‘The Outsourcer’ — Story of India’s IT Revolution
I chanced upon the book ‘The Outsourcer’ by Dinesh C. Sharma. The book is a fascinating read for anybody connected with the IT industry. It tells the story of India’s IT revolution which saw export from IT services grow from a paltry $3.5m in 1980 to over $100 billion today. It also recounts the story of how computers and internet first came to India, how Indian Railway rolled out computerized reservations, how key institutes and government policies played its part (both good and bad) in the growth of IT, and how finally Indian tech giants emerged. The book, starting from Nehru’s time, goes in a chronological order to connect the dots in government policies, technological advances and industrial strides to tell a gripping account of India’s IT growth.
First Computers and Advent of Internet in India
Pandit Jawaharlal Nehru, India’s first Prime Minister, is credited with creating and nurturing institutes of national importance. Indian Statistical Institute (ISI) Kolkatta and Tata Institute of Fundamental Research (TIFR) Mumbai were institutes of national importance which heralded India’s entry into computational world. ISI carried out statistical and planning work for key government initiatives including ‘five-year plan’ while TIFR championed nuclear initiatives. Both of these institutes needed computational power to carry out their missions. ISI built one of the first mechanical calculators and analog computers to solve mathematical equations. It was also the first organization in the country to get a computer in 1956. TIFR, on the other hand, procured CDC 3600 computer in 1964. Subsequently, IIT Kanpur got an IBM 1620 in 1965 and an IBM 7044 a year later.
TIFR and IIT Kanpur opened up their computing facility to academics and researchers. These institutes became hub for India’s first breed of programmers. After selling computers to IIT Kanpur, IBM quickly expanded into India market. IBM enjoyed absolute monopoly from 1950 to 1977 before deciding to exit India in 1977 in protest of new FERA and FEMA laws. Though IBM was found guilty of many wrongdoings such as dumping obsolete computers in India at exorbitant prices, but it did create a ‘computer culture’ in India and gave India her first generation of programmers and computer engineers.
Effort was underway to put computers on a network. NCSDCT (National Centre for Software Development and Computing Techniques), carved out from TIFR, was first to demonstrate Wide Area Network when it linked computers at TIFR and VJIT Mumbai using Bombay Telephone lines in 1977. Later Department of Electronics (DoE) commissioned ERNET (Education and Research Network) modeled on ARPANET to connect 5 IITs, IISc Bangalore, NCSDCT and DoE. Very soon ERNET partners could connect to the world on dial-up. That’s how internet came to India in 1989. A pivotal moment came in 1993 when satellite link became operational at Bangalore STP (Software Technology Park). Software companies located in the park could now do video conferencing with their overseas clients and ship softwares over the satellite connection. Two years later VSNL launched Internet Services in and in 1998 Government allowed companies to set up private ISPs leading to the explosion of internet users in India.
In 1970 government constituted Department of Electronics (DoE) to regulate electronics industry. One of the mandates of DoE was to build indigenous computers but it met with limited commercial success. DoE also introduced license raj in the electronics industry. One now needed DoE’s permission to import computer which could take somewhere from 6 to 60 months! It was only in 1981 that government liberalized unfriendly policies and allowed import of computer against obligation to export software. Government also established C-DoT under the leadership of Sam Pitroda. C-DoT’s mandate was to build digital exchanges for telecommunication in India. C-DoT’s innovative all weather rugged digital switches pulled off telecom revolution in India. In 1986 government further liberalized its policy and made it easier to import hardware and software. This shift in policy left Indian hardware companies vulnerable. They had no choice but to partner with the global giants.
Soon after IBM left, DoE had created CMC (Computer Maintenance Corporations) to maintain the computers left over by IBM. CMC ventured into writing softwares and won the contract to build Indian Railways reservation system. Successful implementation of IR reservation system created a positive perception about computers among trade unions and served as a model for banks and Air India automation project. In a seminal decision in 1991 government decided to establish seven Software Technology Parks (STP) across India. Idea was to provide excellent infrastructure and statutory support to fledgling companies in order to grow Information Technology industry in India. STP played a key role in India’s IT growth story.
While government was doing its bit, private sector had woken up to the opportunity in computing and software. Tatas started TCS in 1968 because a need was felt to centralize data processing for various Tata companies. TCS was started with just 3 computers. In 1971 Delhi Cotton Mill (DCM) created a new line of business to venture into emerging areas such as electronics. Shiv Nadar and Arjun Malhotra formed the core team of this new group. Initial idea was to collaborate with Japanese giant Sony to build calculators but when government didn’t approve, DCM decided to go solo. The first indigenous calculator that DCM built in 1972 was as large as a briefcase. 1975 DCM launched India’s first microprocessor. Next year, the core team at DCM resigned en masse to start HCL under the leadership of Shiv Nadar. The brand name HCL or Hindustan Computers Limited came into being after a joint venture with Uttar Pradesh Electronics Corporation Limited who provided the much needed capital to kickstart the company. By this time IBM had left India. Next few years would be dominated by ECIL’s (DoE company) TDC-312, TDC-316, DCM’s Spectra Series and HCL 8C. HCL 8C built in 1977 was in many way India’s first modern PC. It had an 8 bit microprocessor with OS written in Business BASIC. It came with a 5.25 inch floppy drive and could maintain data and computations even if computer had to be restarted because of power cut. HCL 8C was released at the same time as Apple in the US and three years ahead of IBM’s PC. HCL had a great run but when imports were liberalized in 1984, a number of companies started assembling PCs from imported kits. HCL and other homegrown hardware companies felt the heat and were forced to get into software services. HCL America which had started as a hardware company in US in 1988 soon morphed into a services company. HCL offered to get the work done at customer’s company premises, called ‘onsite’ work, or work could be shipped to India office, called ‘offsite’ work. This is how Indian companies discovered their model of outsourcing!
While in south India, WIPRO or Western India Palm Refined Oil Limited’s next generation leaders ventured into the business of building minicomputer and microcomputers to fill the gap created by IBM’s exit. Wipro’s first computer Wipro86 launched in 1981 was built using modular hardwares. Wipro leaders considered themselves as ‘mini IBM’ and had licensing partnerships with Intel, IBM and SUN. Wipro also built application softwares such as Wipro 456, a spreadsheet program similar to Lotus 1–2–3. However, as with HCL, after the import liberalization, Wipro’s hardware businesses took a beating. It could not either compete with multi-nations in software products. Much like HCL, Wipro ventured into consulting services and devised the concept of “Lab on Hire” to leverage the R&D talent it had assembled in India.
The story of India’s IT cannot be complete without the story of Infosys. To trace the origin of Infosys, we have to go back to 1972 when Narendra Patni, an MIT graduate, and later a consultant at Forrester came up with the idea that a low-end work of digitizing legal records could be outsourced to India. Patni founded Data Conversion Inc. (DCI) to digitize data on punch cards or magnetic tape. DCI’s business grew fast and it soon needed a computer of its own to typeset directly on computers and store data on magnetic media. Narendra Patni incorporated ‘Patni Computers System’ or PCS in 1976. Patni felt the need for a dedicated team for its software and hired N. R. Narayana Murthy, an M Tech from IIT Kanpur to head the team. Murthy handpicked his core team and hired Narendra Nilekani, Shibulal, K. Dinesh, and Gopalakrishnan among others. PCS started winning offshore software contracts under the able leadership of Mr. Murthy. In 1980, in an almost repeat of what happened at DCM, Murthy quit PCS along with his lieutenants to create Infosys. In the initial years, Infosys relied on ‘body shopping’ and had engineers visit onsite location to carry out projects. It took almost 4 years for Infosys to buy its first computer after procuring a loan from Karnataka State Industrial and Infrastructure Development Corporation. By 1990, Infosys had 1000 employees. In 1991 it expanded to Europe market and in 1994 ventured into domestic market with bank automation projects.
So what worked in India’s favor which today enables her today to export over $100 billion worth of IT services? Many factors seem to converge in the 1990s to catapult India to the IT world map. In 1991 India’s economy was liberalized and license raj came to an end. External factors such as “shortage of technical workers in the West, low labor costs in India, firm-level changes such as quality certification, transfer of knowledge and capability through linkages with US and European firms, linkages with the Indian diaspora, and the emergence of opportunities such as Y2K” helped amplify India’s progress into global IT market.
India’s IT services industry is today again at the crossroads. While not only many low cost destinations have emerged in Philipines and South East Asia, anti-outsourcing wave has swept through Britain and US after Brexit and Trump’s elections to the US presidency. Indian IT industry will have to face tougher visa norms and hire locally. There is also a shift in global demand in IT services. From banks and telecom industry which accounted for 40–50% of IT industry’s revenue, demand is shifting to other verticals such as health care and retail. There are no more low hanging fruits such as Y2K to be solved. In an era of cloud computing which is dominated by the likes of Google, Amazon and Microsoft, there won’t be much of traditional development and maintenance jobs in the coming years. Many of the repetitive and low ends jobs will get automated and IT industry will have to move up the value chain if they want to continue delivering value to their customers.
Last few years have seen a new trend and a spurt in funding of Indian internet companies. Internet companies are primarily oriented towards domestic consumers and still are long way from profitability. Nevertheless, one cannot deny the possibility of what the ecosystem of Indian IT talent, the network of startup founders and employees and a future whiz kid from an Indian city could do to change the game of Indian IT & software industry in the coming years. And when that happens, it will be a good time to revisit the history of India’s IT and reconnect the dots!