Information Technology and its Role in
India’s Economic Development:
A Review
Nirvikar Singh
Department of Economics, University of California, Santa Cruz
IGIDR Silver Jubilee International Conference on
“Development: Successes and Challenges:
Achieving Economic, Social and Sustainable Progress”
December 1-3, 2012
December 1, 2012
1
Overview

Introduction

IT-BPO Industry

Rural Development

E-Commerce

Manufacturing

E-Governance

Conclusions
December 1, 2012
2
Introduction: Conceptual Issues

Why Information Technology (IT)?



Is IT special in theory?
Or is IT just the dynamic sector of the times?
IT in growth models


As a sector amenable to developing dynamic
comparative advantage
IT as a General Purpose Technology (GPT)




Pervasiveness
Technological dynamism
Innovational complementarities
Complementarities: horizontal and vertical
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Conceptual Issues (contd.)

IT and information

Reduce transaction costs




Improve market efficiency
Improve government efficiency
Improve intra-firm resource allocation
IT and innovation

Combinatorics and feedback loops
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4
Falling Costs of Computing (US$)
Costs of computing
1970
1999
2012
1 Mhz of processing power
7,601
0.17
<0.01
1 megabit of storage
5,257
0.17
<0.01
150,000
0.12
<0.01
1 trillion bits sent
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IT-BPO Industry

Industry components


Software services and products
Business process outsourcing



IT enabled services
Hardware
The story so far




Rapid growth
Upgrading
Diversification
Positive spillovers
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6
IT-BPO Industry (contd.)

Spillovers
 From
software to BPO and ITES
 Into higher education
 National reputation
 Attitudes, goals and expectations


Other sectors, e.g., manufacturing
Individuals
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Rural Development

Is IT a luxury?




Not any more
Rapid, long distance communications a necessity
Of course nutrition, health, sanitation, housing,
basic education are higher priorities
IT can play an enabling role



Reduce transaction costs
Reduce production costs
Improve allocative efficiency
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Rural Development (contd.)

How well have Indian efforts worked?



Digital mobile telephony for voice communications has done well
Other efforts have been less successful
Delivering Internet services to rural India is difficult
precisely because rural India is under-developed




Tightly focused corporate efforts have succeeded the best
Small non-profit efforts require constant subsidies and cannot
scale
Hybrid efforts (public/private-for-profit/private-non-profit) have
also not taken off
Government efforts have had some impact, but suffer from
incentive problems
December 1, 2012
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Rural Development (contd. 2)

Challenges






Scarcity of organizational and managerial skills
Lack of physical infrastructure
Government is simultaneously overbearing and
inefficient
Newness of market
Limitations of existing software applications
Opportunities



Latent demand has been demonstrated
Falling cost of technology hardware
Scaling up to spread fixed costs
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E-Commerce

B2B and B2C

B2B is still very limited, restricted to larger firms

B2C is large in absolute terms, but a very
restricted slice of the economy



Upper income, urban consumers
Travel is by far the biggest segment
Attention economy – time vs. money
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E-Commerce (contd.)

Infrastructure challenges




Market access



Payments systems
Logistics
Broadband
Small urban enterprises
Rural handicrafts producers
Information on opportunities
December 1, 2012
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Manufacturing

Manufacturing sector an underachiever

National Manufacturing Policy wants to change that

Empirical evidence suggests that IT investments
in manufacturing have a high payoff

But actual IT investment is limited – Why?






Management quality
Lack of appropriate products for domestic market
Lack of awareness or knowledge
Infrastructure constraints
Coordination failures
Financial constraints
December 1, 2012
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Manufacturing (contd.)

Where should government policy focus?

Business environment for all manufacturing




Labor laws
Company law
Financial sector reform
IT-specific policies




Tax treatment
Infrastructure
Knowledge dissemination
Standard setting by government
December 1, 2012
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E-Governance

General problems of governance



Two complementary areas for IT as a tool for
improving governance



Corruption
Poor implementation
Internal systems and processes
Citizen-government interfaces
If one has to prioritize, probably the back-end
is more necessary
December 1, 2012
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E-Governance (contd.)

What can IT achieve?





Transparency and monitoring, leading to more
accountability
Reducing transaction costs
Improving responsiveness (another aspect of
accountability)
Better targeting
Indian government policy


Ambitious targets for national e-governance
Some piecemeal improvements
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Conclusions (1)

Theoretical reasons to consider IT as special

Plausible case for giving it attention, even in a
poor economy

IT-BPO (mostly for export) is a continuing
success story

Rural adoption of IT has been a mixed bag

E-commerce is a fledgling sector, but with high
potential
December 1, 2012
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Conclusions (2)



Manufacturing is a critical area for improved
adoption of IT
E-governance has been limited in its success –
need more investment in internal change
Government policy in general has not been
optimal with respect to the role of IT in
development



Investment in physical networks could have a high payoff for the
economy, from top to bottom
Needs to be coupled with better regulation of telecoms
Need a better policy environment for innovation in general
December 1, 2012
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