ICT Investment and Economic Growth in India: An Industry Perspective

Abstract

The role of information and communication technologies (ICT) in driving economic growth has been well-established in the literature. By reducing communication and transaction costs, and improving the quality of capital, ICT helps firms improve their productivity and growth. Given her linguistic and engineering skills, India has been pioneering in ICT exports, in particular, the export of software services since the 1990s. However, there is hardly any attempt to understand how Indian industries have been taking advantage of the massive growth potential of ICT use in their production process, looking into the experiences of different industries. This has been primarily constrained by lack of adequate, disaggregated data on the ICT use by industries. While a few studies have attempted to understand the contribution of ICT to aggregate economic growth, the role of ICT at a detailed industry level is hardly studied in India. This paper is a first attempt to construct ICT investment series for the registered or organised segment of manufacturing industries in India, and one of the first few attempts that have made so far to build such ICT series for the aggregate Indian economy. The study extends the capital asset database in India KLEMS to include ICT investment, i.e. investment in hardware, software and communication equipment, in respect of different manufacturing industries. The paper also provides preliminary estimates of the contribution of ICT capital to growth in the aggregate economy and registered manufacturing sector.