Information Technology and its Role in India’s Economic Development: A Review

1. 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

2. Overview • Introduction • IT-BPO Industry • Rural Development • E-Commerce • Manufacturing • E-Governance • Conclusions

3. 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

4. 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

5. Falling Costs of Computing (US$)

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. E-Commerce (contd.) • Infrastructure challenges • Payments systems • Logistics • Broadband • Market access • Small urban enterprises • Rural handicrafts producers • Information on opportunities

13. 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

14. 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

15. E-Governance • General problems of governance • Corruption • Poor implementation • Two complementary areas for IT as a tool for improving governance • Internal systems and processes • Citizen-government interfaces • If one has to prioritize, probably the back-end is more necessary

16. 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

17. 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

18. 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