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India's tryst with the millennium
Leslie D'Monte
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July 13, 2007

It is fairly well-known that a lot of hay stands to be made while the sun is shining. However, the Indian software industry, which earns over $30 billion from exports, made its fortune, and reputation, when a pall of gloom had enveloped the global community of computer users.

As the new millennium approached, the cloud of Y2K - short for Year 2000 - gathered over the computer systems, whose dates were configured in the mm/dd/yy format. Thus Year 2000 would be abbreviated to 00 and show in the system as before 1901.

It raised the spectre of a worldwide crash, especially in the financial system, as the computers were expected to go haywire on January 1, 2000 and spark a loss of public confidence.

This turned out to be the new dawn for Indian IT firms, and they have not looked back since.

Even in the years before the economic liberalisation of 1991, the government had a software bias. For instance, it revised the Software Policy in 1986 and, a couple of years later, launched the Software Technology Park of India scheme.

This was also the year when the National Association of Software and Service Companies was formed. This had put Indian software companies in a position to cash in on the correction required to ward off the Y2K threat.

January 1, 2000, passed off virtually free of incidents. However, Richard F Celeste of the University of Colorado terms it the "single phenomenon" that launched India as a serious player in the world economy.

He recalls that there was a huge demand for software engineers and programmers to fix Y2K glitches that threatened to disrupt everything that was computer-driven: from flights to vital data.

The supply of local professionals fell short of meeting the demand and Indian talent rushed in to fill the void. Y2K served as an extended audition for Indian software capabilities and allowed them to introduce themselves to major American companies. With that came the realisation that there were other services, too, that could be sold in the US.

"India had plenty of coders. The Y2K phenomenon helped Indian IT firms achieve scale. And this was the beginning of the outsourcing era," explains Pradeep Udhas, global partner-in-charge, sourcing advisory, KPMG.

Since the Indian IT firms were "working on every line of code", they got to know the client's businesses so well that most foreign firms retained them to maintain their systems as well.

The rules of the game, however, are changing; India's low-wage advantage was not going to last forever. Wages have been increasing not only in India, but also in the other low-cost offshore markets like Romania, Poland, China, Vietnam and the Philippines.

At a macro-economic level, despite higher wage inflation in low-cost nations, the indexed wage differential would still be considerably lower due to the low base wages in such countries.

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