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New Delhi, April 28

THE country's IT spend is the lowest in relative terms among a list of 30 countries studied by National Association of Software and Service Companies (Nasscom).

This, in turn, is leading to lower direct contributions to GDP and insignificant labour contributions to GDP, according to the Nasscom report. More revealing is the fact that in terms of domestic IT investment, India ranks lower than countries such as Colombia, Chile and Turkey, which otherwise figure nowhere in the global IT radar.

According to the findings of `Information Technology in the Economy of India' report, conducted by Sallstrom Consulting & Nathan Associates Inc and supported by Microsoft Corporation India, a mere 3.5 per cent of total economic capital in India is hardware and software. "This is the lowest vis-a-vis the average IT capital share of 5.7 per cent among the other eight countries that are underinvested in IT. While among the 21 economies identified as invested in IT, the average IT capital share is 23.9 per cent," said the report released by the Deputy Chairman, Planning Commission, Mr Montek Singh Ahluwalia.

The UK topped the list, followed by the US. Other countries evaluated include Ireland, Sweden, Netherlands, Belgium, Germany, Austria, Spain, Poland, the Philippines, Argentina, Canada, Italy and France.

The report inferred that in economies invested in IT capital, a 10 per cent increase in IT capital increases GDP 3.6 per cent, while a 10 per cent increase in labour hours increases GDP four per cent. In contrast, in economies such as India that are underinvested in IT capital, a 10 per cent increase in IT capital increases GDP only 1.6 per cent; a 10 per cent increase in labour hours has no statistically significant impact on GDP. The conclusion as IT capital deepens in an economy, it adds more to GDP and labour becomes more productive.

In addition, the existing IT capital in India was not found to be widely dispersed. "One cost of being underinvested in IT capital is slower economic growth in India. Throughout economies invested in IT capital, IT industries (producing and using combined) contribute between 28 per cent and 57 per cent to real growth in GDP. More important, in most of these economies the contribution of IT using industries is stronger than the contribution of IT producing industries. Further, productivity in India is lower than three-fourths the average rate in other economies underinvested in IT. When examining the real GDP per capita, India lags behind China and Sri Lanka, but leads Bangladesh and Pakistan," the report said.

The report points out that policy makers needed to borrow from the success of the commercially based software export sector.

(This article was published in the Business Line print edition dated April 29, 2005)
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