Working Paper
The Software Industry and India's Economic Development

This paper assesses the contribution of software to India's economic development, paying particular attention to the role of software in the absorption of labour and the development of human capital in the economy. India's specialization in software has been driven by two sorts of wage advantages that have reinforced each other: lower wages for software developers relative to those of their US and European counterparts makes Indian software cheaper in global markets, while the higher wages earned by these professionals relative to other industrial sectors in India have ensured a steady supply of workers. The impact of this growth, however, has been limited to a small section of the economy, and the question being asked is whether the current growth can be sustained without a significant increase in 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 increased the relative value of professional workers, not only programmers, but also managers and analysts. The growing importance of human capital, in turn, has lead to innovative models of entrepreneurship and organization, pioneered by the software sector, and these are slowly taking root and spreading to the other sectors of India's industry. A potentially important and under-appreciated contribution of the software industry is thus exemplar of good entrepreneurship and corporate governance to the rest of India. Though less visible than the macro contributions to employment and foreign exchange, this role is a source of productivity improvement for all industries, and can have powerful long-term benefits for India's industrialization and growth.