software and services industry in...
TRANSCRIPT
Chapter 3
SOFTWARE AND SERVICES INDUSTRY IN KERALA
The paradox of low economic growth and high physical quality of life
enjoyed by the people of Kerala have for long been the concern of both
academicians and policy makers alike. It has initiated questions regarding the
long-term sustainability of Kerala model of development and motivated studies
analysing different facets of the growth process in the state. Of late, a slightly
different trend seems to be emerging in this scenario with studies indicating a
revival of economic growth in the state in the post liberalization period, the
revival being largely accounted for by the service sector1. Correspondingly an
opinion is gradually emerging that given the lopsided industrial structure and
other factors that result in shyness of capital to flow into conventional
industries in the state, what is needed currently is a re-reading of the old
paradigm of industrial development based on manufacturing and emergence of
a new vision making use of the state’s comparative advantage in knowledge
generation and human resource development2. This vision is reflected in the
state government’s IT policy document 2001 which states that the growth of
Kerala in coming years will be increasingly driven by the knowledge and
service based sectors3. In line with this broad strategy, the government has also
1 K.J Joseph and K.N Harilal (2000) Stagnation and Revival of Kerala Economy-An Open Economy
Perspective, Centre for Development Studies Working Paper No 305. 2 K.K .Subramanian and E .Abdul Aziz, (2000) Op.cit 3 Government of Kerala, (2001) .Information Technology Policy Document, Department of
Information Technology, p7.
40
declared its objective to establish Kerala as a leading IT destination in the
country.4
In this chapter we trace the growth profile and broad characteristics of
the software and services industry in the state as a prelude to our detailed
analysis of its gender dimensions. Our attention is focused more on software
and ITES exports from the state due to the fact that (1) these segments in India
are generally perceived to be export driven and (2) our primary concern is the
social, cultural and economic impact of such international contact on the
women of Kerala. It goes without saying that a proper perspective of the
scenario in the state can be obtained only when viewed against the background
of the industry in the country. Therefore salient features of Indian software and
services industry, particularly its export segment, are first portrayed before
discussing the scenario in the state. Thus the chapter consists of two main
sections. The first traces the evolution and characteristics of the software and
services industry in the country while the second draws upon whatever
information is available to sketch the same with respect to the state.
3.1 SOFTWARE AND SERVICES SECTOR IN INDIA
3.1.1 Growth of software and services industry
The growth achieved by software and services industry in the post
liberalization period is considered to be one of the biggest achievements of
India which has projected the country to the limelight in the world economic
scenario. Analysis of its growth against the background of total electronics
production in the country revealed that software and services production which
stood at a mere Rs 1715 crores in 1993-94 and accounted for only 10.86
percent of total electronics production in the country, has grown at rates much
higher than the electronics hardware sector in all the subsequent years, as a
consequence of which, it accounted for around 70 percent of total electronics
production in 2005-2006 (see table 3.1 and figure 3.1). The production of 4 Ibid
41
software and services in 2004-2005 was Rs 1,01,920 crores which increased to
Rs 1,33,700 crores in 2005-2006. Correspondingly its significance in the
Indian economy has increased, with the sector accounting for 5.12 % of the
GDP in 2005-06 up from 0.22 % in 1993-94. The Nasscom Mckinsey report
has projected that the software and services sector will contribute around 7.7
percent of the Indian economic output by 2008.5
A closer analysis of year wise annual growth rates revealed that the
software and services industry throughout 1990’s experienced growth rates
above 50 percent which declined to around 25-30 percent with the dawn of the
present century. The latter period was also a period of decline in global IT
sector. Even then, the growth rate of the sector in India was substantially
greater than that of the global software and services industry which witnessed
single digit growth. For instance in 2003-2004, the growth of global software
and ITES revenues was around 7.3%6 which was much lower than the double
digit growth rate witnessed in India.
5 Nasscom and Mckinsey and Co Report (1999): The Indian IT Strategy Summit: Beyond Y2K:
Building a Dominant Position for Indian IT Software and Services, Nasscom, New Delhi 6 Nasscom and Mckinsey and Co Report (1999) Ibid
42
Table 3.1
Software and services industry against the background of total electronics industry in India
Source :various Annual Reports, Department of Electronics, Ministry of Information Technology, Government of India; For calculation of percent share in GDP and in total exports, data on GDP at current prices and India’s total exports of goods and services was obtained from National Accounts Statistics 2005, 2007 (Central Statistical Organization.).
43
Figure 3.1
Growth rate of total electronics production, electronic hardware production
and computer software and services production over the years
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
1994-95
1995-96
1996-97
1997-98
1998-99
1999-2000
2000-2001
2001-2002
2002-2003
2003-2004
2004-2005
2005-06
Financial year
Ann
ual g
row
th ra
tes
hardware software total electronics
However it has to be kept in mind that despite its dynamic growth, India’s
share in world software and services market was a mere 1.3% in the financial year
2003 which increased to 1.6% in 2004 (see table 3.2). Such benchmarking to the
global scenario helps us to get a better perspective of the industry in India.
Table 3.2
India’s share in global software and ITES revenue
Financial year 2003 (USD
Billion)
Financial Year 2004 (USD Billion)
Total software and ITES revenue in India 12.6 16.7
Global software and ITES revenue
973.4 1044.8
India’s share in global software and ITES revenue (percent)
1.29 % 1.60 %
Source: Nasscom (2006) Strategic Review of the IT Industry in India, New Delhi
44
3.1.2 Domestic vs export composition of software and services industry
Analysis of the domestic vs export segments revealed that this boom in the
Indian software and services industry has been driven mainly by the growth of
exports (see table 3.3 and figure 3.2). Annual growth rates of software and services
exports were higher than domestic software and services in almost all the years with
the variation being substantial in the latter half of nineties. As a consequence,
exports which already accounted for around 60 percent of total software and
services production in 1993-94 now account for around 78 percent of total software
and services sector (see table 3.3). Software and services has also emerged as a
major earner of foreign exchange for the country contributing nearly 25 percent of
the total exports in 2005-2006, up from a mere 1.99 percent in 1993-94 (see table
3.1). Along with the remarkable performance in exports, a steady, though smaller,
growth in domestic sector was also observed during the nineties. Another relevant
feature observed was the relative convergence of growth in domestic and export
sectors in recent years.
Table 3.3
Domestic vs export composition of Indian software and services industry
Financialyear
Domestic software
and services ( Rs Cr)
Annual growth rates
% share in total
software and services
Software and services
exports (Rs Cr)
Annual growth
rate
% share in total
software and
services 1993-94 695 - 40.52 1020 - 59.48 1994-95 1070 53.96 41.07 1535 50.49 58.93 1995-96 1690 57.94 39.86 2550 66.12 60.14 1996-97 2600 53.85 41.27 3700 45.10 58.73 1997-98 3470 33.46 34.80 6500 75.68 65.20 1998-99 4950 42.65 31.15 10940 68.31 68.85 1999-00 7200 45.45 29.57 17150 56.76 70.43 2000-01 9400 30.56 24.90 28350 65.31 75.10 2001-02 10874 15.68 22.95 36500 28.75 77.05 2002-03 13400 23.23 22.52 46100 26.30 77.48 2003-04 16250 21.27 21.82 58240 26.33 78.18 2004-05 21740 33.78 21.33 80180 37.67 78.67 2005-06 29600 36.15 22.14 104100 29.83 77.86
Source: Various Annual Reports, Department of Electronics, Ministry of Information Technology, Government of India.
45
Figure 3.2
Growth rates of software and services exports, domestic software and services
and total software and services production in India over the years
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
Financial year
Ann
ual g
row
th ra
te
Domestic Exports Total software
Studies, however, have pointed out that the net flow of foreign exchange into
India through software and services export earnings is less than that represented by
gross figures on account of onsite activities, software and services purchases from
abroad etc. Thus, from a survey of literature, Heeks has estimated that the net
income has been about 55 percent of gross7, whereas Nagesh Kumar estimated net
exports per unit of exports to be around 51.99% in 1999 and concluded that this was
increasing over the years8. A relevant development in this context was the changing
composition of onsite/ offshore mix of software exports. There has been a gradual
increase in the offshore model of software and services production relative to the
onsite model. As a consequence, the former, which accounted for only around 43
7 Heeks Richard (1996) India’s Software and Services Industry: State Policy, Liberalisation and
Industrial Development, New Delhi: Sage Publications 8 Nagesh Kumar (2000) ‘Developing Countries in International Division of Labour in Software and
Services Industries: Lessons from Indian Experience’ background paper for World Employment Report 2001, Geneva
46
percent of total IT /ITES export revenue in 1999-2000 contributed around 64
percent in 2003-2004, which was further expected to increase to 71 percent in
2004-2005 (see table 3.4). This growing significance of the offshore model, though
it has a decelerating effect on the total value of exports due to the lower billing rates
for offshore services, can be expected to have a positive effect on the net export
earnings.
Table 3.4
Share of offshore/onsite revenues in total software and services exports
Years Offshore (percent)
Onshore (percent) Total
1999-2000 57 43 100
2000-2001 56 44 100
2001-2002 45 55 100
2002-2003 43 57 100
2003-2004 36 64 100
2004-2005 29 71 100
Source: Nasscom (2004, 2005) Strategic Review of IT Industry in India, New Delhi.
3.1.3 Export destination of Indian software and services
U.S.A and Europe were the two major destinations of software and services
exports from India with both these countries together accounting for 90 percent of
our total exports in 2003-2004. Of this, 68 percent was to U.S.A, the country having
the largest global demand for software and services, and 22 percent was to Europe
(see table 3.5). Availability of English speaking, technically skilled, relatively cheap
labour in India, the twelve hour time gap between US and India etc: have been
identified as some of the reasons behind this American demand for Indian software
and services9. Heeks has also highlighted the Indian business links with family
9 Arora etal (2000) The Indian Software and Services Industry, Report Submitted to Alfred P. Sloan
Foundation, U.S.A
47
members or friends in U.S as an important reason10. Though Indian companies were
observed trying to expand and diversify their presence in Europe and Asia Pacific
regions so as to reduce their dependence on U.S markets, language and cultural
barriers have been reported to pose challenges in such attempts.
Table 3.5
Export destination of Indian software and services
Percent share of exports in various years Country
2001-2002 2002-2003 2003-2004
U.S.A 65.6 67.7 68.2
Rest of America 1.5 1.3 1.2
United Kingdom 14.11 14 14.5
Rest of Europe 9.6 8.2 8.1
Japan 2.5 2.8 3
Singapore 2.1 1.7 1.8
Australia 0.95 0.8 0.8
Rest of Asia, Pacific Region
3.1 2.6 1.8
Africa 0.8 0.7 0.6
Total 100 100 100
Source: Nasscom (2003, 2004, 2005) Strategic Review of IT Industry in India, New Delhi
3.1.4 Nature of software and services activity by main service lines
A picture of the nature of software and services activity in the country can be
obtained by analyzing data on total IT services in India. This analysis revealed that
as far as exports were concerned, software and services constituted 99.5 percent of
the total IT services. Hardware services and training was very insignificant (unlike
in the domestic IT services sector) so that total IT services exports can be treated as
equivalent to software and services exports. Detailed analysis of this exports by
main service lines indicated that customized software (programs custom designed
10 Richard Heeks (1998) ‘The Uneven Profile of Indian Software and Services Exports’, Working
Paper no.3, Department of Informatics, University of Manchester
48
for a specific operation) and ITES – BPO account for the major share with these
two together accounting for slightly more than three- fourths of total exports (see
table 3.6). At the same time the share of packaged software (standard packed
software programs that could be installed in any compatible hardware) and turnkey
projects (very large scale custom made projects) were less at 1.4 and 2.8 percent
respectively in 2004-05. Customised services were considered inferior to packaged
software and turnkey projects in their capability for value addition and constituted a
smaller share of the global software and services industry which mainly consisted of
products and packages. Thus most of the country’s software and services exports
were observed concentrated in lower end of the value chain. Domestic software and
services on the other hand had a larger share of packaged software and turnkey
projects but since total IT industry was dominated by exports, the share of these
higher end service lines in the total IT services was found to be quite low.
Table 3.6
Indian IT services – percent share of main service lines
Domestic Exports Total IT services Service lines
2003-04 2004-05 2003-04 2004-05 2003-04 2004-05
Packaged software 15.58 16.23 1.92 1.40 4.72 4.45
Customized software
11.57 5.94 48.38 47.23 40.84 38.74
Turnkey projects 22.33 22.78 2.76 2.78 6.77 6.90
Consulting / others 13.20 15.74 17.97 19.45 16.99 18.69
ITES/BPO 9.81 11.92 28.55 28.78 24.71 25.31
Training services 6.25 4.87 0.40 0.36 1.60 1.28
Hardware services 21.26 22.53 0.00 0.01 4.37 4.64
Total software and
services 100.00 100.00 100.00 100.00 100.00 100.00
Source : Dataquest (2005), Cyber Media Publication.
Within ITES-BPO exports segment, a large share of revenue and employment
was generated in customer care services such as call centres which accounted for one
third of the revenue and 38 percent of employment respectively (see table 3.7).
49
Finance, administration and content development were the next three segments
contributing 23 percent, 14.9 percent and 15 percent respectively to total revenues.
Table 3.7
Indian ITES- BPO exports by key service lines (2003-2004)
Service Line Employment Revenue USD Million
Percent share in
employment
Percent share in revenue
Customer care 96000 1200 37.87 33.06
Payment services 21000 430 8.28 11.85
Finance 41000 835 16.17 23
Administration 40000 540 15.78 14.88
H.R 4500 75 1.78 2.07
Content development 51000 550 20.12 15.15
Total 253500 3630 100 100
Source: Nasscom (2005) Strategic Review of IT Industry in India, New Delhi
3.1.5 Employment in software and services industry
The Ministry of Information Technology while portraying the socio-
economic impact of IT-ITES sector in India- including reversal of brain drain;
spawning of transportation, catering, real estate and other ancillary industries; the
rising class of young consumers with high disposable incomes etc:- have also
highlighted that the industry has emerged as the biggest employment generator in
the economy. It is believed to have created new opportunities for the educated,
especially the skilled, leading to a reduction in their unemployment rates11.
According to Nasscom estimates, the software and services sector employed
8,41,500 people in 2003-04 which is estimated to rise to 10,45,000 in 2004-05. The
Nasscom Mckinsey and Co Report, 1999 has projected that software and services
11 V. Abraham (2005) Labour Productivity and Employment in the Indian Information and
Communication Technology Industry, Unpublished Ph.D Thesis, Jawaharlal Nehru University, New Delhi
50
industry will employ 2.2 million workers by 2008 of which 1.1 million will be in
the IT-enabled services12.
Estimation of annual growth rates in various segments revealed that while
total employment in software and ITES/BPO together has grown at around 20-25
percent annually in the last four years, it is the ITES/BPO segment which has
exhibited greater dynamism in generating employment opportunities. All
throughout these years, employment in this segment has grown at rates higher than
that of software segment as a result of which ITES/BPO segment now accounts
for 33.3 percent of total employment in software and ITES/BPO together, up from
14.8 percent in 1999-2000 (see table 3.8).
Table 3.8
Employment in software and ITES/BPO sector over the years
Segments / years
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
Software
No. of professionals
Share in total employment (%)
Annual growth rate
242000
85.2
--
360114
83.7
48.8
16250
79.7
15.6
490000
73.1
17.7
588000
69.9
20.0
697000
66.7
18.5
ITES / BPO
No. of professionals
Share in total employment (%)
Annual growth rate
42000
14.8
--
70000
16.3
66.7
106000
20.3
51.4
180000
26.9
69.8
253000
30.1
40.6
348000
33.3
37.3
Total software and ITES / BPO
No. of professionals
Annual growth rate
284000
--
430114
51.4
522250
21.4
670000
28.3
841500
25.6
0
24.2
Source: Nasscom (2005) Strategic Review of Indian IT Industry, New Delhi
Apart from this growth of employment in organized software and services
sector, opportunities were also reported to be rapidly increasing in informal / small
software and services enterprises13. Although salaries in these enterprises were said
12 Nasscom & Mckinsey and Co Report (1999):Op.cit 13 Nagesh Kumar (2000) Op.cit
51
to be less to begin with, they were perceived to provide opportunities for upward
mobility. While organized enterprises generally catered to the export market, these
informal establishments were also observed to cater mostly to domestic demands.
3.1.6 Gender dimensions of employment in software and services industry
The share of women in software segment in early nineties was estimated to
be only between 5 and 10 % and they were found to be facing particular difficulties
because of late working hours and onsite programming which was considered to be
‘the young single man’s game’14. The relative decline in onsite model of software
development was expected to remove this latter constraint. But despite this
constraint, women employees were reported to consider software development as
providing a more relaxed and less discriminating atmosphere than most other
occupations15. The proportion of women in software profession has gradually
increased to about 24% in 2004-2005. This is further expected to increase to 35%
by the year 2007. This ratio was reversed in the ITES-BPO segment where the ratio
of men to women was stated to be 31:6916.
3.1.7 Size of firms in software and services industry
Indian software and services export industry was reported to have a
pyramidical structure with just a handful of firms at the top having annual revenue
above Rs.10 billion and majority of the firms at the bottom having turnover less
than Rs. 100 million. For instance in 2003-2004 there were just nine firms in the top
category while nearly 84 percent of the firms belonged to the bottom small size
category (see table 3.9). The large firms also dominated the export market with the
top 5 firms accounting for about 44 percent of total exports in 2004-2005.
Since software and services industry does not require large sunk capital and
has short gestation periods, it was considered to foster the growth of small and
14 Richard Heeks (1996) Op.cit 15 Richard Heeks (1996) Op.cit 16 Nasscom (2004) Strategic Review of IT Industry in India, New Delhi, p188
52
medium scale enterprises. That has been put forward as a possible explanation for
the larger number of small size firms in the industry. But at the same time the
dominance of the market by top few firms indicated that credibility and reputation
work to the advantage of larger, longer established firms. Biases have also been
reported against small and start –up companies in procuring foreign collaborations
and in dealing with bureaucracy 17.
Table 3.9
Number of firms in various size categories over the years
Annual Turnover 2001-2002 2002-2003 2003-2004
Number of firms Number of firms Number of firms
Above10 billion 5
(0.2)
7
(0.2)
9
(0.3)
5--10billion 5
(0.2)
5
(0.2)
8
(0.3)
2.5--5billion 15
(0.5)
15
(0.5)
24
(0.8)
1.2--5billion 27
(1.0)
41
(1.4)
53
(1.7)
500million-1billion 55
(2.0)
71
(2.3)
56
(1.8)
100-500million 220
(7.8)
244
(8.1)
367
(11.6)
Less than100million 2483
(88.3)
2644
(87.3)
2653
(83.7)
Total 2810
(100)
2810
(100)
3027
(100)
Figures in brackets show percentage share of each size category in total number of firms
Source: Nasscom (2005) Strategic Review of Indian IT Industry, New Delhi
17 Richard Heeks (1996) Op.cit
53
3.1.8 Location of software and services industry within India
Software and services industry generally is perceived to cluster in areas with
good infrastructure facilities, large skill pools and places having time zone
advantages. In India also, software and services firms were found concentrated in
major megacities of the country. For instance, of the 611 firms listed in the
Nasscom Directory in 2003, more than 90% of them had their headquarters
functioning from the six megacity regions- Delhi,/Gurgaon/Noida, Mumbai/Pune,
Bangalore, Chennai, Hyderabad/Secunderabad and Kolkata18. Statewise analysis of
value of exports revealed that in 2004-2005 Karnataka, Maharashtra, Tamil Nadu
and Andhra Pradesh were the major states accounting for around 77.87% of total
exports. Haryana, Uttar Pradesh, Delhi and West Bengal were other states with a
mentionable presence of software and services industry. Each of the remaining
states had a share less than 1 % of the total software and services exports in the
country (see table 3.10).
Table 3.10
Percentage share of major states in total software and services exports from India
State/ Union Territories Percentage share in total software and services
exports in India 1. Karnataka 35.96 2. Maharashtra 16.49 3. Tamil Nadu 14.62 4. Andra Pradesh 10.80 5. Haryana 8.41 6. Utter Pradesh 5.30 7. Delhi 3.53 8. West Bengal 2.72 9. Others 2.17 Total 100
Source: Statistical Yearbook of Indian IT and Electronics Industry 2004-2005. Electronics and Computer Export Promotion Council, Government of India, New Delhi.
18 V.Abraham (2005) Op.cit
54
3.2 SOFTWARE AND SERVICES INDUSTRY IN KERALA
The Government of Kerala, apart from encouraging IT industry in the private
sector, has also embarked on several citizen centric ventures to improve the quality
and access of its services. Hence while discussing the IT industry in the state we
need to make a distinction between (i) IT as a production sector which includes IT
software and services, IT enabled services and hardware and (ii) IT for
e-governance and as an enabler of socio economic development. Since our study
focuses mainly on gender concerns in software and services production, particularly
it’s export segment, and there is practically no reliable secondary data on total
software and services industry in Kerala, most of the following analysis is related to
software and services export sector in the state. Finally, since software and services
production will remain incomplete without a mention of its use in domestic e-
governance and for development purposes, various government schemes for the
same are also briefly outlined in the last part of the chapter.
3.2.1 Government initiatives to promote software and services sector in Kerala
Kerala has a history of pioneering initiatives to develop its electronic
Industry – both hardware and software and services. Thus an attempt to develop the
electronics industry at the regional level was made by the Government of Kerala in
early seventies by setting up the Kerala State Electronics Development Corporation
(KELTRON). However this did not lead to the expected development of electronic
units within the state and ultimately Keltron too suffered the same fate as other
public sector manufacturing units and turned into a lumbering white elephant.19
The state was also one of the first to initiate the technology park concept in
India with the setting up of Technopark in Thiruvananthapuram in 1991 for
providing appropriate environment and encouraging private initiatives in setting up
hi-tech electronics and software and services industries in the state. Software
19 T.A Krishnamurthy, K Padmanabhan Nair, Shiny George (2004) Sectoral Study Report on
Electronics and IT industry in Kerala, Kerala State Industrial Development Corporation Limited, February 2004.
55
Technology Park of India, Thiruvananthapuram (STPT) also was set up to provide
timely export clearance and data communication links and thereby promote export
oriented firms in the state. Despite such early initiatives, however, some where
down the lane we lost our momentum and while other southern states cashed in on
the IT boom, Kerala was left lagging behind. But of late, there is increasing
expectation in Kerala on the prospects of IT as an enabler of the region’s economic
development and as a growth engine to provide solutions to some of it’s most
important problems like high unemployment and low economic growth.
Correspondingly the Government of Kerala has come out with its IT policy
statement in 1998 and 2001 where IT and ITES industries are identified as thrust
areas for economic development of the state. They also created a separate
department of IT in the year 1998 and constituted an IT Mission for creation and
implementation of IT projects and for promotion of the state as an IT investment
destination20. The Government’s broad idea was to act as a catalyst to create an
enabling environment for IT products and IT enabled services where the energies of
the private sector and civil society could be most effectively employed. Some
important measures adopted in this connection include:
1) Approval of the new IT Industry Policy 2001 – 2005 along with the IT
industry incentive scheme which includes
(i) IT Industry Employment Promotion Scheme under which IT
companies receive standard investment subsidies.
(ii) Early Bird Scheme where companies that employ a minimum of
250 permanent head counts for a minimum period of 12 months
are entitled to one time incentive payment of Rs 25 lakhs.
(iii) Incentives for companies that have obtained CMM (Capabiliy
Maturity Model) level V or COPC Certificate (Customer
Operations Performance Centre) so as to encourage companies to
obtain quality certificates.
20 Krishnamurthy etal (2004) Ibid
56
(iv) Special incentives for units set up in KINFRA IT Park.
(v) Exemption to the software and services companies from the
Kerala shops and establishment Act 1960 and provision for
flexible working, part time working and tele- working
(vi) Regulation of the presence and activity of head load workers on
the premises of IT industrial establishments as well as state
promoted IT parks in general to ensure smooth, undisturbed
functioning of the IT industry21.
2) Setting up of IITM – K in 2000 so as to enhance the state’s supply of highly
skilled IT professionals.
3) Setting up high speed broadband, optic fibre sub marine cables SEA – ME –
WE – 3 and SAFE for faster international connectivity.
4) Establishment of ITES habitat in Kochi by IT mission
The underlying objective of all these measures was to turn Kerala into a
major IT destination within a few years.
3.2.2 Social and physical infrastructure
Kerala is considered to have many of the social and physical infrastructure
required for development of IT industry. The state has the highest level of literacy
in India, and has a large number of educated men and women seeking white collar
jobs. It has a society which gives the highest premium to education and is willing
to invest heavily for acquiring marketable skills. It has around 83 engineering
colleges and a database of employable graduates which can be a source of supply
for ITES companies. It also has the highest density of science and technology
personnel in India22.
21 Government of Kerala (2001) Information Technology Policy Document, Department of
Information Technology, December 22 Government of Kerala (2005) Economic Review State Planning Board, Thiruvananthapuram.
57
The state has an impressive record in the telecom sector. No other state has
such an extensive fibre optic network as Kerala. It also has the highest telephone
density in India. About 99.2 percent of telephonic exchanges are electronic. Its
extensive fibre optic network, which reaches right down to the block level, along
with digital exchanges, represent a formidable backbone for the making of a fully
networked intelligent state. Further with the commissioning of the two submarine
cable landings at Cochin, the city has emerged as a major telecom gateway for the
country with 15 GBPS bandwidth23.
The two government sponsored software parks in the state, viz, Technopark as
well as Infopark have focused on providing adequate built up space to match demand
from IT – ITES companies. Thus Technopark, the first park in India to obtain CMMI
level ranking, provides world class infrastructure environment for IT companies
in 273.63 acres of land in Thiruvananthapuram. The infrastructure offered includes
land and built up space of about 1.5 million sq.feet with 12,12,000 sq.feet in its own
six complexes Pamba, Periyar, Nila, Chandragiri, Gayathri and Bhavani; 2,01,700
sq.feet in buildings constructed by various IT companies on leased out land and
1,41,500 sq.feet for support facilities. Technopark has also established a Technology
Business Incubator (TBI), with funding from Government of India, to identify
business opportunities in advanced technology, impart training in specific
technology skills, undertake entrepreneurship development activities and offer
assistance in building small, medium and micro enterprises through the concept of
technology and business incubation. Kochi Infopark which began operations in
January 2004 has a total built up space of 4,80,000 sq feet. Of this, about 3,50,000
sq.feet is located in its own complexes –Tapasya and Vismaya. The park also has
two co-promoters The Leela group and Larson and Toubro. Leela group has a built
up space of 1,30,000 sq feet at present and another 3,30,000 sq feet under
construction. Apart from this, the IT major- WIPRO has started work on
constructing its own building amounting to 10,00,000 square feet. The Smart
Business Centre with its plug and play incubator in InfoPark is an ideal choice for
start up companies. An important development in Kochi is the initiative taken by 23 Government of Kerala (2005) Ibid
58
private firms in creating commercial space which can be rented out to IT firms.
This has resulted in the creation of Technopolis (3,50,000 square feet ) and
Technocentre (1,50,000 square feet nearing completion) by Muthoot Group and
Trans Asia Corporate World (30,000 square feet nearing completion) by Trans Asia
group. Another 20,000 sq.feet of space for the benefit of start up companies was
created by IT Mission in Kochi ITES habitat which is functioning as an incubator.
Five companies are presently functioning in this facility. Thus the total built up
space in the state stands at over 2 million square feet spread over
Thiruvananthapuram and Kochi (see table 3.11) .
Table 3.11
Built up IT space available in Thiruvananthapuram and Kochi in 2006
Location Built up space (square feet)
Thiruvananthapuram
Technopark Complexes
Construction by IT companies
Support Facilities
Technopark (Total)
12,12,000
2,01,700
1,41,500
15,55,200
Kochi
Infopark complexes
Leela Group
Technopolis( Muthoot group)
ITES Habitat
Kochi( Total)
3,50,000
1,30,000
3,50,000
20,000
8,50,000
Total 24,05,200
Source: Technopark Annual Reports (2005-2006; 2006-2007), Discussions with managers of Infopark and Muthoot group
Kerala is reported to have only 50 percent operational cost when compared
to other IT locations. In terms of cost of built up space, the state is said to have the
lowest rates with rentals here being lower by more than 60 percent. The fully
burdened cost of operating from Kerala is only US $8 an hour compared to the
59
global average of US $15. Salaries in Kerala are 1/5th of the international average
and attrition rate for IT employees is lowest in the country at less than 5% 24.
Since software and services industry is considered to be foot loose in
character, having low capital intensity and putting very little pressure on land
availability, it has been found to thrive in regions with adequate supply of skilled
labour, good infrastructure facilities and factor cost advantage25. Kerala is in an
advantageous position regarding all the above factors and thus could apriori be
considered as a potential destination for the growth of the software and services
industry.
3.2.3 Status of software and services exports in Kerala.
The export of software and services from Kerala increased from Rs. 47.16
crores in 1998 – 99 to Rs 465.88 crores in 2004 – 2005 registering compound
annual growth rate of 38.7 % the seven year period (see table 3.12). Of the total
exports in 2005-2006, Rs 13.88 crores was by units located in Cochin Special
Economic Zone (CSEZ) while the balance Rs 452 crores were accounted for by
units geographically located throughout the state but registered with STPI,
Thiruvananthapuram). Estimation of annual growth rate of software and services
exports reveals that in recent years software and services exports from the state has
grown at rates comparable to/ better than that at the all India level.
24 Krishnamurthy et.al (2004) Op.cit 25 Richard Heeks (1998) Ibid
60
Table 3.12
Software and services exports from Kerala over the years
Year Exports by
STPI firms ( Rs crores)
Export by CSEZ firms ( Rs crores)
Total Exports ( Rs crores)
Annual growth rate
1998-1999 46.81 0.35 47.16 -
1999-2000 57.00 0.79 57.79 22.5
2000-2001 94.80 5.39 100.19 73.7
2001-2002 134.40 12.84 147.24 46.9
2002-2003 151.60 10.75 162.35 10.3
2003-2004 218.00 10.67 228.67 40.8
2004-2005 302.40 10.83 313.23 37
2005-2006 452.00 13.88 465.88 48.73
Source: STPI, Thiruvananthapuram and CSEZ, Kochi
However an estimation of the state’s share in India’s software and services
export revealed a very insignificant presence, with the state accounting for less than
0.5 percent of the country’s exports. Thus, despite the pioneering attempts made to
encourage software and services industry, the state’s performance has not been very
satisfactory compared to neighboring states (see table 3.13).
Table 3.13
Software and services exports from various southern states in 2004-2005
States/ Union Territory Value ( Rs crore) Percentage share in India’s total
software and services exports Karnataka 27,800 35.96
Tamil Nadu 11,300 14.62
Andhra Pradesh 8,350 10.80
Kerala 300 0.39
Pondicherry 30 0.04
Southern region total 47780 61.81
Source: Statistical Yearbook of Indian IT and Electronics Industry 2004-2005. Electronics and Computer Software Export Promotion Council, New Delhi
Such a small presence in the country’s software and services industry, despite
ideal conditions have prompted a few studies which have analysed the possible
61
reasons behind it. They cite the lack of modern urban social infrastructure, absence of
a critical minimum number of IT firms, near absence of IT ambience, the negative
investor perceptions about the state and lack of language, communication and soft
skills among Keralites as the primary factors behind poor performance of software
and services industry in the state26. However, certain factors indicate that there is a
gradual renaissance taking place in this industry in Kerala in recent years. Either due
to the revitalized encouragement and initiatives of the state government or as a part of
the gradual movement of IT away from tier one cities to tier two cities due to
overcrowding in the former, Kerala’s potential for IT development is being
increasingly recognized and highlighted as is clear from the following :
• Kochi was ranked No: 2 for ITES by Nasscom in 200227.
• “In the IT industry Kerala is beginning to be noticed as God’s own wired
country…… Kerala is now emerging as a much sought after destination for
IT.”28
The arrival in Kerala of IT stalwarts like Infosys and WIPRO and ITES
majors like Sutherland, ACS, Outsource Partners International, Allianz Cornhill
also stand testimony to this renaissance. Reports from IT commercial space
providers Technopark, Infopark and other private providers (Trans Asia , Muthoot,
Leela, LandT) indicate that all built up space is immediately being taken up by IT
companies and that there is a pent up demand for further space. All these indicate
that there is potential for growth of software and services industry in future years.
But whether this will be translated into reality remains to be seen.
26 G.R Kiran. (2002) Op.cit
N Dayasindhu and .A Pradeep (2003) Op.cit 27Quoted in Economic Review (2005) State Planning Board, Government of Kerala,
Thiruvananthapuram, Chapter 21, p-528. 28 Business line, New Delhi, May 19, 2002.
62
3.2.4 Geographical location of software and services exports within Kerala
Spatial analysis revealed that of the total Rs 313.23 crores worth of exports
in 2004-2005, 14.20 % (44.48 crores) were from firms located in Kochi , of which
Rs 10.83 crores were by units located in CSEZ and Rs 33.65 crores by units
registered with STPI but located in Kochi (see table 3.14). Around 84% of total
exports (Rs 263.04 crores) were accounted for by units registered with STPI and
located in Thiruvananthapuram- both within and outside Technopark. Technopark
companies accounted for a major share of this accounting for Rs 237.54 crores.
Exports from other locations namely Trichur, Palakkad and Calicut amounted to
less than 1% of total exports. Thus most of software and services exports from
Kerala were at present found concentrated in the twin cities of Thiruvananthapuram
and Kochi.
Table 3.14
Spatial distribution of software and services exports in Kerala (2004-2005)
Region Export ( Rs crores)
Percent share in Kerala’s exports
Kochi Total CSEZ units 10.83
STPI firms 33.65
44.48
14.20
Thiruvananthapuram Total Technopark firms 237.54
Non Technopark firms 25.50
263.04
83.98
Calicut 0.22 0.07
Palakkad 0.23 0.07
Trichur 0.22 0.07
Others* 5.04 1.61
Total 313.23 100.00
*Information was not available for the rest 5.04 crores out of the total of 313.23 crores worth of exports in 2004-2005
Source: STPI, Thiruvananthapuram and CSEZ, Kochi
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3.2.5 Nature of software and services activity
Analysis of total exports in terms of its main segments (1) software and
services activities and (2) ITES – BPO indicated that the former accounted for a
major chunk of the industry (86 percent) whereas ITES/BPO formed only around 14
percent of export activity (see table 3.15). One possible reason for this could be
that most of the software and services activity was observed concentrated at
Thiruvananthapuram, while Kochi was observed to be only picking up in the IT
field. But as mentioned earlier, with the SEA- ME- WE 3 and SAFE submarine
landings, Kochi is being projected as a potential excellent centre for ITES Activity.
With the arrival of ITES majors Sutherland, ACS, Outsource Partners International
etc. in Kochi, we may not be unreasonable in expecting a gradual change in the
composition of software and services industry in future.
Table 3.15
Nature of software and services activity in Kerala (2004-2005)*
Activity Percent share in total software and services exports
Software and services 86.1
ITES/BPO 13.9
Total 100
Source: STPI, Thiruvananthapuram,
* Here data does not include exports from CSEZ and pertains to only exports from firms registered with STPI which accounted for about 96% of total exports.
3.2.6 Destination of exports
Like in India, U.S.A and Europe were the two major destinations of software
and services exports from Kerala. But the picture in the state is slightly different
from that in India in that the major chunk of exports from here were to European
countries ie., about 47.50 percent in 2004 – 2005 (see table 3.16) as against a mere
22 percent at the all India level. Exports to U.S.A. constituted only 39 percent of
the state’s exports whereas the corresponding figure for India was nearly 68
percent. The existence of companies with European connection like Ernst and
64
Young and Allianz Cornhill could partly be responsible for such a regional
difference in export destination.
Table 3.16
Destination of software and services exports from Kerala (2004-2005)*
Name of country Percent share of total exports
U.S.A 39.00
European countries 47.50
Middle East 9.00
Japan 4.50
Total 100
Source: STPI Thiruvananthapuram.
*Here calculation pertains to exports from STPI and does not include exports from CSEZ since such break up was not available for the latter
3.2.7 Size of firms
An examination of firm size in terms of export turnover revealed that the
state also (like India) had a pyramidical structure with 64.06 percent of total firms
having a turnover of less than Rs. 1 crore per annum. About 30 percent of firms
had annual revenue between Rs. 1 crore and Rs.10 crore (see table 3.17). When we
consider both these categories together, we find that about 94 percent of the firms in
Kerala had annual turnover less than Rs. 10 crores while the corresponding figure
for India in the previous year 2003-04 was around 84 percent. Further there were
only 5 firms in the state with turnover between 5-10 crores annually and only 3
firms which could claim turnover between Rs 50-100crores. There were no firms
with exports above Rs.100 crores whereas there were about 94 such firms in India
in 2003-2004 (see table 3.9). In this context one needs to keep in mind that, due to
the peculiar boundaryless nature of software and services activity, it is very difficult
to precisely identify geographical location of exports. (For example work may be
done for a major company like Infosys in Thiruvananthapuram but billing may be
done at its headquarters in Bangalore, whereby it will appear as turnover of the
65
Bangalore office). Nevertheless our data corroborates the general perception that
Kerala lacks large IT players.
Table 3.17
Size wise classification of firms in the software and services export sector in
Kerala in 2004-2005
Firms size (Turnover in Rs) No. of firms Percent share in total number
Above 100 Crores Nil -
50 Crores to 100 Crores 3 2.34
10 Crores to 50 Crores 5 3.91
1 Crore to 10 Crores 38 29.69
Less than 1 Crore 82 64.06
Total 128 100.00
Source: STPI Thiruvananthapuram
*Here data pertains to exports from STPI and does not include exports from CSEZ since such break up was not available for the latter
3.2.8 Employment dimensions of software and services sector in Kerala
Though reports of the IT Department emphasize the employment generation
potential of IT sector and its significance for addressing educated unemployment in
the state, the fact remains that very little secondary information is actually available
on this. A rough idea can be obtained from an all Kerala study of 800
establishments undertaken by the IT Mission in 2002 the results of which were
published in Kerala Economic Review 2004.
66
Table 3.18
Employment in IT sector in Kerala
No. of Entities
Annual Turnover (Rs.
Crores)
Direct Employment
Distributor, Vendors and Assemblers
2450 490 15000
Small and micro software and services enterprises
300 30 3600
Training Institutes 2000 40 8000
Interest cafes and DTP Centre 2500 35 4000
Medium and large software and
services companies 50 170 6000
Hardware manufactures 20 420 3800
Total 7320 1185 40400
Source: Kerala Economic Review (2004), State Planning Board, Thiruvananthapuram.
The study indicated that hardware assembling, distribution and IT training
created the maximum employment opportunities within the state. The number of
people in medium and large software and services companies were around 6000
while another 3600 people were employed in micro software and services
enterprises. Information gleamed from various sources indicated that in March 2006
the employment in techno park alone crossed 10000 out of which more than 9000
were involved in software and services production.29 Similarly around 2600
software and services professionals were believed to be employed in Infopark as in
March 200630. Software and services employment in CSEZ units was reported to be
68531. Thus these three together alone accounted for around 12000 professionals.
Unfortunately due to lack of reliable information, we cannot draw a more precise
picture of the employment scenario, particularly in organized units located outside
these parks. Precise gender wise split up of employment is available only for
software and services units in CSEZ, which revealed that 38.3% of employees were 29 Annual report (2005-2006) Technopark 30 Data obtained from discussion with Manager of Infopark. 31 Data obtained from discussion with CEO of CSEZ in 2005
67
females32. A sample study on employees of Techno Park similarly indicated that
about 40 percent of software and services professionals in Technopark were
women33. Thus there are clear indications that the proportion of females in software
and services industry in Kerala are larger compared to the Nasscom figure for all
India, which had estimated it at around 24 percent34.
3.2.9 IT in e-governance and as an enabler of socio -economic development.
As seen earlier, the Govt. of Kerala has embarked on a number of initiatives
involving the application of IT so as to improve the quality and access of its
services, improve citizen interfaces and diffuse technology to the grass root level.
These are expected to create local demand for software and services and thereby
help in development of the domestic software and services market. Some of the
major initiatives so undertaken include the following35
3.2.9.1 FRIENDS - This is a “Single Window Mechanism” where citizens have
the opportunity to pay all bills, taxes and other dues to various government
organisations such as KSEB, KWA, Local bodies, Civil Supplies, Revenue, Motor
Vehicles, Universities and BSNL. It is now operational in all the 14 district head
quarters of the state.
3.2.9.2 e-pay is an online system for collecting various taxes and fees due to the
government through Akshaya e – Kendras as an extension of FRIENDS project in
Malappuram. At present 162 e–payment centers are functioning in Malappuram
district.
3.2.9.3 IKM- Information Kerala Mission seeks to computerize and establish a
statewide network connecting State Planning Board and district offices with 1215
32 Data obtained from discussion with CEO of CSEZ in 2005. 33 Arun, S. and Arun T (2002) Op.cit 34 Nasscom (2004) Strategic Review of Indian IT Industry, New Delhi, p-188 35 Government of Kerala (2006) Kerala E-Governance at its Best, Publication of Kerala State IT
Mission, Thiruvananthapuram.
68
local bodies for regular online monitoring of local body plan implementation and
target achievements. It has implemented Janasevana Kendras in all muncipalities
and piloted the panchayat computerization project in two panchayats.
3.2.9.4 Secretariat WAN - The objective of Secretariat Wide Area Network is to
connect the Secretariat, Secretarial Annex, Vikas Bhavan and Public office
complex.
3.2.9.5 K-BASE – A Knowledge Bank Archive system is also being planned in
the secretariat to facilitate ready access to the relevant Acts, rules, orders,
precedents and conventions in force. Main objectives of K- BASE include, the
creation of knowledge repositories for effective decision support system; improve
the speed, transparency, objectivity and consistency in decision making; and to
provide public access to important acts, rules and orders.
3.2.9.6 DC suite involved computerization of Palakkad Collectorate and made it
the first IT enabled district head quarters in the country. It covers all areas of work
in the collectorate.
3.2.9.7 Smart Move was implemented by the motor vehicles department in three
districts, viz; Thiruvananthapuram, Ernakulam and Kozhikode to offer tests on any
working day, to facilitate immediate issue of license on passing the test etc.
3.2.9.8 TRIMS is being implemented in the state to computerise and stream line
the working of all treasuries.
3.2.9.9 THOZHIL has been implemented in 7 out of the 94 employment
exchange offices to facilitate online renewal of registration, addition of experience
certificate and service details, search for vacancies posted by private employers etc.
3.2.9.10 PEARL- Package for Effective Administration of Registration Laws is
being implemented in the registration department to facilitate speedy registration,
computerized encumbrance certificate etc.
69
3.2.9.11 SWIFT has been implemented in 63 Taluk offices of Kerala for ensuring
single application form, speedy processing etc: for about 25 different types of
certificates issued from these offices.
3.2.9.12 AIMS- Agriculture Information Management System by the Director of
Agriculture consolidates data at the block, district and directorate level for effective
monitoring of agricultural resources.
3.2.9.13 Akshaya – A project piloted in Malappuram district is envisaged as a social
and economic catalyst which will reach e – learning, information dissemination, e-
transaction, e-governance and communication facilities to the common man. It
established 617 Akshaya e-Kendras (or multi – purpose community technology centers)
with one centre within a 2 Km radius of every household which made at least one
person in every family in Malappuram, e-literate. The Government proposes to extend
this to cover seven districts, by setting up 5000 additional e-Kendras.
3.2.9.14 Citizens Call Centre set up in Thiruvananthapuram provides, over
telephone, information to common citizens on transactions pertaining to various
government departments.
3.2.9.15 IT @ School aims at imparting computer education to high school
students and to equip teachers to use computers as an education tool. As part of this
project, 2650 computer labs have been set up in high schools.
3.2.9.16 e-Krishi seeks to establish a connected farmers community throughout
Kerala who have access to information on market demand, prices, good agricultural
practices etc.
3.2.9.17 The IITM –K set up by Government of Kerala has also launched certain
related projects such as:
3.2.9.17.1 Education grid to link 30 colleges and facilitate sharing of scarce
educational resources and upgradation of standards of instruction.
70
3.2.9.17.2 Police portal, a community interaction portal of the Thiruvananthapuram city
police to identify problems of crime and disorder.
3.2.9.17.3 KISSAN, A web interface to establish linkages with market, suppliers,
experts and institutions and thereby empower all the stakeholders in agriculture.
3.2.9.17.4 Tele health to provide practical socially relevant applications of IT in
health care and medical education for medical professionals, administrators,
educators and society at large.
3.3 CONCLUDING REMARKS
Summing up, we find that though Kerala has an insignificant presence in
India’s software and services export, in recent years the industry in the state has
been reflecting greater dynamism as was reflected in the growth rates as well as
demand for built up space from IT companies. The industry at present is also
observed to be geographically clustered in Thiruvananthapuram and Kochi and
dominated by software segment as compared to IT enabled services.