India

The contribution of information technology (IT) to India’s GDP increased from 1.2 per cent in 1997 to 9.3 per cent in 2015. A notable characteristic of this phenomenon is that the majority of the growth in this sector is driven by exports. Currently more than 80 per cent of IT output is exported. This sector is thus very vulnerable to demand shocks in the world economy. Also unlike the export of most goods the export of IT services relies exclusively on the Internet the expansion of which in the 1990s is a relatively recent phenomenon. The combination of worldwide rapid Internet growth along with rising demand for computing skills created an unprecedented demand for Indian IT services: from 1998 IT exports and employment doubled in a span of just two years.

India opened its domestic market to international trade in the early 1990s. The decision had profound implications on the development trajectory of the country. Trade opening allowed the country’s firms to source inputs more cheaply and increase their competitiveness. At the same time it meant that firms in India were exposed to increased competition from abroad while consumers enjoyed lower prices for final goods. While the trade opening helped boost economic growth it required an adjustment of capital and labor within and across sectors.