IT adoption increases employment by 30%

New Delhi

May 7, 2008

India Development Foundation (IDF), Microsoft India and LexisNexis
Butterworths India together have launched a demand study titled 'Waiting to
Connect' that investigates the use of IT in Indian manufacturing units. The
study captures empirical evidence that the IT use by Indian businesses would
lead to greater profitability and employment but due to significant impediments,
the IT adoption remains alarmingly low.

John Atkinson, MD, LexisNexis Butterworths India, while addressing the
gathering said, “We are pleased to be associated with IDF and Microsoft in
launching 'Waiting to Connect', which investigates the use of IT in Indian
manufacturing units and encompass the increasing rates of profits and employment
from technology adoption.” The book is a tangible reminder of LexisNexis
Butterworths' ongoing commitment to delivering high-quality information to
enable knowledge driven professionals to understand the developments in all
emerging fields as well as to facilitate the sharing and dissemination of
knowledge.

Authored by Dr Shubhashis Gangopadhyay, IDF; Dr Manisha Singh IDF; and Dr
Nirvikar Singh, University of California at Santa Cruz, the study provides
evidence on IT penetration fuelling profitability in the Indian economy. The
study delves into unit level economic outcomes and finds that impediments to IT
adoption are significant. According to the authors, “Despite India's IT
export prowess, there is an alarmingly low internal consumption of technology. A
case in point is that about 80 percent of the software produced in this country
is towards export. We have discovered that despite documented evidence proving
the benefits of technology investment in manufacturing, Indian businesses still
have low adoption rates. This is a result of inadequate access to power, lack of
human skills training, general hesitancy to invest due to financing concerns,
and low momentum among other industry players.”

The study provides evidence that all businesses, small and large, see gains
to profitability from technology adoption. While large units not using IT were
found to have a 10.4 percent CAGR of operating profit, large businesses using IT
had a 3.1 percent CAGR, on an average. In a measure of small businesses, non-IT
using factories had a -4.5 percent CAGR, while IT using small units had a 1.2
percent increase in operating profit. Smaller IT using units show a greater
positive business impact of IT use than large enterprises in terms of
productivity. The CAGR is 3.5 percent for IT using small units, whereas large
units using IT have a CAGR of -5.9 percent, each being more than that for non-IT
using small and large units.

It was also observed that small businesses, with more to gain from technology
deployment, are less likely to adopt technology. Ratan Tata, Chairman, Tata
Group said in the Foreword of the book, “Small factories and businesses, with
statistically more to gain from technology adoption, are less likely to adopt
technology. For example, while 54 percent of factories employing less than 50
workers had no computerization in 2003-04, 37 percent of those employing between
50 to 100 workers were not computerized. Given the fact that 85 percent of
factories in India are small, we need to see increased IT investment in them to
move overall levels of productivity forward.”

The study also provides evidence that investment in IT makes Indian companies
larger employers and better wage payers with less working hours. Contrary to the
perception that Indian companies' use of IT is labor substituting; the study
establishes that IT usage increases employment. Demand for less skilled and
skilled workers increases 30 and 35 percent respectively with IT use. From a
policy perspective, this finding has important implications for government. More
needs to be done to work with the unions and share information on the benefits
of technology to employment. Further, the study recommends that workforce
development programs aggressively foster IT skills in India. Lack of qualified
human resources is one of the major limitations cited by companies in their
decision against technology adoption.

With 20 percent of respondents of a primary survey conducted for the study
indicating that government initiatives promote their technology use, clearly
there is a role for government. The overriding implication is that government
efforts to promote use of technology throughout industry can have long-term
positive impacts on the success of Indian industry and ultimately on the economy
of India. The study recommends that the government needs to push an emphasis on
technology adoption. Greater deployment of IT by the government itself will also
lead to greater revenue collection and better, more efficient service.

The book recommends a number of steps towards building of a strong IT
ecosystem, including technology cost reduction, training workers, local software
content development relevant to India; intellectual property protection and
market driven interoperability and multiple standards development approaches.

Present at the launch Dr Vijay Kelkar, Chairman, IDF said, “There are clear
policy implications resulting from the data. The overriding implication is that
government efforts to promote the use of technology throughout industry can have
long-term positive impacts on the success of Indian industry and ultimately on
the economy of India. The government should take action to address these
concerns through a series of balanced policy initiatives that embrace principles
allowing the market to flourish, but providing incentives for focus on growth of
an industry that promotes domestic demand. Further, the government has a role to
play in directly stimulating demand among Indian firms.”