Did the 1997 IT Pact with the US Hinder India's Hardware Industry?
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Synopsis
The 1997 IT Agreement with the US is said to have hampered India's hardware production capabilities. Experts argue that this decision has long-term implications for India's technological independence, as the nation now relies heavily on the US for IT profitability. Can India reclaim its hardware prowess through recent initiatives?
Key Takeaways
- The 1997 IT Agreement significantly influenced India's tech landscape.
- It shifted focus from hardware to software development.
- India's hardware production capabilities were adversely affected.
- New initiatives aim to revitalize manufacturing sectors.
- AI's rise threatens traditional software jobs.
New Delhi, Sep 6 (NationPress) On Saturday, economists and strategic analysts contended that the Information Technology Agreement of 1997 between India and the United States inadvertently stunted India Inc's capabilities, preventing it from producing top-tier computer hardware comparable to that of China and Taiwan.
This agreement, established in 1997, aimed at eliminating tariffs and trade barriers in all information technology services.
At the time, the Bill Clinton administration in the US persuaded New Delhi to focus on its strengths in software development and related services, while Indian industries sought to keep tariffs on computer hardware to foster their growth.
In a post on the X social media platform, strategic analyst and columnist Divya Kumar Soti stated: “Are you aware that India relinquished the hardware sector to the US as a consequence of the Information Technology Agreement of 1997, contrary to the desires of India Inc! The Clinton administration urged the Government of India to concentrate solely on software and related services (such as call centers) and to steer clear of the hardware sector. Had this agreement not been made, India Inc could have been producing world-class computer hardware comparable to that of China and Taiwan today.”
Soti further emphasized that the US-backed ecosystem in India effectively marketed this narrative, as numerous magazines and news channels repeatedly proclaimed India as a software superpower.
“Now, the truth is laid bare. We claim to be such a superpower, yet in our confrontation with the United States, we lack even our own email platform. Our IT sector is heavily dependent on the US for profitability. Hundreds of our engineering colleges produce subpar computer science graduates who will soon find their jobs taken over by AI,” Soti highlighted.
With the rise of AI, Americans now find themselves in a position to threaten outsourcing and the H1-B system, Soti added in his post.
In response, Dr. Arvind Virmani, economist and member of NITI Aayog, remarked that he was likely the only economist to oppose this (India-US) agreement, based on tariff economics.
“After five years of tariff reforms (from 1991 onward), it became evident that this would create an inverted duty structure, damaging domestic electronics assembly production,” Virmani shared in his reply to the post.
Currently, India excels at producing some of the world's best software engineers but falls short in hardware production—a situation the Prime Minister Narendra Modi government is striving to amend with bold reform policies and initiatives like ‘Make in India’ and production-linked incentive (PLI) schemes, aiming to transform the nation into a global manufacturing hub across various sectors, including semiconductors, electric vehicles, and drones in the near future.
Point of View
It is crucial to recognize how international agreements can shape a country's industrial landscape. While the IT pact aimed to bolster India's software sector, the unintended consequences on hardware production reveal a need for balanced growth across all technological domains. As India seeks to strengthen its manufacturing capabilities, it is imperative to learn from past agreements to secure a prosperous future.
NationPress
15/09/2025
Frequently Asked Questions
What was the purpose of the 1997 IT Agreement?
The 1997 IT Agreement aimed to eliminate tariffs and trade barriers in services related to information technology between India and the United States.
How did the agreement affect India's hardware industry?
Experts argue that the agreement hindered India Inc's ability to produce competitive computer hardware, as it encouraged a focus solely on software development.
Who opposed the 1997 IT Agreement?
Dr. Arvind Virmani, an economist and member of NITI Aayog, was noted as one of the few economists who opposed the agreement, citing concerns over tariff structures.
What initiatives are being taken to improve hardware production in India?
The Indian government is launching initiatives such as 'Make in India' and production-linked incentive schemes to boost manufacturing in sectors like semiconductors and electric vehicles.
What impact does AI have on the job market for software engineers in India?
The rise of AI poses a threat to many traditional software engineering jobs, increasing the urgency for the Indian IT sector to adapt and innovate.
