IT adoption increases employment by 30%

CIOL Bureau
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NEW DELHI, INDIA: 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 per cent 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 per cent CAGR of operating profit, large businesses using IT had a 3.1 per cent CAGR, on an average.

In a measure of small businesses, non-IT using factories had a -4.5 per cent CAGR, while IT using small units had a 1.2 per cent 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 per cent for IT using small units, whereas large units using IT have a CAGR of -5.9 per cent, 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 per cent of those employing between 50 to 100 workers were not computerized. Given the fact that 85 per cent 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 per cent 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 per cent 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.”