While there is an increasing realization of the potential that IT offers for human welfare, IT-induced productivity and growth are confined to the developed world. It is argued that even though the international digital divide is a reality, there are certain specific characteristics of the new technology that leave scope for mitigating, if not totally bridging, the gap when appropriate policies are in place. During the last decade India has attempted to profit from the growth of ICT through export-oriented growth strategy, and the issue of ICT in development has not received the attention it deserves. The paper highlights the perils of the strategy followed by India and underlines the need to focus on development through ICT. The study shows that the unprecedented export performance of India’s software has to be seen in the context of the national system of innovation that evolved during the last five decades when the state played a proactive role. Also, the country’s high export growth cannot be attributed entirely to the marketoriented policies of the 1990s. Higher growth rates in exports notwithstanding, it is shown that net export earnings have been much lower. While the low net export earnings reduced the possibility of real appreciation, the boom in the IT sector is likely to have had an adverse influence, at least in the short run, on other sectors competing for skilled manpower because of the resource movement effect. Thus while an IT-induced development strategy could have been instrumental in enhancing efficiency, competitiveness and growth, export-oriented IT growth strategy seems to have enabled other countries to become more efficient and competitive. The export-oriented growth strategy also had an adverse effect on the innovative performance of firms. The findings of the paper tend to underscore the need to recognize the complementary role of the domestic market in promoting innovation and exports on the one hand and IT-induced productivity, competitiveness and growth on the other. Hence there is need for a policy that focuses on ICT for development. This in turn calls for comprehending the social marginal product of a dollar worth of IT exports vis-à-vis its domestic consumption