IT adoption increases profits by 30pc: IDF

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.

It was also observed that small businesses, with more to gain from technology deployment, are less likely to adopt technology. Ratan Tata, Chairman of the Tata Group, says 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 computerisation in 2003-04, 37 percent of those employing more than 50 workers but less than 100 workers were not computerised. Given 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, using rigorous analysis, also provides evidence that investment in information technology makes Indian companies larger employers and better wage payers with less working hours. Contrary to the perception that Indian companies’ use of IT is labour substituting; the study establishes that IT usage increases employment.

Demand for less skilled and skilled workers increases 30 percent 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 programmes 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.

Addressing the esteemed guests present at the occasion, John Atkinson, Managing Director, LexisNexis Butterworths India, said: “We are pleased to be associated with IDF and Microsoft in launching ‘Waiting to Connect’, which investigates the use of information technology 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.

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

One of the important recommendations of the study is the clear need for interoperability arising from an increasingly heterogeneous IT environment. Elaborating on this need, Ravi Venkatesan, Chairman – Microsoft India, said: “In line with the Indian diversity, there is clearly a need to ensure cohesion and interoperability among various IT units. Given the complex and rapidly changing nature of the IT sector – indeed its hallmark is innovation – it is essential that we continue supporting technology choice, empowering both businesses and markets to pick what best suits their needs.”

Dr. Vijay Kelkar, Chairman – IDF, added: “There are clear policy implications resulting from the data. 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 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.”