India’s emergence as a major exporter of software services in less than a decade and a half has excited debate about the causes of its success and ignited hopes for similar success in other industries. The subsequent growth of exports of other business services appears to validate the belief of some observers that India’s software success would have broader benefits for the Indian economy. Despite this, there is a perennial undercurrent of concern about the prospects of the Indian software industry. The causes for concern are not difficult to find. Wages for software professionals have consistently risen year over year and employee attrition remains a persistent problem for companies. Indian exports continue to be mostly services with a modest technology content and there is little evidence of successful product development. Add to these the ever present possibility of China (or Eastern Europe or the Philippines) emerging as potent rivals, and there is much to be concerned about. This paper will briefly describe its growth and evolution, identify the major factors that contributed to its success, and some possible ones that were not important. The prospects of the industry are next and in this context this paper shall summarize the available evidence on the extent to which India and Indian firms are participating in software innovation. This will lead to an assessment of whether the industry has and can provide higher value added products and services.
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