Today, information is a central feature of the international economy.  Indeed, the protection of information in products is one of the key elements in the foreign policies of developed nations of the world.  Intellectual property has become a major area of international concern.  This is particularly, and ironically, true for the United States, which was the biggest pirate of them all before 1891 (supra).

The exports from United States rely on intellectual property rights.  The international trade commission claims that foreign piracy of U.S. intellectual property costs billions of dollars per year.  In 1995, software piracy worldwide was estimated at $11.6 billion, according to Mr. T. Mohandas Pai, senior vice president, Infosys Technologies, India.15  At present, worldwide losses due to software piracy are estimated by Business Software Alliance (BSA), India, to be around $15.2 billions annually.16

The software industry loses billions of dollars, because both the facilities for copying and the market for using the information technology have increased in quantum leaps over the last ten years.  The sanctity of intellectual property has come to play an iconic role in the foreign policy of the developed world similar to the role played by “freedom of the seas,” or “prompt, adequate, and effective compensation for expropriation,” in an earlier age.17

Even in India, the protection of intellectual property has been recently gaining importance, due to the boom in the software industry as a result of the economic liberalization in the last decade of the millennium, and many software companies and pharmaceutical companies are facing the problem of piracy.
The historical background, the situation leading to the economic liberalization, the present situation in India with regard to software industry, the incentives provided to the foreign and domestic companies and the measures taken by the government and other organizations to prevent piracy to provide a conducive environment to boost the growth in computer industry in India are discussed in the following two sections



i) Nehru-Gandhi Dynasty18

The path of independence has determined the attitude of India towards economic self-sufficiency.  The nationalists argued that Britain had subjected the country’s economy to external need and greed for centuries.  This depleted India of her economic potential.  This theory is called drain theory.19  After independence the emotional appeal of infant industry to protection measures was overpowering.   Self-sufficiency provided a rationale for accepting short run costs occurring from protecting domestic industry during the initial period of development.  The argument was particularly convincing in view of the large domestic market.

The first Prime Minister of India, Jawaharlal Nehru envisaged Indian society as a socialist one, paying attention to public, collective, and social goods. His ideas were reflected in the policy resolutions, where the role of the public sector was defined.  The public interest required all industries of basic and strategic importance, or in the nature of public services, to be in the hands of the public sector.  Other industries that require massive investment have to be in the public sector.  According to the policy on foreign investment initially announced by Nehru in 1949, all foreign businesses fell under the Indian government’s industrial policy, and as a rule, the ownership and effective control should be in the hands of Indians. Foreign enterprises were to be treated at par with Indian enterprises, having freedom of remittance of profits and repatriation of capital, subject to foreign exchange requirements.20

An elaborate system of import controls and tariff rates has developed over a period of 40 years after independence.  Direct import controls became more rigorous and effective.21  The system of import licensing had a deleterious effect on the growth of the industry.  The principle of indigenous technology was a difficult hurdle to pass for the importer. Phony claims of technological sophistication by the domestic suppliers preempted the competitive imports.

Activity in the area of computer science and technology started in India as early as 1954.22  In 1959, Tata Institute of Fundamental Research (TIFR) built a computer known as TIFR Automatic Calculator, a state of the art system. But, until the 1960s India’s electronics industry was very small and unsophisticated. Electronics production was almost entirely in a few foreign hands.  After the China war in 1960s, Nehru felt the need to strengthen the technological base of electronics.

Dr. Homi Jahengir Bhabha (Bhabha), the first chairman of the Electronic Committee, emphasized the importance of electronics for national development.23 Bhabha stated that the industry so far had developed under foreign collaboration agreements, which was identified as the source of its greatest weakness, and recommended self reliance.24  The Bhabha report  recommended  efforts to design and produce the small and medium computers and also components and subsystems.25

During this time the international companies like International Computers Ltd., UK and IBM were leasing obsolete and discarded equipment to India at a high profit.  IBM promoted its systems heavily through bribing the officials by its lavish hospitality.26

An  Electronic Commission and a Department of Energy  (DOE) were established in 1970, with Menon as chairman of the commission and secretary of the Department to regulate the electronic industry.  Sarabhai, who took the leadership of the electronic committee after Bhabha, gave his unqualified support to Electronic Corporation of India Limited (ECIL).

ECIL, under the authority of the Ministry of Atomic Energy, started production of small and medium sized computers in 1971.27  A special agency was created to deal with promotional and regulatory measures required to develop a viable domestic computer industry and to design policies that would ensure maximum domestic design and production of computers with the latest technology.28  The minicomputer panel set up in 1972 recognized the fact that week competition would result in high computer prices and suggested that the private sector firms be allowed to compete in the industry.  But the government of Indian Union decided differently. ECIL became the sole domestic supplier for minicomputers. No private firm, domestic or foreign, was allowed to challenge this monopoly.29

Indian scientists were well informed about the international trends and the developments.  But, when US had already spent billions of dollars on research and development, the leading scientists of India tried an approach of self reliance and indigenous creation.  Foreign companies were not allowed to operate in the country and technologies were not to be purchased from outside.  The development costs in India would be a fraction of that in the US, because of cheap manpower, but decision-making in India takes an enormous amount of time nullifying the advantage.

The following policy,30 which did not permit licenses to be issued freely to industries, was outlined in the 1973-74 Annual Report for computer industry:

1)  The requirements for large computers will be essentially met by imports during the fifth five-year plan period.
2)  The program would aim at self-sufficiency with regard to requirements of CPUs for the minicomputers and medium computers by the end of the fifth plan period.
3)  The program would aim at rapidly building up a self-sufficient industry with regard to a major part of the requirements of peripherals, including import of know-how where required.
4)  An indigenous base that would be actively built up would essentially meet the requirements of software with the further aim of generating an export potential.
5)  The country would be self-sufficient with regard to capability to maintain installed computer installations.

The activities of foreign enterprises in India were drastically curtailed and subjected to more stringent regulation, after the passage of Foreign Exchange Regulation Act (FERA) in 1973, and foreign investment was only a means of facilitating the transfer of sophisticated technology.31  Foreign majority equity holdings were allowed up to a maximum of 40% in industries not using sophisticated technologies, that were not available indigenously.  The domestic producer had to show that it did everything in its means to absorb and update the previously purchased technology, and despite these efforts a more advanced technology was necessary for production. Lists of foreign collaboration permitted industrial areas were periodically announced.32

The regulation of operations by foreign enterprises had limited the competition. Technological collaboration agreements were handled rather restrictively.  The administration tried to avoid simultaneous purchases of foreign technologies by several firms in an industry in order to control the foreign exchange outflow. Royalty rates were generally limited to a low 5%, far below the ones paid internationally in fields of sophisticated technology. The effect was that those foreign firms were chosen as collaborators that willingly accepted the stringent government terms, rather than firms with best technologies.  Technological innovation and competition was limited also, because the firms that managed to secure a foreign collaboration agreement often enticed the bureaucracy not to allow similar collaboration agreements involving their domestic competitors.33

The minicomputer policy of 1978 permitted the issue of industrial licenses to many domestic industries.  The major objective of the policy was defined as setting up a system of engineering companies, which need not get involved in the manufacture of CPUs or peripherals.  Except for peripherals and for some very special cases, the import of know-how was not to be permitted and foreign brand names were not to be used except for export promotion.  There was no attempt in the policy either to push computerization or to signify to the nation that a computer revolution was sweeping the world, and that India had to participate vigorously.  Political leadership was worried about the unemployment caused by computers.  Added to that, there was political instability.34

Under Bhabha and Menon, the computer policy of India failed because of an approach of self-reliance, without the required essential elements like enormous amounts of money, discipline, dedication, commitment etc.

In 1977 after the change of government from Congress (I) party to Janata party new Electronics Plan (1978-1983) was announced, and the licenses were issued in 1979 for those enterprises which were already in business.35  The policy of Janata party government was to develop small scale and village industries, which helped the 38 firms to get licenses or registration for hardware production.36   Congress (I) party returned to power in 1980, but continued the policy.

Rajiv Gandhi became Prime Minister in 1984.  He was very much interested in computerization.  The main purpose of introduction of computers into the Indian environment was to speed up the decision-making in all spheres of activity, and to improve overall productivity.  Rajiv Gandhi realized that there was no point in waiting for the very slow Indian R&D to deliver necessary computers and software, and liberalized the import policy ignoring the emphasis on self-reliance.  His enthusiastic policies were welcomed by the general public and by many in the government, though there was some resistance from the worker unions, who feared that computerization would lead to downsizing and loss of jobs in certain areas like banking, and few voiced concern that the new policies would kill the indigenous development.37

A liberal import policy was introduced.  “Completely knocked down” (ckd) and “simply knocked down” (skd) kits, and computers below a value of Rs. 500,000 (~$35,000 at that time) were allowed to be imported.  Business practices, which were illegitimate earlier, gained respectability as the rules were changed and the authorities themselves were embarking on computerization.  Licenses were issued to domestic industries liberally.  But, industrial licenses alone could not promote industrial growth.

Competition, domestic and/or foreign is the most important catalyst for the overall development of a country.  India may not face the pressure to extend her market for the computer industry beyond the borders as there are twenty five diverse states, some of which are larger than European countries like Germany and France in population, may be content with the internal market for some time, but not forever. The competition from outside world would certainly induce quality and development.

The industrial policy should first encourage the entry and continued coexistence of domestic advanced technology firms of different size, in different locations, with a different product mix, chiefly for reasons of generating sufficient competition to induce technology effort by firms.  Japan and even the United States have selectively protected their markets from the foreign competition in the initial stages of development of various technologies and intellectual property.  South Korea is an example of a medium-sized country that pursued a strategy of building up domestic champions under a protective umbrella.38  But, eventually every country has to face the competition from outside.   One cannot close the doors to the rest of the world forever.

Promotion of strategic alliances of domestic and foreign technology champions can shift the increasing cost burden of research and development investment onto many shoulders.  Strategic partnering with global technology leaders can provide the large Indian continent with access to the foreign market, which is essential for much needed foreign exchange to import modern technology.

Since 1985, any company with foreign equity not exceeding 40 percent is allowed to manufacture micro- and minicomputers including those based on 32 bit processor chips. But a temporary bar was imposed on 64 bit chips to keep monopoly of ECIL in future mainframes and superminis with 64 bit chips. Capacity restrictions on micro and minicomputers of the organized sector were abolished.  Monopoly and Restrictive Trade Practices Act (MRTP) companies were exempted from complicated approval process for expansion.39

The 1986 software policy allowed the import of software under OGL by users and also permitted stock and sale under certain conditions.  In July 1989, the government raised import duties on software up to 107% forcing Indian PC users to depend on pirated software.  The limits on capacities had now been removed, but as there were many manufacturers still selling PCs based on imported kits, the chances of pioneers emerging to lead in design was doubtful.  The skills to buy abroad, import, circumvent import regulations, and bribe ones way through customs seemed more important than the skills in the computer science or in manufacturing techniques

ii) P.V.N Rao - The Economic Liberalization

The World Bank and International Monetary Fund (IMF) have time and again prescribed economic liberalization, direct foreign investment and the removal of all controls on industry, which was not accepted by earlier governments.

In 1991 the situation was really disturbing. A special report published in The Economist on May 4, 1991 depicted India as tiger in the cage and said, “The future of India looks more threatened than for many years.” The analysis blamed the ever-proliferating bureaucracy and the license regime.  The only hope was that the new government re-appraised the economic policy.40

A hung parliament with no clear mandate for any political party makes radical policy shifts difficult.  However, the minority Congress (I) party government in power in 1991 had taken major steps to devalue the currency and introduced sweeping reforms under the leadership of scholar politicians P.V.N. Rao and Dr. Manmohan Singh.

The government of P.V.N. Rao did indeed liberalize the economy. The main thrust was on removing the license regime.  The process of dismantling controls and abolishing permits and licenses so as to rid the political system of patronage and provide a free atmosphere for Indian enterprise and talent has now been set in motion.  It has also been recognized that a freely convertible currency would be essential to rid the system of all controls and licenses.41

The industrial policy (July 24, 1991) had virtually abolished industrial licensing except for a few items and removed MRTP restrictions.  But controls through the banking and financial system remain and unless the private sector is allowed to set up banks and other financial institutions and foreign banks also allowed free play, the reforms may not result in rapid development.

The liberalization that occurred has led to a considerable expansion of exports in some sectors and a substantial improvement in the foreign exchange balance.  It had got a positive international response.  Many reports were very enthusiastic.  They were all more or less convinced that radical changes would bring growth in the economy and the tiger would be out of the cage and sprinting.

No doubt, India is changing.  Removal of foreign investment regulations has transformed India’s business climate, encouraging the overseas investors to set up joint ventures and allowing them to increase their shareholding in local companies.  Two large American companies, IBM and Coca-Cola, had to leave India in 1978 because of the country’s laws governing international companies.  Fifteen years later in 1993, IBM began to advertise its new joint venture in India, and Coca - Cola, the icon of multi-nationals, set up a manufacturing facility near Agra and launched its range of soft drinks on October 24.  Its rival Pepsi was already making inroads into the captive market.  The cereal giant Kellogg and the fast food chain McDonalds also set up their shops.

The return of IBM and Coca-Cola is a strong indication that the things have changed.  The FERA was amended to make it far less restrictive.  India is going global and is certainly welcoming the world in ways that it never did in the past fifty years.  Foreign investment which used to average barely $100 million annually, increased sharply to $500 million in 1992 and to approximately $10 billion in 1997, which is significantly lower than the foreign investment in China which totals  approximately $110 billion.  But, one has to remember that China had opened its economy in 1978, nineteen years ago!  The Indian achievement within the short period of 5-6 years is considerable.

Computer and Software industry is no exception.  In fact, when McDonalds and Kentucky Fried Chicken started operating in India there was resistance from major opposition parties like BJP and the popular slogan was, ‘we want computer chips, not potato chips!’

By exporting in excess of $1 billion in 1996-97 into the $500 billion world market, the software industry has crossed a major milestone a year ahead of the schedule. The software industry in India, which employs approximately 140,000 people, has emerged as one of the fastest growing sectors, with exports accounting for nearly 60% of its total turnover.  The former finance minister Mr. P. Chidambaram stated with excitement that if there was one industry in which India could emerge as world leader, it was information technology.42  But, the fact is that the software exports, that excited the former finance minister, constitute only a negligible 0.2% of the total world software market.  This achievement is over a long period of 50 years after independence.  Indian Union, which forms approximately 20% of the world population, has to contribute at least 20% of the total world software exports, to claim her due share.  To consider herself a leader, India has to perform better.  There is a very long way ahead.  But there seems to be light at the end of the very long tunnel.


In addition to changing the laws and opening the economy, government of India has launched Software Technology Park (STP) Scheme to provide conducive environment and boost software exports.  At present 450 software units have been given approval by the government to operate under this scheme.

i) Software Technology Park (STP) Scheme

The STP Scheme is a 100% export oriented scheme for the development and export of computer software using data communication links or in the form of physical media including the export of professional services.  STP can be a virtual software development unit or can be infrastructural complex set-up for providing necessary support for the STP units.

The major attraction of this scheme is a single point contact service to the STP units by the jurisdictional authorities of Software Technology Park Complexes under Software Technology Parks of India (STPI), an autonomous organization, set up by the Government of India under the DOE, with the objective of promoting export of computer software.  DOE has set up STPs at Bangalore, Pune, Bhubaneshwar, Thiruvananthapuram, Hyderabad, Noida (near Delhi), and Gandhinagar (near Ahmedabad) under STPI.  The State Governments of Rajastan and West Bengal have also setup STPs at Jaipur and Calcutta respectively.  These STP's act as 100% export-oriented resource centers for the member computer software exporting units by offering general infrastructural facilities like utility power, ready-to-use built-up space, centralized computing facilities and high-speed data communication facilities depending upon the requirement of the member STP units. Besides providing necessary support in infrastructural facilities to the member units, STPs also perform various functions like the issuance of import certificates, software valuation, attestation of export declaration, etc., for the member units as a single point interface that is needed to conduct a software export operation. This enables the STP units to commence their operations with a minimum gestation period, thus enhancing the speed of business in a significant way. The concept of STP makes the co-operative usage of the infrastructural facilities and capital equipment by member software industries optimal, effective and efficient.

ii) Intellectual Property Rights in India

In India, Intellectual Property Rights (IPR) of computer software developers are covered under the Copyright Law.  Accordingly, the copyright of computer software is protected under the provisions of the Indian Copyright Act, 1957. Major changes to Indian Copyright Law were introduced in June 1994.  The government of India claims that these changes have made the Indian Copyright Law one of the toughest laws enacted in the world.  The amendments to the Copyright Act in June 1994 included the definition of Computer Program.  The Copyright (Amendment) Act 1994, clearly explains the rights of copyright holder, position on rentals of software, the rights of the user to make backup copies and the heavy punishment and fines on infringement of software copyright.

According to the Copyright Amendment Act 1994, it is illegal to make or distribute copies of copyrighted software without proper and specific authorization. The only exception provided by Section 52 of the Act allows a backup copy purely as a temporary protection against loss or damage to the original copy.  It also prohibits the sale or to give on hire, or offer for sale or hire, any copy of the computer program without specific authorization of the copyright holder.

Indian Law prohibits unauthorized duplication of software, making multiple copies for use by different users within an organization and giving an unauthorized copy to another individual. If caught with pirated software, the copyright infringer may be tried under both civil and criminal law.
A civil and criminal action may be instituted for injunction, actual damages (including infringers profits), or statutory damages per infringement etc. Moreover, with the amendments to Indian Copyright Act in 1994, even the criminal penalties have been substantially increased. According to Section 63B, now there is a minimum jail term of 7 days up to 3 years and heavy fines from Rs.50,000 (~$1,350) to Rs.2,00,000 ($5,400) for copyright infringement.

iii) Anti-Piracy Activities

One of the objectives of the National Association of Software and Services Companies (NASSCOM) is to campaign against computer software piracy. NASSCOM has been conducting an annual survey since May 1993 to ascertain the quantum and rate of software piracy in India.  According to this survey, the piracy rate in India in May 1993 was 76%. This rate has since come down to about 60% in May 1996. NASSCOM is working towards a strategy through which India is expected to have the least piracy rate in the world by year 2000.

NASSCOM actively influenced the government of India to amend India's Copyright Law. The new amendments to Indian Copyright Law were introduced in 1995. These amendments make the Indian Copyright Law one of the toughest in the world. Since 1994, NASSCOM has been working in close association with Business Software Alliance (BSA) to jointly promote anti-piracy activities in India. This includes the following:

vi) The India Advantages

Offshore software development through high speed satellite links which offer time advantages plus 24-hour virtual, development outsourcing to Indian software houses means substantial cost and time savings and high quality software development.   Turnkey projects, including large projects, are executed with cost and time savings, using excellent project management skills.  The Indian manpower pool is English speaking and the second largest in the world.  India offers state-of-the-art software services, state-of-the-art technologies, including CASE Tools, OOPS, GUI, Client/Server, 4GL, Networking etc.
The competitive edge can be gained by using Indian Software Services, which provide high quality, cost effective, state-of-the-art technologies, substantial time savings, an above all reliability.

v) Policy of Government of India for Foreign Investment

Drastic changes have been made in Indian laws to create a more favorable environment for foreign collaborations and investment and facilitate their establishments. Still, all undertakings (Indian or foreign) have to conform to the general requirements of the government's industrial policy.  Foreign enterprises are to be treated at par with their Indian counterparts.  Foreign enterprises would have the freedom to remit profits and repatriate capital, subject to foreign exchange considerations.

Government of India has recognized Software as a thrust area. The government has established a Software Development Promotion Agency to give impetus to software exports as well as for domestic market.  Software being a high-priority industry, the facility of automatic approval for foreign technology agreement as well as for foreign investment approvals is accorded to software industry.

As per the existing policies of the government of India, automatic approval by the Reserve Bank of India (RBI) is granted for foreign equity holding up to 51% in software sector, provided the foreign equity covers the entire cost of imported capital goods.  Automatic approval up to 100 percent equity from Non-Resident Indians and overseas corporate bodies is granted, whose predominant owners are NRI's, provided the cost of imported capital goods is covered by the foreign equity.
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