Efficiency of the Information and Technology Sector of India and Its Relevance to Indian Economic Growth

Abstract

This article investigates the contribution of the service sector, especially the information and communication services to Indian Economic growth using a growth accounting analysis and data from the CMIE database. The results suggest that the mean Pure Technical Efficiency (PTE) score was about 0.6, indicating thereby that companies are 40 per cent pure technical inefficient. Pure technical inefficiency in the Indian software industry may be attributed to the poor infrastructure, mainly power supply. Infrastructure bottlenecks and frequent power cut lead to delays and productivity loss in the silicon city of India, that is, Bengaluru. Percentage of efficient companies in terms of PTE scores was lowest in the year 2003–04 (20.83 per cent) and highest in the year 2005–06 (40.28 per cent). Percentage of efficient companies in PTE score followed a cyclical pattern as well. Indian software companies are becoming more scale inefficient over the years. It was observed that the private Indian (PI) companies have relatively high Overall Technical Efficiency (OTE) score as compared to private foreign (PF) and group-owned companies, which may be due to external environmental factors that have a bearing on OTE of the companies. JEL Classification: O52, J24, L80, L84