Mint National Agenda Debates: How can Indian Firms Compete?

Hello everyone and welcome to the sixth topic in our National Agenda Debate series. Today’s question is “What policies can enable small Indian firms to compete globally?”
As always, you can click below to send in your comments. Our views page editors will also be participating in the debate and responding to your comments and questions.

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One response to “Mint National Agenda Debates: How can Indian Firms Compete?

  1. It has long been known that Information and Communication Technologies (ICT) are a huge factor in ensuring that firms are competitive by helping them cut multiple costs and increasing efficiencies.

    Sadly, even though India prides itself on being the IT solution provider to the world, India’s own industries, especially the MSME (Micro, Small and Medium Enterprises) are laggards in their usage of technology. The Global Information Technology Report 2008-2009 (http://www.insead.edu/v1/gitr/wef/main/home.cfm) lists India as 54/134 on the Networked Readiness Index,, at #27 in Business Readiness and #30 on the Business Usage Index.

    It is also interesting to note that while India is at a high #4 in “Local supplier quantity”, it ranks a lowly #37 on the “Local supplier quality” metric. This is despite India India boasting of one of the largest IT sectors in the world and a few top-notch companies providing IT services – the target of these services providers is countries other than India. A minuscule portion of the work (in both absolute as well as revenue terms) that India IT service providers do is for the local market.

    The reason for this is actually not far to seek – the bottomline is that servicing the domestic market is not as remunerative as servicing foreign clients. Even very high value added domestic services pale in contrast with plain old outsourcing work from foreign customers.

    The irony is that the government policies of incentivising exports by giving tax breaks on capital goods as well as income from exports has created an environment where servicing the domestic sector is inherently non-remunerative for the industry. Why will the industry pay customes, excise, VAT , service and income taxes and provide services to domestic customers when they can use the same manpower and earn much more from them.

    Thais is another reason why the best and brightest of the IT people will continue to work on foreign assignments.

    A policy that could help make MSMEs competitive on the global arena would be to help them get low-cost IT services and products, for all companies whether EOU or catering to the domestic market.

    The “NASSCOM-BCG Innovation Report 2007” Executive summary available at: http://www.nasscom.in/upload/53197/NASSCOM-BCG%20Innovation%20Report%202007-%20Exec%20Summary.pdf also makes the following point (Page 9, point g):

    “A strong and vibrant domestic IT market is critical to anchor the growth for the Indian
    IT-ITES industry beyond the short-term horizon. Inspite of the recent surge in the domestic
    IT market several challenges remain including high tariffs and import duties, poor rate of
    commercialisation of domestic R&D, lack of IT adoption in key verticals sectors including
    agriculture, healthcare, education and in the SMB segment.”

    Therefor, one of the key policy changes government should do is help the local consumers of IT get affordable ICT solutions. One of the ways this can happen is by incentivising both domestic production as well as consumption of IT and secondly bey leveraging Free and Open Source Software.

    These are also some of the key points in the IT vision presented by the Bharatiya Janata Party.

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