Comparing Advantages In India’s Computer Hardware And Software Sectors

Abstract: Economic growth is uneven within many developing countries as some sectors and industries grow faster than others. India is no exception, where anemic performance in manufacturing has been offset by robust growth in services. Standard scholarly explanations fail to explain this kind of variation. For instance, the factor endowments that are required for services—such as an educated workforce or access to electricity and other infrastructure—should also complement manufacturing. Reciprocally, if a state’s institutions hold back manufacturing, they should also impair growth in services. Why have services in India outperformed manufacturing? We examine India’s performance in the computing industry, where a dynamic software services sector has emerged even as its computer hardware manufacturing sector has flagged. We argue that the uneven outcomes between the software and hardware sectors are due to the variable needs of the respective sectors and the state’s capacity to coordinate agencies. The policies required to promote the software sector needed minimal coordination between state agencies, whereas the computer hardware sector required a more centralized state apparatus for successful state-business engagement. Domestic and transnational political networks were critical for the success of the software sector, but similar networks could not deliver the same benefits to the computer hardware industry, which required more coordination-intensive policies than software. A state’s ability to coordinate industrial policy is thus a critical determinant for effective sectoral political networks, shaping sectoral variations within an economy.

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