IT Services in the Indian Economy

Abstract

Global information technology (IT) spending has seen phenomenal increases over the last decade and a half. Amidst claims of increased productivity through greater IT usage in production processes, India, like some of the other developing countries, has adopted policies to facilitate the growth of the IT services industry. Such policies are adopted under the belief that the IT sector would also increase productivity of the economy through linkages, thereby facilitating development. In this article, input–output (IO) analysis for India reveals that both backward and forward linkages between the IT sector and other sectors of the economy have been stagnant and declining, respectively, over time. Although IT usage in terms of value added in a given sector has increased, it is much lower than in other developing and industrialized countries. I conclude by discussing some policy directions to improve India’s IT integration with the economy and improve domestic productivity, linking it with the national manufacturing policy, the recent ‘Make in India’ initiative and other policies of the Indian government which help ease doing business in India and development through usage of IT services.