This is the mirror image of the process in the US that funneled talent towards the financial complex, which meant the IT industry had to import talent or outsource the work. A good percentage of the talent came from India, and a lot of the outsourced work went to India. In that environment of easy money flowing into services, product companies found it hard to recruit talent (which the author of the post also alludes to).
This process basically derailed the emergence of product-based IT industry in India. Some of the Indian services giants of today (Wipro and HCL in particular) were product companies originally. They built some innovative products in India (an x86 based Unix well ahead of Linux, an IP concentrator/router for ISPs in early, to quote two examples) in the late 80s/early 90s. But once the 90's boom got underway, they found it far more lucrative to rent out the talent than to build products.
In Economics, it is impossible to argue "what might have been", but I believe the configuration of IT industry in India points to how the bubble massively distorted an industry.
Any links ?
Other than the distortions that 'easy money' introduced, the few startups that tried valiantly to make products never even made it even to the foot notes. Some of these guys were so idealistic that they committed themselves to a non-existent "Indian market". But there is easy money to be made in the US as well.Dharmesh'sixth point about cultural factors might make people uncomfortable, but it's generally true of the IT folks of the last two decades:
"I’ve found Indians to be almost overly practical (in the short-term sense) and not passionate about some of the softer things (like user experience, marketing, branding and other things) which in today’s world are large contributors to future outcomes of software startups. "