The Political Economy of Late Development:Industrial Policy in the Information Technology and Banking Sectors in India

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To inform the policy debate in developing countries over strategies for economic development, this paper uses the tertiary sector in India—in particular, the information technology (I.T.) services and banking sectors—as a case study of economic governance. This paper uses a new dataset on the I.T. sector collected from the paper archives of the Software Technology Parks of India (STPI) in New Delhi during July 2013, and a dataset of the 72 largest banks in India collected from public documents at the Reserve Bank of India in Mumbai. Socioeconomic indicators, specifically wage level, higher education and urban agglomeration, only partially account for the growth of these sectors. In both the banking and I.T. sectors, government ownership promoted stability and geographical agglomeration but reduced performance. Government investment in a shared infrastructure commons through STPI was critical for the growth of the I.T. sector after 1991. Gradual deregulation following state ownership resulted in significant gains for both sectors. The paper concludes with a theory for the growth of technologically advanced sectors in India, which promotes gradual liberalization in sequence with government promotion of infrastructure and domestic competition.

Last updated on 09/17/2014