Dan Scheinman, Senior Vice President (Corporate Development), Cisco Systems Inc.

CBS news' 60 minutes programme recently pronounced this Indian university 'the most important university you've never heard of'. Its distinguished alumni run some of the most powerful corporations both in India and abroad. Comparing it to Harvard, MIT and Princeton put together, 60 Minutes pointed out that gaining admission here was more difficult than getting into the best of the Ivy League schools in the US. The university in question-Indian Institute of Technology (IIT)-accepted just 3,500 of 1,78,000 applicants last year.

According to National Association of Software and Service Companies (nasscom) estimates, the overall Indian information technology (it) market has grown from $1.73 billion (Rs 7,785 crore) in 1994-95 to $16.5 billion (Rs 74,250 crore) in 2002-03, accounting for 3 per cent of India's gross domestic product (GDP) in the year. The IT industry has created employment opportunities for over 7,00,000 professionals in India in the year 2002-03. The total number of it software and service companies in India is estimated to be around 5,000. Of this, 60 per cent of the companies are domestic players, while 40 per cent are multinational corporations (MNCs). The split in terms of revenue is 35 per cent from domestic players and 65 per cent from the MNCs.

The greatest Indian success story of the last decade has undoubtedly been the emergence of a globally competitive Indian it sector. A direct result of deregulation and privatisation of the it sector and technology convergence, India's first generation entrepreneurs were quick to seize the opportunity presented with open arms. These entrepreneurs have given India a new sense of pride in the global arena and its economy a much-needed boost, something that has been missing for a while. If it can leverage this strength and sense of pride to propel itself into a fast-growth economy, it will be the first developing nation that used its brainpower, not natural resources or muscle of labour, as the catalyst. The signs are there.

The first it wave in India may have begun on the back of an anticlimax in the form of the 'y2k' time-bomb. However, the dominance of Indian it today can no longer solely rest on the perception that India is a low-cost arbitrage destination. The current business process outsourcing (BPO) wave in India is showing signs of graduating towards complex research and analytical process outsourcing.

Outside the country, Indian engineers and scientists form the backbone of several Silicon Valley Fortune 1,000 companies. Indian knowledge workers are making their way up the new economy food chain mastering tasks that require the highest levels of acumen, creativity and skill. Technical skills aside, Indian it professionals score well on account of several factors such as cultural adaptability, English language and problem-solving skills and their lateral thinking abilities.

The country has also witnessed a healthy growth in the number of its IT professionals. From a base of 6,800 knowledge workers in 1985-86, the number of it software and services professionals is estimated to have grown to 6,50,000 by March 2003. These it professionals are helping address the global shortfall for such professionals as well. The good news for the rest of us is that this base of professionals is growing consistently. The number of engineering colleges in India is slated to go up by 50 per cent to nearly 1,600 in four years.

India has gradually emerged as a critical research and development (R&D) hub for many major global corporations, and deservedly so. Companies that come to India for cost savings stay on for the quality of people, and ultimately invest in innovation. The good news from India's perspective is that more industries are going through this cycle. Aeronautical and manufacturing companies are expanding the size, scope and complexity of their work done in India, increasingly tapping the skills of Indian engineers and scientists.

It would be only fair to say that Indian R&D centres of all major global technology companies today play a crucial role in the companies' future success. Meta Group figures that at least a third of the new it development work for big US companies happens overseas with India being the largest site. To cite our own example, Cisco's Global Development Centre in Bangalore works on next generation internet protocol technologies-key to Cisco and the networking industry.

Companies that come to India for cost savings stay on for the quality of people and ultimately invest in innovation

The success story has also been supported by industry-friendly measures undertaken by the Indian government and private entrepreneurs. The government has been proactive in setting up software export zones and software technology parks that enjoy significant tax breaks. Recognising the need for a strong telecommunications environment to complement it growth, it has also made significant strides in liberalising the telecom market. On the education front, the government initiatives are helping young Indians receive five more years of schooling on an average than their parents. Today, India possesses some of the basic tenets of a strong market-driven economy: namely, a democratic government, growing private corporation base, educated workforce and a growing middle class with increasing purchasing power.

With so many positive factors working in favour of the Indian it industry, the natural question left to consider is what more can be done to spur it to greater achievement. While India's software export industry has been a beneficiary of a global trend in outsourcing, India's domestic it market needs to grow substantially in order to further cultivate entrepreneurship. According to nasscom estimates, India currently spends a small fraction of its GDP on it-about 1.1 per cent-compared to the US, which spends 5 per cent of its GDP on it, or France, which spends 2.7 per cent of its GDP on it. India's attention on the domestic market is quite limited, with the domestic it services market constituting around $1 billion (Rs 4,500 crore) in 2001-02, compared to the $7.8 billion (Rs 35,100 crore) exports market. In fact, revenues from the domestic market account for only 10-30 per cent of revenues for players in all segments.

The second crucial factor that hampers both the domestic Indian it market and foreign investment in India is the issue of intellectual property (IP) protection. Though copyright, trademark and patent laws in India are very strong, the common consensus is that the country must work on enforcing them before it can attract more foreign investment. Has India made significant progress on the often hotly debated issue of IP protection? India ranks fourth on the world's first index of IP protection. But this list, released by the Intelligen Group recently, comprises only five countries-US, Japan, Singapore, India and China. In the coming three to six months, more countries will be added to the study. If nothing else, the list is a positive indicator in the right direction.

Finally, India needs to build Innovation Valleys-geographical clusters in the country where entrepreneurship can flourish. While several countries worldwide have tried to replicate the innovation culture of Silicon Valley and failed, Bangalore in India has been successful in providing a technological hotbed for technology incubators. But ideas and the desire to incubate start-ups are just the first steps. Building a self-sustaining eco-system for entrepreneurship will largely depend on the country's ability to nurture innovation further, and back it with reliable infrastructure, financial assistance and monetary incentives.

To borrow a cliché, the signs are on the wall, and if India can stay focused on its goals and milestones, the journey looks promising-and better still, exciting.