Examining the impact of economic cycles on India’s information technology sector

Abstract

The link between the Indian IT industry and business cycles is examined in this article. The IT-BPO sector has spearheaded India’s transition from an agricultural to a service economy. The industry has dominated this field by producing around 10% of India’s service industry earnings and developing a special “service-directed” export-oriented business model. In India there has been massive growth in the software industry due to its potential of exports and for hardware, a very promising demand at the domestic front has been indicated, starting in 1991. The main factors influencing the rise in technology adoption in India include the country’s economic growth, the quick development of its technological infrastructure, the fierce competition among Indian businesses, the government’s increased attention, and the introduction of new business models that enable the provision of IT to untapped markets. The study investigates the potential relationship and sensitivity of the IT sector to the cyclical patterns of the Indian economy. If so, what is the degree of correlation between IT companies and Indian business cycles? Whether the movements of IT Industry are procyclical and coincident to the movements of GDP. Data analysis was comprised of stationarity tests, detrending, and log transformation. Comparative charts clearly highlighted a positive relationship, but because of IT exports, the relationship is more complex. Also, it has been found the IT is not a lagging indicator.