Uneven and Combined Development: Understanding IndiaÕs Software Exports ANTHONY P. DÕCOSTA * University of Washington, Tacoma, USA Summary. — The evolution of the Indian software sector is explained by the larger context of uneven and combined development. The imperatives of a market-driven global order suggest an open-ended process of development, making some economic and technological convergence realizable but also generating contradictions at various levels. This paper focuses on differential innovative capability, the uneven diffusion of technical education in India, and the increasing economic integration of the software industry as sources of uneven development. The combined nature of the development process is reflected in the coexistence of the successful software sector with several lagging sectors with all of them being functionally integrated as part of Indian social formation. To cope with the contradictions of such change a balanced development will be critical. To make development more inclusive deep structural problems that plague those outside the orbit of the successful software industry must be resolved. Ó 2002 Elsevier Science Ltd. All rights reserved. JEL classification: F14, F23, L86, O33 Key words — Asia, India, software exports, innovation, diaspora, uneven development 1. INTRODUCTION In the last decade the Indian software in- dustry has witnessed unprecedented growth. Following the 1991 economic reforms the In- dian software industry expanded rapidly, meeting the global demand for services with an abundant supply of highly skilled but low-cost labor. Though India has captured only a small portion of the global industry, estimated to be $300–$500 billion in 1999–2000 (Arora et al., 2001, p. 1,269), its export growth has been rapid. In 1990, IndiaÕs software exports were $131.2 million, which by 2001–02 had reached $7.8 billion. In the same year the domestic market yielded a revenue of $2.5 billion. The National IT Task Force has set a target of US$50 billion of annual software and services exports by 2008; domestically the goal has been set at $35 billion. Software exports today are an important source of foreign exchange. Cur- rently, such exports comprise 16.3% of total exports and the IT industry as a whole repre- sents 2.87% of GDP (NASSCOM, 2002). Ac- companying this growth is considerable entrepreneurial energy hitherto unseen in India (DÕCosta, 2000). Today the Indian industry boasts nearly 1,000 firms, with many of them operating overseas. In parallel fashion, most global information technology firms are present in India, undertaking a variety of development work for their in-house needs. It is clear that the software industry contributes to the diver- sification of IndiaÕs exports and reduces the vulnerability associated with open economies. There has been considerable interest in un- derstanding the growth of the Indian software industry. For example, whether the Indian in- dustry is innovative or not (Arora et al., 2001; DÕCosta, 2002a,b; Schware, 1992), the extent to World Development Vol. 31, No. 1, pp. 211–226, 2003 Ó 2002 Elsevier Science Ltd. All rights reserved Printed in Great Britain 0305-750X/02/$ - see front matter PII: S0305-750X(02)00182-1 www.elsevier.com/locate/worlddev * Primary fieldwork was supported by the University of PennsylvaniaÕs Institute for Advanced Study of India, New Delhi (1999) and by a Senior Fellowship from the American Institute of Indian Studies (1998). I would like to thank Amiya Kumar Bagchi, an anonymous referee, and Janet Craswell for their suggestions. As always I am grateful to the numerous firms, NASSCOM, govern- ment institutions, and individuals in India and the US who willingly shared their views on the software indus- try. Janette Rawlings, as always, provided substantive and editorial comments. I am grateful to all these insti- tutions and individuals without implicating any one of them for any errors or omission. Final revision accepted: 6 September 2002. 211