'IT investments better tool for GDP growth'

The National Association of Software and Services Companies (Nasscom), the premier trade body and the chamber of commerce for the IT software and services industry, in its recent report has highlighted that investments in the information technology (IT) sector is a strategic tool for accelerating economic growth.

These findings are part of a report on "Information Technology in the Economy of India," conducted by Sallstrom Consulting & Nathan Associates Inc and supported by Microsoft Corporation India Pvt Ltd.

The report highlights the fact that investments in IT sector continue to be a major driver of economic growth across 30 countries examined for the report.

While providing a comparative snapshot of where India stands vis-...-vis other countries in the region on the IT investments scale, it adds that only 3.5 per cent of the total economic capital in India is in hardware and software.

This is the lowest among the average IT capital share of 5.7 per cent among the other eight countries that are underinvested in IT. While among the 21 economies identified as adequately invested in IT, the average IT capital share is 23.9 per cent.

Nasscom president Kiran Karnik said in the release, "The private sector, government and academia in the country have spent significant time and resources focusing on developing the export potential of India's software industry. Given that great success, we know with time and attention, it is possible to grow the domestic industry and increase domestic IT uptake. Through our exports, we have helped the rest of the world reap the benefits of IT investments. Now it is time to bring those benefits to India."

The key inference of the report is that in economies invested in IT capital, a 10 per cent increase in IT capital increases its gross domestic product (GDP) by 3.6 per cent while a 10 per cent increase in labour hours increases GDP by four per cent.

In contrast, in economies underinvested in IT capital, a 10 per cent increase in IT capital pushes up GDP by only 1.6 per cent; a 10 per cent increase in labour hours has no statistically significant impact on GDP.

As IT capital deepens in an economy, it adds more to GDP, and more importantly, labour becomes more productive.

The release adds that for India's economy to become invested in IT capital, the government must develop and implement policies that promote investment in IT by businesses, households, educational institutions and the government itself.

Policies should focus on promotion of software asset investment in India. The seven policy areas which will be key to IT capital deepening here include positive government enablement, trade and tax policy reforms, access to finance capital for domestically focused IT companies, research and development, intellectual property protection, investments in improving human capital and physical IT and communications infrastructure.

Other findings highlighted in the report are that in addition to being underinvested in IT capital, the existing IT capital in India is not widely dispersed.

Penetration of personal computers (PCs) lags all economies examined with a rate of only seven PCs per 1,000 people - equivalent to only one-fourth of the PC penetration rate in China and only approximately one half the PC penetration rate in neighboring Sri Lanka.

Internet uptake, explains the report, in India is the lowest with only 16 Internet users per 1,000 people, an uptake rate equivalent to less than 35 per cent of China.

The report states that productivity in India is lower than three-fourths the average rate in other economies underinvested in IT. When examining real GDP per capita, India lags China and Sri Lanka but leads Bangladesh and Pakistan.