India?s export growth curve in information technology is tapering down with the growth rate of 26 per cent in 2002-03 turning out to be well below the robust growth of 50 per cent plus achieved just a few years ago. Even this growth has been accomplished by the 59 per cent surge in IT enabled services (ITES). Growth in software has plunged to 25 per cent, below the 30 per cent mark set for the sector by NASSCOM.

With recessionary trends in the global technology business all set to continue for this year at least, it may be a while before this performance can be improved upon. Worse, with the growing legislative and trade union resistance in the US and other advanced countries to movement of jobs to India through business process outsourcing (BPO), there is no certainty that ITES exports would continue to soar, although as yet there is no sign that US and European companies have stopped looking at India as the favoured destination for outsourcing.

Pessimists say that the Indian IT juggernaut may have run out of steam. I disagree. On the contrary, the ability to grow by 26 per cent during a bad slump indicates the robustness of Indian companies in the sector. Indeed, the pressure generated by a flat demand and eroding margins due to price competition and adverse exchange rate movement could turn out to be a blessing in disguise.

Indian companies would now be motivated to move up the value chain by entering new market segments hitherto occupied by global leaders in the business. Some companies are already carving out their space in the sun by making forays into new niche segments. Others are sharpening their product range by investing in R&D and also scouting for opportunities in embedded software that opens a new range of prospects. There are encouraging reports of exciting developments being attempted by a clutch of companies, some in partnership with foreign giants. The earlier short-term approach of being the back office to the world is now giving way, albeit slowly, to the longer vision of new product development or adding more local value.

True, this change will take time before it spreads across the sector and as yet remains confined to a few players. The reason is that product development for niche areas or upper reaches of the value chain requires deeper pockets and the ability to shoulder risks that most Indian companies do not possess, given their small size and turnover.

Country experience shows that export successes across sectors could be strongly supported by growth in the domestic market that enables firms to acquire size and devote greater resources for new product and market development as also enhance their risk-taking ability in the increasingly volatile global market that is now also becoming vulnerable to politics of employment. Unfortunately, the domestic demand growth for software products and services remains tardy and the overall market size is far smaller than the turnover achieved from exports. This is where government can play a role provided it behaves differently by becoming a facilitator and not as a regulator.

For instance, the government had decided that all its departments would devote 3 per cent of their expenditure on IT products and services. This target is far from being achieved and if pursued vigorously can aid the Indian industries? forays into global markets by enhancing their business in the domestic market.

True, some initiatives have been taken by both central and state governments. The digitisation of land records in Karnataka is a case in point. Such expenditures that not only bridge the digital divide but also boost domestic IT spend could help take the IT industry forward. Agriculture, education, health, administration, and all such areas present a tremendous potential and government spending can play a critical role in not only enhancing the efficiency of goods and services delivered from these sectors but also place IT industry on the fast track. India?s IT industry has given this country a lot more than exports and foreign exchange reserves. By making India a global player in at least one area, it has enhanced national prestige far beyond any other capability and delivered substantial diplomatic dividend to the nation. It is time the government recognised this contribution and took measures in the domestic market to help the industries? global forays.

The author is an advisor to Ficci. Views expressed herein are personal