During the end of 80s and in the initial years of 90s, India was transformed into a neverbefore country where there were jobs everywhere and infrastructure development were seen in every city. And due to liberalisation, IT MNCs entered in India.
During that period only Indians were started to rule the software industry. Not only MNCs but Indian software giants like INFOSYS, Wipro, TCS, Satyam, HCL were established. After seeing the success of these IT giants so many mushroom companies were started and many of them are successful till now.
While MNC like Microsoft, Intel, HP, Apple, Juniper, IBM ... were doing their main product development in their headquarters, they outsourced the service jobs or testing jobs to Indians. And Indian IT companies were getting outsourced jobs or service oriented or secondary jobs. So they started to concentrate on service industry.
Moreover product development needs more money for research and development . But in service industry there is no such requirements.
Product industry has more competitions than service industry. If Indian IT companies develop any software or hardware product or electronic product, they have to compete with Microsoft, Intel, HP or even Google. So more risk.
And one should do the job which suits one. India is the most preferred IT service destination, because of our English knowledge and less labour cost. So Indian IT companies should make hay while the sun shines.