India’s technology sector transforms post-liberalisation, becoming a key driver of foreign currency inflows

Since 1991, policy shifts from telecom reform to software parks have catapulted India’s tech industry into a global powerhouse, earning over $283 billion in FY25 and reshaping the country’s economy and foreign exchange reserves.

India’s economic liberalisation in 1991 did more than open the door to markets. It gave the country’s technology sector the conditions it needed to turn itself into one of India’s most dependable earners of foreign currency. Business Standard’s anniversary look at liberalisation shows how a cluster of policy shifts , from easier capital access and cheaper technology imports to telecom reform and the creation of software parks , helped transform a small export niche into a global industry with an estimated $283 billion in revenue in FY25 and a projected $315 billion in FY26.

For executives who lived through the early years, the change was as much about removing friction as it was about creating opportunity. In the late 1980s, India was a difficult place from which to sell software abroad. Telephone lines were scarce, computers were costly and travel itself could require official permission to obtain foreign exchange. Ashank Desai, founder of Mastek, told Business Standard that the sector had to persuade officials that it needed foreign currency in order to earn foreign currency. S Ramadorai, the former head of Tata Consultancy Services, said foreign clients often knew India more for its animals than its engineering, and that every meeting felt like a test of the country’s credibility as much as of the company’s.

The reforms changed that calculus by easing nearly every constraint that had limited the industry’s growth. The shift from the Foreign Exchange Regulation Act to the Foreign Exchange Management Act in 2000 marked a broader move towards a more permissive regulatory environment, allowing firms to manage overseas operations and foreign currency flows more freely. Capital market liberalisation made it easier to raise money, while the decision to reduce duties on software and technology imports gave companies access to tools and platforms at lower cost. The Software Technology Parks of India scheme allowed exporters to operate from their own premises rather than only from special zones, and it came with tax incentives and dedicated satellite links that became central to the offshore delivery model.

Telecom reform was equally important. Cheaper and better connectivity let Indian firms work with global customers in real time, and it made offshore development commercially viable at scale. At the same time, the education pipeline widened dramatically. Engineering colleges multiplied, pushing annual engineering graduate output from roughly 100,000 in the early 1990s to nearly 1.5 million by 2020. That flow of talent helped build an industry that now directly employs more than 6 million people and anchors major technology clusters in cities such as Bengaluru, Hyderabad and Pune, according to U.S. government trade guidance and other sector assessments.

The sector’s wider economic significance is even clearer in the external accounts. India entered the 1991 crisis with foreign exchange reserves of just $5.8 billion. By FY26, reserves had crossed $691 billion. Not all of that growth came from software, of course; remittances, foreign investment and portfolio inflows all played major roles. But the technology industry became one of the country’s most consistent sources of dollar earnings. RBI data cited by Business Standard show software services exports rising from about $6.3 billion in FY01 to more than $203 billion by FY26, while imports stayed relatively modest. That low import intensity meant most export receipts added directly to India’s foreign exchange stockpile.

The industry’s supporters argue that its importance lies not only in scale but in stability. Indranil Pan, chief economist at YES Bank, told Business Standard that software exports have been a reliable source of dollar inflows and have helped steady India’s external accounts, especially because merchandise exports never matched the same pace. Ramadorai described the sector as one of the most successful development stories in the post-colonial world. Yet the model faces new questions. Critics have long argued that the services boom came at the expense of hardware and manufacturing, and the rise of artificial intelligence is now forcing a fresh debate over whether India’s labour-intensive export model can keep delivering the same returns.