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IT: Boost or bust

By Devangshu Datta
March 29, 2003 14:34 IST
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Indian export growth smoked last year, and that was about the only saving grace in an entirely forgettable year for the domestic economy. This year, domestic growth might improve a little, assuming that the monsoon isn't poor and election year equations don't lead to bad economics across more than a dozen states.

But continuing export growth is unlikely. The global economy continues to be weak and the Iraq invasion is unlikely to be a tonic. Both IT and ITES will be hit especially hard if the global economy continues to tank.

Both sectors are highly dependent on global recovery for high performances. And there is evidence of "non-tariff" barriers as well, in several incidents that took place in the last year.

The USA is becoming more and more protectionist and isolationist. That translates into measures like the New Jersey Bill which seeks to restrict the scope of Indian business. The Indian IT industry hasn't managed to open up alternate markets eitherĀ -- business interests in Europe, Japan and the Far East are minimal.

After being announced with much fanfare more than a year ago during the visit of a senior Chinese statesman, Infosys's proposed centre in Shanghai hasn't got off the ground. The MD of Polaris was arrested in Indonesia last year for absurd reasons.

Hundreds of Indian IT professionals were kicked around much more recently by the Malaysian law enforcement authorities. So there are definite problems expanding business in the Far East.

Clearly, the era of painless rapid IT growth abroad is over. The Indian domestic market isn't growing quickly either. Without huge investments in basic infrastructure and sensible government policies, the growth rate here isn't likely to accelerate much in the next couple of years.

IT is an extremely cyclical industry and it has gone through several previous slumps. However, it has never been so important as an economic driver. Practically all the global productivity gains of the last decade can be attributed to IT-induction. There isn't much that can be done about the global environment. After the invasion of Iraq, events will presumably take their course.

But an expansion of domestic IT investments could compensate to some extent for the slowdown abroad. IT has already been a huge positive force for change and prosperity here. This was fortuitous. For a critical period of more than a decade, the Indian government failed to realise its potential and ignored it. This allowed it to grow quickly because IT didn't suffer from the worst excesses of licensing.

However, the industry so obviously became a cash cow over the past decade, it can scarcely escape the tender attentions of government in the future. And indeed, further growth must come through government intervention. There are two areas where government could drive growth. One is by simply investing in IT itself. The other is by kicking telecom infrastructure into overdrive.

If every government department across every state is wired up, that will mean massive investments in domestic IT. It will also mean quantum gains in efficiency across the economic spectrum. If telecom infrastructure is improved from current teledensity of five to around 15, there will be a further beneficial effect.

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