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mputers for software exporters. The Software policy act of 1986 further liberalised the import of hardware and also removed import duties on hardware for software exporters. Apart from this the government also introduced Income Tax Exemption Act in 1993 according to which software exports were exempted from tax; this was a significant support to the IT industry and encouraged huge number of new entrants into the business (Arora et al). The growth of Indian IT industry was observed to be nearly 50 percent per year. Although it can be argued that the Porter's diamond cannot be applied in the case of demand conditions, it should be noted that the reforms taken by government provided a much-needed boost to the industry and thus the huge growth.

Such acts and support encouraged many foreign and domestic investors to start up software companies in India. Saxenian's (2002) study found that half of Silicon Valley's India-born residents had business connections in India while one-quarter had invested in an Indian start-up (Heeks and Nicholson, 2004). India, as mentioned earlier did not have the adequate infrastructure and human resource to support the IT sector; however, due to the environment created by the government, India looked very attractive for investment. Government provided the facilities to develop the capabilities required to succeed in the IT sector and is perhaps the major reason why the Indian IT sector could shoot off.

Resources

India's strengths lie in the quality of education system it has. High quality maths and science education has produced a large number of scientists and engineers with good technical knowledge. A number of institutions provided skilled graduates, especially in Bangalore and Chennai supporting the software sector in those regions to a large extent, making recruitment easier and faster. Institutes like the IITs lead in providing technical education and many other universities have been constantly investing in improving the education system and developing the capabilities of students during the learning phase itself. It is also important to note that India also has a large number of good business schools that provide high quality management education. As the industry has grown we have also seen good corporate governance and organisational capabilities behind the success of many Indian IT firms. India is also ranked quite high in terms of cluster development, foreign technology sanctions and Government prioritization of ICT (Parthasarthy and Joseph, 2002; Mathur, 2007).

Current Market Scenario

The Indian IT industry has grown a lot over the since the 1980s. Back then the industry was mainly involved in onsite operations, however as the industry grew and the skills of the labour started to improved, more offshore operations begun. Heeks and Nicholson (2004) observed that

Heeks and Nicholson (2004), like other researchers, indicated that in 1980s most of the earnings were gained by short term contractual work done at client locations, also known as ‘bodyshopping', which was generally low tech coding work and after 2003 major part of the work was done offshore that is at the firm itself rather than working directly at the client location.

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