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               Securities and Exchange Board of India

software sector in India has crossed Rs 100 billion mark during 1998. The sector grew 58% on a year to year basis and exports accounted for Rs 65.3 billion while the domestic market accounted for Rs 35.1 billion. Exports grew by 67% in rupee terms and 55% in US dollar terms. The strength of software professionals grew by 14% in 1997 and has crossed 160000. The global software sector is expected to grow at 12% to 15% per annum for the next 5 to 7 years. With the inherent skills and manpower that India has, software exports will thrive with an estimated 50% growth per annum. The market capitalisation of the listed software companies is approximately 25% of the total market capitalisation of around US$ 200 billion as of December,1999.There is also greater visibility of the Indian companies globally. Given such vast potential which is not only confined to IT and software but also in several other sectors like biotechnology, telecommunications, media and entertainment, medical and health etc., venture capital industry can play a catalyst  role in industrial development.

2.4It is important to recognise that while India is doing well in IT and software, it is still a low cost developer and service provider. Though it has the advantage of English-speaking, skilled manpower and cheap labour, its leadership is  on a slipping edge as other countries such as Philippines, China and Vietnam are moving to occupy India’s position as the premier supplier of low end software and support services.  Many such countries have superior supplies of power, telecom and internet connections compared with India. As the US did in the semiconductor industry in the eighties, it is time for India to move to a higher level in the value chain. This will not happen automatically. The sequence of steps in the high technology value chain is information, knowledge, ideas, innovation, product development and marketing. Basically, India is still at the level of ‘knowledge’. Given the limited infrastructure, low foreign investment and other transitional problems, it certainly needs policy support to move to the third stage i.e. ideas and towards innovation and product development. This is very crucial for sustainable growth and for maintaining India’s competitive edge. This will need capital and other support which can be provided by venture capitalists.

2.5India has a vast pool of   scientific and technical research carried out in research laboratories, defense laboratories as well as in universities and technical institutes.  A conducive environment including incubation facilities can help a great deal in identifying and actualizing some of this research into commercial production.

2.6Development of a proper venture capital industry particularly in the Indian context is important for bringing to market high quality public offerings (IPOs). In the present situation, an individual    investor becomes a venture capitalist of a sort by financing new enterprises and undertaking unknown risk.  Investors also get enticed into public offerings of  unproven and at times dubious quality.  This situation can be corrected by venture capital backed  successful enterprises

Report of K B Chandrasekhar Committee on Venture Capital11

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