CAGR) of around 45 percent and domestic software sales at around 35 percent. In fact, before 1991, the Indian software sector was adversely affected by the restrictive economic policies. Thus, this sector provides an appropriate case study on how liberalization of the economy reduced friction to business and accelerated growth.
Growth of the Indian Software Services Industry The Indian economy, especially the software sector, witnessed robust growth, post-1991. India’s annual software exports increased from US$24 million in 1985 to US$164 million[1] in 1992 to US$7.8 billion[2] in March 2002. Similarly, India’s domestic software sales increased from US$140 million[3] in 1992 to US$2.45 billion[4] in 2001–2002.
The economic reforms of 1991, introduced by the then Finance Minister Dr. Manmohan Singh, laid the foundation for this growth. A company such as Infosys exemplifies the benefits of these reforms. Infosys grew from US$0.13 million in revenues and twelve employees in 1982 to US$3.89 million and 300 employees in 1992, to US$545 million for the year ending March 2002, with 10,700 employees. Infosys, which started with one client in 1982, had eleven clients in 1992. By March 2002, the number of clients had increased to 293.
Further, the total investment in business by Infosys increased from US$0.04 million in 1982 to US$2.16 million in 1992 to US$435.67 million by March 2002.
1.1 India before 1991
Before 1991, India adopted an inward-looking policy. There was distrust among the policymakers regarding the intentions of the private sector. Further, imports were restricted. At one point of time, the marginal
N. R. Narayana Murthy
The Indian economy, in the last decade, transitioned from an inward looking, closed economy, to a liberalized,export-oriented one. The software sector witnessed unprecedented growth, with exports growing at a compounded annual growth rate (CAGR) of around 45 percent and domestic software sales at around 35 percent. In fact, before 1991, the Indian software sector was adversely affected by the restrictive economic policies. Thus, this sector provides an appropriate case study on how liberalization of the economy reduced friction to business and accelerated growth.
Growth of the Indian Software Services Industry The Indian economy, especially the software sector, witnessed robust growth, post-1991. India’s annual software exports increased from US$24 million in 1985 to US$164 million[1] in 1992 to US$7.8 billion[2] in March 2002. Similarly, India’s domestic software sales increased from US$140 million[3] in 1992 to US$2.45 billion[4] in 2001–2002.
The economic reforms of 1991, introduced by the then Finance Minister Dr. Manmohan Singh, laid the foundation for this growth. A company such as Infosys exemplifies the benefits of these reforms. Infosys grew from US$0.13 million in revenues and twelve employees in 1982 to US$3.89 million and 300 employees in 1992, to US$545 million for the year ending March 2002, with 10,700 employees. Infosys, which started with one client in 1982, had eleven clients in 1992. By March 2002, the number of clients had increased to 293.
Further, the total investment in business by Infosys increased from US$0.04 million in 1982 to US$2.16 million in 1992 to US$435.67 million by March 2002.
1.1 India before 1991
Before 1991, India adopted an inward-looking policy. There was distrust among the policymakers regarding the intentions of the private sector. Further, imports were restricted. At one point of time, the marginal
References: - [1]NASSCOM, ‘‘The Software Industry in India, 1996: Strategic Review.’’ New Delhi: National Association of Software and Service Companies. [2]NASSCOM-McKinsey Report 2002. New Delhi: National Association of Software and Service Companies. [3]NASSCOM, ‘‘The Software Industry in India, 1996: Strategic Review.’’ [4]NASSCOM. [5]Economic Survey of India 2001–2002. Ministry of Finance, Government of India. [6]RBI’s weekly statistical supplement, May 24, 2002. [7]SEBI.