IT adoption increases profits by 30pc IDF

IT adoption increases profits by 30pc: IDF

Current consumption of technology by Indian industry said to be alarmingly low

Tuesday, May 06, 2008

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NEW DELHI, INDIA: The India Development Foundation, Microsoft India Pvt Ltd and LexisNexis Butterworths India have launched a demand study titled 'Waiting to Connect' that investigates the use of IT in Indian manufacturing units.

The study captures strong empirical evidence that IT use by Indian businesses would lead to greater profitability and employment but due to significant impediments, the IT adoption remains alarmingly low.

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 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."

This study is authored by, Dr. Shubhashis Gangopadhyay, Dr. Manisha Singh (both from IDF), and Dr. Nirvikar Singh (University of California at Santa Cruz), the book provides evidence on IT penetration fuelling profitability in the Indian Economy. The study delves more deeply into unit level economic outcomes and finds that impediments to IT adoption are significant.

The study uses ASI data and 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, IT-using large businesses had a 3.1 percent CAGR, on 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.

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