The evolution of the Indian software sector is explained by the larger context of uneven and combined development. The imperatives of a market-driven global order suggest an open-ended process of development, making some economic and technological convergence realizable but also generating contradictions at various levels. This paper focuses on differential innovative capability, the uneven diffusion of technical education in India, and the increasing economic integration of the software industry as sources of uneven development. The combined nature of the development process is reflected in the coexistence of the successful software sector with several lagging sectors with all of them being functionally integrated as part of Indian social formation. To cope with the contradictions of such change a balanced development will be critical. To make development more inclusive deep structural problems that plague those outside the orbit of the successful software industry must be resolved.