1. December 1, 20121 Information Technology and its Role in Indias 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. December 1, 20122 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 December 1, 20123

4. 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$) December 1, 20125

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 December 1, 20126

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 December 1, 20127

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 December 1, 20128

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 December 1, 20129

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 December 1, 201210

11. December 1, 201211 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. December 1, 201212 E-Commerce (contd.) Infrastructure challenges Payments systems Logistics Broadband Market access Small urban enterprises Rural handicrafts producers Information on opportunities

13. December 1, 201213 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 December 1, 201214

15. E-Governance December 1, 201215 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.) December 1, 201216 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) December 1, 201217 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 December 1, 201218