Introduction
It is hoped that the success of India's Information Technology (IT) sector over the last decade will be the harbinger of a more widespread developmental surge that will, in the not too distant future, propel the country into the ranks of the first world. The links between the growth in this sector, the country's wider economic liberalisation program initiated in 1991, and the worldwide process of neo-liberal globalisation dating back to about 1980, are often assumed and asserted. Indian success in the IT sector thus serves as a symbol of both: the need for inward-looking countries to liberalise their economies, encourage foreign investment, and emphasise exports; and the positive benefits that have accrued to poorer countries from participation in the world economy.

Without belittling the positive developments over the last fifteen years in India's IT sector, this paper suggests that:

• the scale of the IT sector relative to the rest of India's economy is so miniscule that one's expectations about this sector as a catalyst for a wider societal transformation need to be more realistic;
• that the linkages between the IT sector and the rest of India, on the one hand, and the needs of the world's developed economies, on the other, raise questions about its 'enclave' character and its consequent potential to transform India;
• that using India's IT sector, or its economic performance since 1991, as emblematic of the fundamental soundness of the model of neo-liberal economic development (encouraged by organisations like the International Monetary Fund, the World Bank, the World Trade Organisation, and underwritten by powerful nation states like the United States and the United Kingdom) is historically and empirically unsustainable; and
• that the reduction of rural poverty and unemployment demands the sort of direct, state-led intervention efforts that the neo-liberal orthodoxy strongly discourages.

The paper concludes with some thoughts on the implications of the above analysis for the development of South Asia as a whole in the era of neo-liberal globalisation1.

India's IT Sector
Twenty five years ago, books and articles on India's political economy would not have found it necessary to mention something called the Information Technology sector as it was practically non-existent. Barring the high profile exit of IBM from India (as it did not wish to dilute its foreign majority ownership), the fledgling domestic computer and information industry did not command much attention. Less than ten years ago, in 1996-97, the IT sector of India, comprising software development and services, contributed about 0.72 per cent of the country's overall GDP and was less than US$ 2 billion in size. Even this represented a significant growth compared to its miniscule size in the previous decade. Thereafter, the IT sector has averaged double-digit growth every year, so much so that by 2001-02, it had risen to close to US$ 10 billion and constituted just over 2 per cent of the overall GDP. Today, it is estimated that the industry will have surpassed US$ 15 billion in 2004 and comprise about 2.64 per cent of the nation's GDP. The IT sector's performance is most impressive when seen in terms of its share of India's exports: this has risen from US$ 1.1 billion in 1996-96 (representing 3.2 per cent of overall exports) through US$ 6.21 billion in 2000-01 (13.8 per cent of exports) to over US$ 12 billion today which constitutes as much as 21.3 per cent of the country's overall exports. While these figures look more impressive largely on account of the highly inward-looking character of Indian economic development in the decades from 1947 to 1991 (when India's share in world trade was less than 0.5 per cent), and the fact that the relatively low-skilled Information Technology Enabled Services (ITES) or Business Process Outsourcing (BPO) has been combined with the software sector to inflate the actual numbers, within the context of India's post-independence export performance they do merit attention.

Given the prominence accorded in the Indian media to companies like Tata Consultancy Services, Wipro and Infosys, the celebrity status of individuals such as Aziz Premji and Narayanamurthy (the CEOs of the latter two companies), and the belief that IT is the entering wedge of a larger social transformation of India, it is reasonable to ask how many Indians are employed by this sector. In a country with a population of about 1.1 billion people, and a workforce of well over 400 millions, the IT sector employed about 650,000 individuals in 2003. Of this miniscule number, about 205,000 are in software exports, about 160,000 in ITES or BPO, about 25,000 in the domestic software industry, and 260,000 in what the chief trade organisation of the industry, the National Association of Software and Service Companies (NASSCOM), has described as “user organisations”. The ITES-BPO sector comprises mundane and low-skill tasks like telephone call-centers (which account for as much as 70 per cent of the BPO sector's overall earnings), and transcribing health insurance claims filed in countries like the United States (which represents about 20 per cent of BPO earnings). Only about 10 per cent of earnings in the BPO sector arise from slightly higher level skill-based work, and even this is in the nature of assessing insurance claims. NASSCOM estimates that total employment in the IT and BPO sectors together will reach about 1,483,000 in 2009, and about 3,689,000 in the year 2012.

At present, the IT sector in India accounts for two-thirds of one million people, about 65 persons out of every 100,000 Indians. Even assuming that NASSCOM's expectations regarding future employment turn out to be accurate, clearly the IT sector will remain an extremely small fraction of the overall labor force of the country for years to come. The numbers employed in the IT sector also need to be assessed against the overall labour situation in India. India needs to generate about 8 million to 10 million new jobs every year just to absorb the new entrants into the workforce and not see the unemployment situation worsen. Despite growth rates of 6 per cent per annum achieved in recent years, the economy is adding only 3.6 million jobs every year. Higher growth rates, especially when based on export-promoting industrialisation, do not necessarily translate into larger employment. Between 1991 and today, both the total number of unemployed and the rate of unemployment have risen, not fallen. In rate terms it has gone up from 5.99 per cent to 7.32 per cent and in numbers it has gone up from 20.13 millions to 26.58 millions. Even if an optimistic growth rate of 6.5 per cent per annum is assumed for the next decade, the unemployment situation is going to worsen in the short and medium-run. The social and political costs of adding close to 4 million educated unemployed every year to the nation is difficult to imagine but may well come to pass in the near future.

In fact, figures show that the IT sector's labor profile is rife with contradictions typical of a post-colonial society. On the one hand, India produces close to 300,000 graduates in IT-related fields each year more than the employment prospects in the sector, today or in the near future. Yet, given the highly variable quality of these graduates and the schools they come from, no more than about 40,000 of them are immediately employable in the skill-intensive sectors of IT. There emerges the paradox of tens of thousands of IT graduates going unemployed while the elite companies- both Indian and multinational are competing fiercely with each other to hire the graduates from a small handful of the best technological institutions. It is estimated that of the 1.1 million jobs in the field that will come available by 2008, about 280,000 will go unfilled at present rates of graduation from the better schools and diploma mills. Similarly, the available labor pool for the low skill BPO sector is huge estimated at close to two million at least -- and yet turnover in these jobs is very frequent and wage inflation is common as the different companies bid against each other for the trained 'unaccented' English speakers with a few years of experience. The gender biases in the two sectors the more skill intensive software section versus the more basic BPO section are revealing as well. Males outnumber females by a 7 to 3 margin in the former while women outnumber men in the ration 65 to 35 in the latter sector. Regionally, employment in the IT sector is highest in the south (with 44 per cent) while the east is far behind at less than 7 per cent of the jobs.

It would be fair to assume that as globalisation intensifies and Indian companies in the IT sector prove their mettle, a movement towards the more high-end and high-skilled areas will inevitably follow there is already plenty of evidence to support such an assumption in the case of the best companies such as Infosys, Wipro, TCS, HCL, Satyam, and others. The problem is that such a movement towards the more skill- and value-added end of the production cycle, while it bodes well for the growth and maturity of the IT sector, does not necessarily spell good news as far as the generation of jobs is concerned. The higher end work tends to be less employment generating than the low-skill sector and this is one of many instances where global competition has a logic that does not play to the comparative advantage of labour-surplus societies like India. A couple of examples illustrate this problem clearly: Two companies that have shown the ability to compete and survive in a global marketplace -- Tata Motors and Bajaj Automobiles -- have both modernised their production structures in ways that have diminished employment rather than increase it. In 1994, Tata Motors needed 35,000 workers to manufacture 129,400 vehicles, whereas by 2004 it was producing 311,500 vehicles with a significantly smaller labor pool of just 21,400 workers. The 'productivity' of Bajaj's plants has been even more dramatic. Whereas in the mid 1990s, Bajaj manufactured a million two-wheelers with about 24,000 workers, today it produces more than twice that many with less than half the workforce 2.4 million scooters with only 10,500 workers. The increasing reliance on technology-intensive notions of productivity comes at a time when public sector enterprises are being shut down, and unions are losing their clout as India's links with the world economy intensify. Technological efficiency, productivity and modernisation are not abstract and universal concepts, desirable at all times and in all places. The ability of Indian firms to be regarded as productive and efficient by world-standards set by societies where labor is costly and frequently scarce - might well have consequences that are detrimental from the point of view of national needs or priorities. This disjuncture between export-oriented sectoral growth and overall social needs is worth underlining in the context of the enclave-like character of the IT sector in India and its linkages to the national and global economies.

High-Tech Enclaves, State Subsidies and Social Costs
In a provocative recent essay, Balaji Parthasarathy asks if it is not more appropriate to refer to Bangalore as Silicon Valley's India rather than India's Silicon Valley. His point is that as one of the world's leading sites of off-shore computer software production and services, Bangalore's growth and economic dynamism has little or nothing to do with the hinterland just outside the headquarters of companies like Wipro and Infosys, and everything to do with the needs of global corporations based in places like California's Silicon Valley. It is the growth of an enclave oriented to the satisfaction of demands generated elsewhere, and conforming to the logic of a globalising economy largely dictated by the needs of a handful of affluent or developed societies. The Indian software industry is in, but not of, the country that surrounds it. This inevitably impacts the originality of the ideas generated and their relevance to the needs of India.

The extraverted character of development in India's IT sector is reflected in the fact that software exports from India were more than three times the size of the domestic software and services market in 2001-02 (this in a world where every seventh person is Indian) - and the gap was set to widen even further in the next year. The combination of the relative immobility of labor across national boundaries (thus maintaining differential wage rates across the world) alongside the selective (and rapidly growing) transnational mobility of other factors of production under conditions of globalisation notably capital, information, technology, commodities such as standardised information processing packages, software platforms and programs, computers, and the like has created a comparative advantage for spaces like Bangalore. In the initial years, Indian software engineers were sent to U.S. corporations to work on-site a sort of contract-based temporary export of manpower aptly called “body shopping” but were still essentially paid wages that were more consonant with their home countries rather than the on-site locales. In later years, this was replaced by the now common off-shore model wherein the work is done within India in places like Bangalore, Hyderabad, Chennai, Mumbai, Gurgaon, and others. Whereas on-site contracts generated 90 per cent of the earnings of leading Indian companies in 1988, this had fallen to 41 per cent by 2003. Whether in the form of body-shopping or as off-shore production, it is precisely these disjunctures within the world economy that create the possibility of accumulation and growth under capitalism. By the same token, to expect these conditions to be generalised to a subcontinent-wide economic growth is both unrealistic and flies in the face of historical experience. It is, therefore, not surprising that Anthony D'Costa reaches for the well-worn Marxian idea of ‘uneven and combined development’ in the global economy and within India itself - to characterise the rapid growth of, and the limits to, India's software industry in recent years.

Such developmental enclaves might be justified on grounds that there will be spin-offs from their growth that radiate out into the rest of the country. On this score, the evidence from India's IT sector is not compelling, at least as yet. In fact, the state subsidy element in India's IT sector is inescapable and arguably one of the main reasons for its recent success. While popular media coverage, often with an unreflective neoliberal bias, portrays this sector as proof of what Indians can accomplish in the absence of state intervention, the reality is precisely the opposite. As early as 1986, during Rajiv Gandhi's regime, the software sector was earmarked for special attention both on account of its export potential and for the domestic market. The incentives provided at the time comprised a ten year tax holiday, complete (100 per cent) income tax exemption on export earnings in the software sector, export subsidies, and the free import of both hardware and software requirements of these companies to help them gain a foothold in the world market. This was followed in the early 1990s by the removal of restrictions on foreign technology transfers, with the state providing subsidised venture capital for software developers. Software Technology Parks equipped with telecommunications infrastructure and other essentials were also set up; a vast majority of today's successful firms in the IT sector are housed in these parks. State promotion of the IT sector has been further augmented in the post-1991 era as various states within the Indian Union have competed with each other (and sites in countries outside India) to attract investment by offering even greater incentives in the form of tax breaks, subsidised infrastructure, and other essentials.

Given the high-technology and import-intensive nature of the software sector, a true cost-benefit calculus and the real gains accruing to India's export earnings form this sector remains to be conducted. Once the subsidy element is worked out, the actual contribution of the IT sector, as a whole, to national prosperity and trade balances is nowhere near as large as commonly believed. Similarly, while at a symbolic level the success of the companies has made cities like Bangalore and Hyderabad famous the world over, how much these companies have contributed to the revenue coffers of the city and state is yet to be assessed systematically. Nor has there been any systematic investigation of the opportunity costs investment in other sectors that were foregone due to an emphasis on IT of state subsidisation of this high-profile segment of the economy.

What the average citizen living in these cities has experienced are the negative fallouts of such rapid urbanisation -- spiralling real estate prices and localised inflation; traffic jams and vehicular pollution; strain on urban resources like roads, water supply, electricity and the like. The social problems on account of the sudden increase in the numbers of young (the median age of the employees in the IT sector is 27), affluent and free-spending segment of the population in a wider context of scarcity and unemployment can well be imagined. The relative absence of any positive leakage from the IT sector into the economy that surrounds it is one of the main reasons for the electoral defeat of the ruling parties in states like Karnataka and Andhra Pradesh, and the failure of the BJP-led central government to be re-elected to a majority in the parliament. The BJP's campaign theme in the parliamentary elections of 2004, titled “India Shining”, made much of India's success in select fields such as auto component exports and information technology; the booming stock market; the healthy reserves of foreign exchange; a bumper harvest (on account of a strong monsoon); and a momentary spurt in the annual GDP growth rate in excess of 8 per cent in the year 2003-04. The message clearly did not resonate in much of India, especially outside the high-growth enclaves. Enclave growth may make for over-optimistic and selective media coverage, but clearly does not translate into popular support when it comes to elections based on universal suffrage.

Neo-liberalism, Globalisation and Poverty
Neo-liberalism -- a set of economic (and attendant socio-political) beliefs that characterise attitudes towards development in the world today. Essentially, this view holds that the intensification of world trade, and the continued and enhanced participation of all countries in this trade, is bound to have beneficial consequences for everyone. It is also the single best way to reduce global poverty. Such participation is best done by private enterprises operating under liberal trade regimes (without tariffs and other restrictions) which encourage foreign investment, and adopt an export orientation. In order to capitalise on their respective comparative advantages in the global marketplace, countries are advised to allow their currencies to attain a 'natural' exchange value relative to the world money market which has often meant a sharp devaluation at the onset of their adjustment to neoliberal economic programs. They are further encouraged to minimise state intervention, especially in the form of support and subsidies to underprivileged sectors, as this supposedly crowds out private investment, encourages fiscal irresponsibility and budget deficits, and constitutes a disincentive to the poor to actively seek to better their lives. Thus, developing societies are urged to minimise their fiscal and budget deficits through tight and deflationary policies. They are, moreover, urged to either sell off (privatise) or close down their bloated and over-employing public sector corporations, and adopt hard-line policies towards labor unions. They are encouraged to outline clear-cut 'exit' policies for investors should their ventures no longer be profitable. The main engine for growth and employment is private enterprise in the world market, and states or governments are seen as little more than facilitators who underwrite the legal and economic contracts that enable such trade, and keep labor quiescent.

Globalisation, which in its contemporary incarnation can be dated back to about 1980, is the intensification of economic links between countries through trade of information and communications technologies, and in the mobility of capital, commodities and (selective) segments of international labor, along neo-liberal principles or policies. The re-entry of the once-closed economies of the East bloc following the collapse of the Soviet Union, the entry of China in a big way into international trade, and the similar change in India's attitude towards participation in world trade, are some of the critical changes that warrant the label 'globalisation' to describe the last couple of decades. Both globalisation and neo-liberalism are underwritten by a core set of institutions (the International Monetary Fund, the World Bank, and the World Trade Organisation), countries (notably the United States and the United Kingdom), media institutions (such as the Economist, the Financial Express, and the Wall Street Journal), and, more generally, by a global middle-class that sees these economic policies and ideology as 'common sense'.

A key reason for the dominant status attained by neo-liberal doctrines is the belief that the last two decades of rapid increase in global trade have also seen the most substantial reduction in global poverty in the last 150 years. With the exception of sub-Saharan Africa, it is argued, other parts of the world economy, due to their enhanced participation in world trade along neo-liberal lines recommended by the World Bank-IMF combine, have seen higher growth rates and reduced poverty. Moreover, it is claimed that it is precisely in countries that have most increased their participation in world trade in recent decades -- notably China and India -- that the sharpest increases in growth rates have occurred, and the most consequential impacts on poverty reduction achieved. Since these two countries by themselves constitute as much as 38 per cent of the world's population, this would seem to be a robust illustration of the veracity of the neo-liberal model pushed by the World Bank and the IMF.

Careful analysis of such claims by, among others, the political economist Robert Wade, indicate that they need to be severely qualified. Not only are the estimates regarding poverty reduction by the World Bank consistently prone to exaggeration (due to the measures chosen), the claimed reduction in poverty has, in all likelihood, been accompanied by an increase in global inequality. He notes that ‘… it is likely that the Bank's numbers substantially underestimate the true numbers of the world's population living in extreme poverty, and make the trend look brighter’. He does go on to note that ‘… it is quite plausible that the proportion of the world's population living in extreme poverty has fallen over the past 20 years or so.’ On the inequality front, Wade notes that while a country like India may be momentarily (and very slowly) narrowing the gap between itself and middle-level countries like Brazil or Argentina, the gap between the developing and the developed worlds remains as large as ever and is, in fact, widening even more. He further points out that using India, and especially China, as illustrations of the benefits of greater participation in the world economy on a neo-liberal model is ahistorical and distorts the reality. As he observes, “Certainly many countries including China and India have benefited from their more intensive engagement in international trade and investment over the past one or two decades. But this is not to say that their improved performance is largely due to their more intensive external integration. They began to open their own markets after building up industrial capacity and fast growth behind barriers. In addition, throughout their period of so-called openness they have maintained protection and other market restrictions that would earn them a bad report card from the World Bank and IMF were they not growing fast. China began its fast growth with a high degree of equality of assets and income, brought about in distinctly non-globalised conditions and unlikely to have been achieved in an open economy and democratic polity”.

In other words, it is not merely an open economy and the neoliberal model that explains the relatively high growth rates of countries such as India and China in recent years, but their prior historical emphasis on self-reliance, import substitution, protectionist barriers, and active state intervention. In the case of China (and South Korea, Taiwan and Japan in earlier decades), it also had to do with a restructuring of agrarian relations that eliminated concentrated land holdings.

If the global picture on poverty reduction and inequality under the neoliberal regime is, at best, inconclusive, and at worst, over-optimistic, the data from India since 1991 gives us a better basis on which to assess the growth prospects after liberalisation. Inter alia, it will allow us to assess whether or not the enclave model of growth in the IT sector is a harbinger of wider economic development.

At an aggregate level, liberalisation begun in mid-1991 has not had a dramatic effect on overall GDP growth rates. According to the government's statistics, GDP growth in the 1980s was 5.6 per cent per annum and this increased to just 5.8 per cent per annum in the 1990s, which is both statistically and otherwise insignificant. Given the abysmal