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Creating engines for future growth

July 16, 2009

POST-1991, India’s economic landscape has witnessed huge changes. From 1.2% and 3% in the two earlier decades, the per capita GDP growth has increased to about 4% in the decade after liberalisation (1992-2002) and to 6% in the last six years. A more personal and human way of appreciating these figures is to look at the time required to double the income of an average Indian: this decreased from 60 years (a full life-time) in the 1970s to 12 years now. Another facet of economic change has been the emergence of yetsmall but rapidly growing sectors based on knowledge and technology. A particularly visible example is the information and communication technology (ICT) sector.

Through the last two decades, the Indian IT software and services industry has seen explosive growth. An industry that was seen as a natural monopoly of developed countries was given a make-over with India’s innovative and disruptive business model — outsourcing with a combination of on-site and off-shore work — low costs and an abundance of high-quality talent. While India is but a bit player yet in the overall IT industry, it is firmly centre-stage as far as cross-border outsourcing is concerned: more than half of all inter-country outsourcing comes to India. As a result, India’s IT-BPO industry has grown from $5 billion in 2000 to about $60 billion in 2009. It is India’s biggest earner of forex, with exports of almost $50 billion. Equally important, it provides direct employment to some two million and indirect employment to almost four times that number.

The communications sector too has seen phenomenal growth in the country. FM radio, cable TV and DTH are basically developments of the last two decades. Together, they have revolutionised communications. Radio, considered a terminal case, has seen a huge revival — thanks to FM, privatisation and competition. Imaginative and interactive programme formats have contributed to radio’s resurgence — as have traffic jams. As for the profligate choice of TV channels, “drinking from the fire-hose” would probably be the most apt description — especially for the pre-1990s generation, which grew up on one TV channel. Even this impressive growth pales before what has happened in mobile communication, where we have moved from almost nothing to over 425 million mobiles in the space of a dozen years.

Already the single most widely owned item in India, it is probably but five years before mobiles cross the billion mark; an annual growth percentage in the 20s is taken for granted. The IT-BPO industry has grown at an unbelievable 33% annual compounded rate over the last 10 years, even as the base has grown. Projections in a NASSCOM-McKinsey study indicate that the industry could be as large as $360 billion in 2020, with exports of over $300 billion, if we play our cards right. The point of this piece, though, is not the huge success of India’s ICT sector; it is the lessons that might be drawn and the factors that may be emulated.

Despite the many constraints — and intense global competition in the case of IT-BPO — the ICT sector has maintained a track-record of hyper-growth. While it is necessary to discuss what policy and other initiatives are needed to sustain this growth, it is more interesting and important to understand how one might identify and nurture other such opportunities. Which areas can provide a stimulus to development through a 30+% annual growth rate, while creating jobs and secondary benefits? What public policy measures will help in locating and developing such opportunities?

THE present global economic situation aside, if the country is to have a sustained double digit growth in GDP, it will need high-growth sectors that scale rapidly. Ideally, these new opportunities should also be employment-intensive, so as to absorb the growing numbers in the working-age group and surplus labour from the agricultural sector.

It is not necessarily a matter of finding such opportunities, like locating a gold mine: the opportunity may have to be created. A more appropriate analogy is planting seeds — not one, but many, and of different varieties — in the right soil, at the right time, and then nurturing them in the expectation that at least one will grow and bear fruit that can be regularly harvested. There are many contenders vying to become the most appropriate “seed”: bio-technology, renewable energy, healthcare, education, housing, value-added services on mobile phones, travel and tourism services. Any of these could be the “next IT sector” in terms of growth and potential size; so could many others. While bets on which ones win are best left to investors and entrepreneurs, there is a role for government.

Let us not forget that the genesis of India’s IT success story lies in the IITs and engineering colleges, in English-based higher education, in the special attention given to technology-based industry and R&D: all part of the broad Nehruvian vision, and all initiated many decades ago. In later years, government policies on low/no customs duty on software, tax exemption for export profits, foreign investments in IT sector, and partnership with the private sector, all contributed greatly to the growth of this sector.

Therefore, in looking for sunrise sectors, the government must not be merely a facilitator or partner, but often an initiator. It cannot abdicate this responsibility and pass it on to the private sector. The government must look ahead — not to next year or the next election, but to the next generation.

Most new opportunities will tend to be technology-intensive; hence, investment in R&D is the key to creating these new growth industries. Many will depend upon the cross-domain use of technology (e.g., ICT in healthcare or education); therefore, rigid regulatory and bureaucratic boundaries will have to be dismantled. Tax and regulatory ambience conducive to risk-taking — by entrepreneurs and funders — must be created. Only then can we hope to create more high-growth sectors that act as the engines for development.


From → Growth

One Comment
  1. Very good Article Sir. At least your Aticle should motiviate politians and other stakehodlers and something positive should happen.

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