Using technology to boost competitiveness

India has made remarkable strides in the last two decades or so in deregulating, liberalising and diversifying its economy, emerging as one of the fastest growing markets in the world and a global economic power competing successfully in the international arena in sectors as diverse as information technology (IT) and pharmaceuticals. In particular, information and communication technologies (ICTs) have been instrumental both as a target sector and an enabling infrastructure in this process.

Not only the country has affirmed itself as a world leader in IT software and IT-enabled services-business process outsourcing (ITeS-BPO), but ICTs have facilitated productivity and efficiency gains industry-wide and have been increasingly prioritised by the government in its development strategy notably as a way to improve access to and the quality of basic services for citizens.

However, the positive developments highlighted above have neither managed to fully bridge the important economic, social and digital divide between urban and rural areas or to significantly reduce extreme poverty.

The country still faces daunting challenges in making growth and development more inclusive, lagging behind China and many comparable emerging economies in several measures of economic and social performance.

In 2009, its GDP per capita was just $1,000, similar to that of Viet­nam but half of Indonesia’s, and less than a third of China’s. As of 2005, some 42 per cent of its population — as opposed to 16 per cent in China — still lived below the extreme poverty line of $1.25 a day.

Although this represented a reduction from 54 per cent in 1988, in absolute terms the number of extremely poor people had actually increased. Life expectancy in India is currently 64 years, eight years less than in China, while the infant mortality rate is three times China’s rate.

The literacy rate among the adult population is barely 60 per cent, whereas China, Indonesia, and Vietnam boast rates of 90 per cent or more.

ICTs can and must play a major role in addressing these challenges, by fostering a more inclusive and egalitarian society, acting as a growth catalyst across economic sectors and leveraging India’s expanding domestic market and its large English speaking and IT-skilled talent pool to further develop a world class IT services and manufacturing industry.

The World Economic Forum’s networked readiness index finds that although the country ranked a fairly satisfactory 43rd out of 134 economies in 2009 for its capacity to leverage ICTs for increased development, it still trailed behind relevant competitors, including China (ranked 37th), in most of the dimensions measured by the index.

In particular, notwithstanding the high level of individual preparation for using ICTs coupled with fairly affordable access costs, individual penetration remains extremely low by international standards, with the majority of citizens not yet benefiting from ICT advances in their daily activities and transactions. For the country to fully tap ICTs’ potential for enhanced competitiveness and more inclusive growth, a number of significant impediments need to be tackled.

The poor quality and underdevelopment of hard infrastructure, including electricity, transport and fixed telephony networks, remain a crucial bottleneck for a more widespread and diffused usage of ICTs and stand in the way of further productivity increases, manufacturing development and foreign investment. This ultimately restrains the country’s prospects for increased growth and prosperity for all Indians going forward.

At the same time, despite the major market reforms of the nineties, the regulatory environment for doing business needs to be enhanced by further cutting red tape and government inefficiencies as well as enhancing public governance.

Such improvements would result in a more favourable and predictable environment for both foreign and domestic investment. In particular, additional foreign investment could engender significant positive externalities in terms of job creation, technology development, and management skills, among other elements.

If the government’s coherent vision of the importance of ICTs bodes well for fulfilling the country’s enormous potential going into the future, it is essential for it to be matched by a parallel commitment and effort on the part of the business sector and civil society at large, as the experience of the countries which have been most successful in using ICTs as a lever to leapfrog to higher stages of development has shown.

Irene Mia is a senior economist with the global competitiveness programme at the WEF

— By arrangement with the World Economic Forum