ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Lessons from the Software Industry

A National Export-Led Growth Plan

Dissipating investor confi dence in the economy suggests that now more than ever before the government needs an interventionist industrial policy centred on export promotion. However, a profound mistrust in the Indian state's developmental capacity continues to hinder any progress in this area. The country's software industry - an outcome of state-led export promotion - not only provides an example of successful state intervention but also proffers several wider points for an effective export-led growth plan.

The government’s decision to allow foreign direct investment (FDI) in the retail has generated a fierce domestic debate over its ramifications, both socially and economically. However, while the approval has been justified on the microeconomic grounds of improving supply chains and empowering small-scale producers, the rationale behind it is decidedly macroeconomic. With export revenues dropping and financial inflows starting to dry up, both related to the global economic downturn, anxieties regarding potential balance of payments (BoPs) problems had started to surface. The notification, deliberately portrayed as a “big ticket” reform to excite international investors, was expected to induce the level of financial inflows required to put paid to BoP anxieties and tide the economy over until global growth resumes.

This strategy appears to have backfired. The political paralysis over the notification and the negative international attention it attracted has dulled the ability of this move and any other big ticket reform to induce the scale of financial inflows required. This leaves the government in a serious quandary. It can either pray that the global economic crisis proves to be a transitory phenomenon so that exports and financial inflows will soon resume the pre-crisis levels, dissipating BoP anxieties in the process. Or, it can take pre-emptive action and adopt a series of initiatives to promote exports with the aim of generating surpluses on the current account and reducing the country’s reliance on international investors.

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