BACKSTORY: How IBM’s exit in 1978 fuelled the growth of India’s IT industry

Updated : April 05, 2021 07:53 AM IST

Few events have benefited a nation as profoundly as the insistence by the Janata government in 1978 that multinational companies would have to adhere to the dilution norms laid down by the Foreign Exchange Regulation Act (FERA) of 1973. These required all foreign companies operating in India to reduce their stake to 40 per cent over the next two years.

While most chose to comply, a few held out. Among them was IBM, the world’s seventh-largest corporation with sales of $18 billion which refused to comply. And why not. After all, the IBM of 1978 was the unchallenged lord of the global computer industry, used to having its way particularly in such outposts of technology as India, where for years it had been hawking obsolete computers which bore little resemblance to the powerful mainframes that it was selling in the US.

Yet such was its clout, having been invited to set up operations in India by no less a person than the then prime minister Jawaharlal Nehru in the early 1950s, Big Blue believed it should be exempt from the FERA provisions.

However, George Fernandes who was the Industries Minister in the Morarji Desai government, it faced a man who couldn’t be bullied easily. George the Giantkiller, as he was popularly called, insisted that if IBM wanted to stay on in India it would either have to share its technology or list the company on an Indian stock exchange or ensure that its Indian operations were majority controlled by an Indian partner.

IBM responded that it didn’t do so anywhere else in the world and in June 1978 exited a market which was obviously not on its priority list with barely a few hundred large computers installed in the country, mostly in the defence labs and a handful of research and educational institutions, such as the Tata Institute of Fundamental Research (TIFR), the IITs and the IIMs.

What is left behind though was a giant headache. With IBM leaving behind just a liaison office to handle sales enquiries, who would maintain the few critical installations of its mainframes?

Necessity became the mother of opportunity as a clutch of technopreneurs appeared on the horizon to address the need. While International Data Management (IDM) was set up by ex-employees of IBM, the government too played its part, nationalizing the US corporation’s maintenance operations.to create Computer Maintenance Corporation.

By the close of that decade, a nascent but exciting new industry was beginning to take shape. Savvy startups like HCL and Wipro along with large business houses of the day such as the DCM, B.K. Modi and Tata groups, cottoned on to the promise of assembling computers locally and selling them in a growing domestic market.

The seeds of today’s $200 billion industry were being sown in the soil which had recently been vacated by a stubborn MNC which was to return to the country less than 15 years later only to find out that in the interim, India’s IT industry had grown wings. It wasn’t to be an easy ride back for Big Blue.

Published : April 05, 2021 07:53 AM IST

BACKSTORY: How IBM’s exit in 1978 fuelled the growth of India’s IT industry

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