|
Business
Who benefits from the IT revolution
|
Instead of being carried away by the liberal compliment showered on India by the agents of developed countries as a ``Major IT player'', it is time that we do our homework — comprehend the potential return from a dollar worth of IT export vis-a-vis its local consumption, says K. J. Joseph.
|
BY AUGMENTING the process of information exchange and reducing the transaction cost, the information communication technology (ICT) is pregnant with a wide array of opportunities for enhanced efficiency, productivity, competitiveness and growth in all spheres of human activity, both in developing and developed countries. In fact, it may not be an exaggeration to state that we are yet to fully comprehend the manifold ways in which IT could contribute towards human welfare.
While there is hardly any doubt on the potential that IT offers for the human welfare enhancement, the crucial question is how are the benefits actually being distributed at present? The World Economic Outlook published by the International Monetary Fund in October provides some insights which should be an eye opener not only for the policymakers but also for different actors involved in India's information communication technology sector.
In principle, the benefits of technological revolution accrue to owners (in the form of higher profits), labour (through higher wages) or users (through lower prices). In the IT revolution, the IMF study notes, profits and wages have risen somewhat, but these changes are small relative to sharp fall in the relative prices of IT goods and services. This suggests that IT using countries tend to benefit somewhat more than the IT producing countries.
In a context of falling prices of IT hardware, software and communication equipment, the extent of welfare gains can be quantified by estimating the consumer surplus. (The term consumer surplus refers to the difference between the price that the consumer actually pays over what he was willing to pay.) Such an exercise carried out by the IMF staff using panel data for a sample of 41 countries over 1992-99 has shown that the estimated increase in consumer surplus is quite large, already accounting to several percentage points of GDP.
The observed gain in consumer surplus depends not only on the total amount of IT spending but also on the composition of IT spending. The countries with largest gain in consumer surplus (greater than 3.5 per cent of GDP) are found to be the U.S., the U.K., Singapore, Australia and New Zealand. No wonder, being a major producer and poor consumer, India has been excluded from the sample. How to account for the relatively low welfare gains for the IT producers? There are at least two forces in operation. To begin with there is the deteriorating terms of trade. This arises when a country is engaged in the export of commodities and services with falling prices and import of goods and services that are rapidly becoming more expensive. This is well illustrated by the experience with textile production in the industrial revolution in the U.K., where about half of the welfare gains were exported through terms of trade losses.
The second and perhaps more important factor in the Indian context is the resource movement effect, a term used in the context of Dutch disease economics. If a sector in an economy experiences export boom and increased profitability, like IT in India at present, it will be able to pay wages higher than the going market rate. This in turn attracts the skilled labour from other sectors to the IT sector and would bid up the wage rate in general. While the booming sector, given the export market, may not be adversely affected, at least in the short run, all the other sectors that compete for the skilled labour would experience a rise in the cost of production and a resultant decline in competitiveness and growth. This is termed as the resource movement effect. There is reason to believe that in the context of the IT boom in India both forces outlined above are in operation. More research is called for to quantify the magnitude of these effects.
In the recent past, information technology in India has created much euphoria and no industry in India has ever received so much media attention. The substantive basis for the hype appears to be the unprecedented growth in the export of software, which recorded an annual compound growth rate of over 50 per cent in the last decade. To be fair, there is hardly any item in the Indian export basket that has shown such phenomenal growth rates in export in a sustained manner for such a long time. It is also a matter of pride that about 300 Fortune 500 companies have out-sourced their software requirements from India. Based on the past trends, an ambitious export target of the order of $50 billion has been set and all out efforts are being made, including all possible exemptions and subsidies, to achieve this target by the year 2008. With the growing stagnation in the U.S., the prime market for India's IT exports, the industry is frantically trying to diversify the export destinations and countries like Japan and Australia are identified as new avenues.
What does all these indicate? We are contented with being in the group of losers by choice and hardly any notable attempt is being made to diffuse the IT into different sectors of our economy so that we are able to move along the continuum of losers (producers) to gainers (consumers). Being a loser for some time is understandable but being a loser forever appears to be our agenda. By becoming a major exporter of IT we are essentially facilitating other countries to reap the benefits of IT without addressing our own problems.
Here we must reconcile the fact that IT is not a final good but a technology. How do the developed economies in general behave when it comes to the export of technologies which they develop? Do they reap the benefit first or do they liberally export it to others? As a matter of fact, hardly any technology is made available when it is in the early stage of the life cycle. In the later stage, as the technology matures, it might be exported by imposing all the possible restrictions.
Hence, instead of being carried away by the liberal compliment showered on India by the agents of developed countries as a``Major IT player", it is time that we do our homework — comprehend the potential return from a dollar worth of IT export vis-à-vis its local consumption. If our IT strategy is guided by such realistic analysis and not by causal observation and common sense, significant changes will have to be made in our IT strategy.
Liberal exemptions and subsidies, which are today directed towards software exports, will have to find their way towards promoting IT diffusion in the domestic economy. This will essentially mean strategic interventions to promote IT consumption. The prophet of the market who is profit motivated will not do this job. This is not to suggest that we should not encourage IT exports. But given the catalytic role of the domestic market in promoting exports, any strategy which promote IT consumption will also act as a boost to IT exports. Thus the strategy needs to be one of walking on two legs rather than hopping on one leg and finally collapsing. Incidentally, our own empirical analysis of the innovative performance of Indian IT firms in terms of labour productivity has shown that export orientation, if any, has a dampening effect on the innovative performance of firms. If this evidence, alone with the evidence presented by the IMF report, is any indication, it is left for our policy makers to decide to be in the winning or losing group. Hence, instead of ceremonial declarations, concerted effort needs to be made to increase the rate of IT diffusion so that the intra-national digital divide, which is as acute as the international digital divide, is mitigated, if not bridged.
(The author is on the faculty of the Centre for Development Studies, Thiruvananthapuram.)
Send this article to Friends by
E-Mail
Business
|
