Towards a New Indian Model of ICT-Led Growth and Development

Directed by Columbia economists Jeffrey Sachs and Nirupam Bajpai, this three-year project at CSD is being undertaken in collaboration with The Energy and Resources Institute (TERI), New Delhi. It will bring together cutting-edge technologists, macroeconomists, financiers, and public officials to examine the potential for a new ICT-led model of growth in India. The ultimate purposes will be to understand the role of ICT in India’s future economic growth and to make recommendations for India’s continued global leadership in ICT-based development.

India is using Information and Communication Technologies (ICTs) to leapfrog economic development in key sectors: health, education, infrastructure, finance, agriculture, manufacturing, and perhaps most important, governance. The national Aadhaar program is globally admired. Demonetization aims to spur the transformation to an e-payments system. ICTs are being used to deliver critical goods and services to hundreds of millions of Indians.

The role of ICTs in a new model of economic growth and structural change, however, requires a deep and thorough macroeconomic analysis. Will India truly forge a new path to development, for example bypassing a period of further heavy industrialization? Will the patterns of national income, including the distribution of industries, incomes, and wealth, be strongly affected by the ICT revolution? Can ICTs be used to create new high-quality, low-cost services in health, education, and infrastructure, thereby enabling India to leapfrog in the development process? Can ICTs help to reconcile the challenges of economic growth on the one hand and a low-carbon energy system on the other?

We believe that ICTs indeed offer India new and important pathways to sustainable development, including services-led growth, the decarbonization of energy, vastly improved education, and others. The powerful ICT vision frequently expressed by Prime Minister Narendra Modi and cogently described in Rebooting India (Nilekani and Shah, 2015) is on its way to realization. Yet we also believe that the potential contributions and options for ICTs are still only partially understood. For example, which aspects of ICT will be most important? Business-to-business and business-to-consumers e-commerce? ICT-enabled public services? Artificial intelligence and robotics? Social networks and social media? E-payments and e-banking? The Internet of Things?

Directed by Columbia economists, Jeffrey Sachs and Nirupam Bajpai, this three-year project at CSD is being undertaken in collaboration with The Energy and Resources Institute (TERI), New Delhi. It will bring together cutting-edge technologists, macroeconomists, financiers, and public officials to examine the potential for a new ICT-led model of growth in India. The ultimate purposes will be to understand the role of ICT in India’s future economic growth and to make recommendations for India’s continued global leadership in ICT-based development.

Background: Digitization, Demonetization and the Macroeconomy

In July 2015, Prime Minister Modi launched the Digital India Program, which includes plans to connect rural areas with high-speed Internet networks. This is the largest program of its kind under what we call “ICT for All”. We refer to “ICT for All” as platforms, which leverage technology and a shared digital infrastructure that enables open and affordable access to scarce resources as public goods.

Digital India Program’s three key components include: the creation of digital infrastructure; delivery of services digitally and digital literacy. In December 2015, the government expanded the program, launching new initiatives and broadening the scope of existing ones, to make more services accessible to the masses.

The initiatives launched under the Digital India program include projects in the areas of digital infrastructure, digital empowerment, on-demand government services and promotion of industry. Under the program, the government plans to provide government services online, expand Internet connectivity to rural areas and boost manufacturing of electronic goods in the country. Work is also underway on the concept of digital villages - rural areas that will have telemedicine facilities, virtual classes and solar power-based Wi-Fi hot spots.

Though outsourcing of manufacturing operations has proved itself to be a time-tested and successful phenomenon, outsourcing of services was never considered to be feasible until the early1990s. It was widely assumed that good quality services could not be sourced from developing countries, and also that the technology needed for such operations was not at hand. Services were considered far too personalized and required face-to-face interaction, or at least geographical proximity, between the recipient and the provider.

The pioneers of outsourcing took the leap in this direction in the late 1980s and early 1990s, a trend which would see a huge surge in outsourcing activities across the globe in the late1990s by when the proven success of offshore outsourcing of software development and maintenance, global corporations began to explore the possibility of outsourcing both non-core and critical core tasks and processes to lower cost locations in Asia. And the major candidate countries were the same as those popular for IT outsourcing: India, Ireland and Philippines.

Countries enjoying the demographic dividend, high rates of urbanization (smart urbanization is also associated with structural transformation that shifts people and resources from traditional to modern sectors, be they in manufacturing or services) can sustain service-led growth because there is enormous space for catching up and convergence. Nevertheless, it is tricky to identify the best growth escalators for the latecomers to development, as there is still so much more that we still do not know and understand.

In an unprecedented move, Prime Minister Modi announced on November 8, 2016 that the government had decided to demonetize large currency bills of INR 1,000/- and 500/-. In absolute terms, such bills valued at INR15.4 trillion, constituted 86.9 percent of the value of total currency in circulation.

The consequences have been heatedly debated within India and internationally since that time. There is a general consensus around the world of the importance and utility of moving to e-payments. Yet the potential of India to do so in short order is still to be proven, and the timing, costs, and growth consequences of the best ways to move to e-payments remain critical areas for research and policy analysis.

Today, we believe, India is presented itself with an incredible opportunity to leapfrog into a digital economy wherein an overwhelming proportion of the financial transactions can be digital. While this may seem to be an over-ambitious goal, however, given the various IT platforms that have already been set-up in the country along with over a billion citizens of India having Aadhaar cards, we believe that India has embarked upon a journey that can and should shortly revolutionize the financial sector landscape. Undoubtedly, the scale of the challenge is immense, but so too is India’s capacity, we believe. If the process is carried out diligently, India can swiftly move from being data poor to data rich with a high degree of financial inclusion. Helping to accomplish this is a major aim of the present study.

With digitization, a large part of India’s economy that is currently in the informal sector, overtime, will become formal, thereby giving a significant boost to the country’s GDP. Demonetization certainly led to a short-term currency shortage and a slowdown in growth. Since early 2016, GDP growth has fallen for six consecutive quarters slumping to a three-year low of 5.7% in the 2017 April-June quarter.

Of course, the overall slowdown in growth had commenced from early 2016 (demonetization was announced in November 2016) so there are other factors at play besides demonetization, such as declining capital investments and exports. Still, we need to understand better the direct effects of demonetization and how to overcome the adverse effects as quickly as possible.

ICT and its Role in India

We believe that India’s new growth model of ICT-led development can, with the help of new IT-based tools and a solid ICT strategy, spur India’s rural development currently characterized by high levels of poverty and low levels of social and economic development. This is motivated by two essential facts. First, most of the world’s poor still live in rural areas, even as the world’s population becomes increasingly urban. Second, IT technologies are potentially suited to offer fundamentally new approaches to rural-based development, so much so that the overall “macro scale” characteristics of the economic development process may be fundamentally altered in the future. For example, the location of industries, population densities, division of industrial value chains, the terms of trade and the division of labor between rural and urban sectors, may all be fundamentally affected in the future by the advent of IT-based rural development.

With large-scale digitization and the use of new ICT-based tools, India could potentially move rapidly from low-productivity agriculture to a service-sector-led growth economy. This is also likely to happen under pressure since the country is still unable to develop as a major platform for manufacturing, (due to archaic labor laws; challenges of land acquisition; lack of an exit policy; time consuming red tapeism; and lack of required infrastructure etc.) and because of the automation of manufacturing processes noted earlier. As things stand today, it is unlikely to see India follow the Chinese route of becoming a major labor-intensive manufacturing hub for the world. We believe; therefore, it is especially crucial to investigate the path of high-quality, ICT-based, service-led growth and employment.

India is in the midst of a digital revolution today. Under the JAM trinity: Pradhan Mantri Jan Dhan Yojana (J), with the help of (A) Aadhaar (for identification and authentication) and (M) Mobile (for telecommunications), India created the fastest and largest financial inclusion in the world with over 300 million bank accounts opening up in record time. This strong public policy innovation has made large-scale, technology-enabled, and real-time delivery of services a reality and more and more welfare services are being delivered through the JAM trinity. In short, JAM is helping India leapfrog into the next phase of financial inclusion.

Meeting the Sustainable Development Goals via ICTs

In India, key sectors, such as health, education, infrastructure, finance, governance, environmental sustainability etc. have not only benefitted from ICTs, but will continue to increasingly do so in the years and decades ahead. These, we believe, will be vital for achieving India’s aspirations to end poverty and to achieve sustainable development, including the Sustainable Development Goals (SDGs).

India has not yet met the core human development challenges. According to a 2014 UNESCO Report, India has the highest population of illiterate adults. At 287 million, they are 37% of the global total. Almost 30% of children drop out before finishing primary schooling and only around 40% are in secondary school. Infant mortality rate at 37 per 1000 live births is high by international standards, and life expectancy at around 68 years is much lower than in China, other countries in East Asia, and the advanced economies. Fertility rates are still very high, and the population continues to grow rapidly, pressing hard on India’s fragile ecosystems and natural environment.

The shortfalls in health, education, and gender equality are of course mutually interactive. Illiterate mothers are much more likely than literate mothers to suffer the deaths of young children due to disease, since literate mothers are more effective at care giving and at seeking out medical help in emergencies. High infant mortality rates promote high fertility rates, since households have many children to compensate for the risks of childhood deaths. High fertility rates, in turn, promote a social bias against educating young girls, since parents lack the resources to provide a quality education for all of their children, and therefore invest scarce resources in boys, for whom the perceived market returns to investment are higher. Access to education is therefore paramount to achieving a wide range of health, gender equality and all other sustainable development goals. Recognizing the linkages between these challenges is vital for designing inter sectoral solutions that can make the most profound impact on human development and an ICT-led strategy could very well help accomplish these goals.

Education is the cornerstone around which sustainable development across sectors can be made possible. A 2014 UNESCO report explains the multitude of evidence pointing toward the critical role education plays in enabling the Sustainable Development Goals. Education can break the cycle of intergenerational poverty. Parents who are educated are more likely to enforce strong health and hygiene practices and provide nutritious food for their families. Children of educated mothers have lower child mortality rates, as educated mothers are more likely to give birth with a skilled birth attendant, to vaccinate their children and to understand how to prevent deaths from common diseases. Women who are educated get married and have a smaller number of children later in life, and are more empowered in decision making affecting their own lives and those of their families.

There are several ways in which ICTs can dramatically speed the uptake of SDG-related technologies. The first is that ICTs themselves diffuse with remarkable speed. The uptake of mobile phones, (just as it happened in India) computers, the Internet, and social media, have been the fastest adoptions of technology in human history. In India, mobile phones went from being just a few thousands of subscribers in early1990s to over a billion subscribers in 2015, (India has crossed a major milestone of 1 billion mobile subscriber base. In the month of October 2015, India added 6.83 million new mobile subscribers taking the total tally to 1003.49 million.)of which urban India had a total of 578.11 million, while rural India had a total of 425.38 million mobile subscribers.

In India, of the 1 billion subscribers, over 238 million are smartphones. According to projections by Ericsson (2015), mobile broadband coverage (3G or above) worldwide will go from under 1 billion subscribers in 2010 to 7.7 billion subscribers in 2020, roughly 90 percent of the world’s population, of which India would perhaps be the biggest beneficiary. Smartphones will go from near-zero subscriptions in 1999 (when NTT DoCoMo introduced the first smartphone with a mass uptake) to 6.1 billion subscriptions in 2020 according to Ericsson’s (2015) projections; the biggest gainer in this journey will undoubtedly be India. China is ahead of India in terms of smartphone users at 500 million. India overtook the U.S. in 2015 and is projected to have around 444 million smartphone users by 2020.

In health care, for example, ICTs make possible a greatly expanded role for low-cost Community Health Workers (CHWs), enabling many diagnoses and treatments to be made at the community level (during CHW visits to the households) rather than at high-cost facilities; in education, ICTs enable students to access quality online teaching even when no qualified teachers are locally available; and online financial flows permit individuals to obtain banking services even when no banks are present. These simple examples are of course just the beginning of an ICT led revolution that is unfolding: cost savings from ICTs are already disrupting major sectors across the economy in high-income countries, and introducing vital services for the first time in low-income countries.

ICTs can dramatically speed the public’s awareness of the new technologies, and therefore the demand and readiness for those technologies. In India, this is most visible in the post demonetization phase.

In the past, technologies spread by word of mouth, local demonstrations, and the scale-up of government programs and services. Now, with torrents of information flowing through the Internet, social media, mobile communications, and other e-channels, information travels nearly instantly around the world.

ICTs are also accelerating technology diffusion by providing low-cost online platforms for training workers in the new technologies. The revolution of Massive Open Online Courses (MOOCs), for example, enables students anywhere to gain free access to high-quality university courses, including courses in the design and use of ICTs. Special training materials are also being delivered conveniently over smart phones, tablets, laptops, and other devices. These multiple channels for training materials are making it much easier to provide workers with real-time, in-service training that does not disrupt their work schedules, but rather builds the training right into the work itself. In this way, ICT-hosted training modules and courses offer the way to train millions of workers, especially young and under-employed workers, in the uses of new ICT applications for SDG-oriented service delivery.

India is in the forefront of IT-based rural applications. Many important experiments are already underway, both in hardware, software, and systems of e-based governance and e-based industry. India’s lead results from known factors: (1) global leaders in IT-based activities; (2) scientific and engineering excellence; (3) continued rural-based poverty, calling out for new solutions; and (4) active experimentation emanating from a remarkable mix of public, private, and civil-society programs. Famous examples of such IT-based experiments include: MS Swaminathan Foundation’s Village Knowledge Centers, ITC’s e-Choupal, IIT-Chennai’s low-cost wireless solutions such as CorDECT, Byrraju Foundation’s Gram IT, e-Seva in Andhra Pradesh, the Baramati sub-district initiative.

Some other important ICT initiatives also deserve to be highlighted here. In governance, e-auction (of natural resources) and e-procurement, immense and the transformational role of Aadhaar in governance, targeting subsidies, improving law & order and security, financial intermediation etc. In the agriculture sector, although yet to fully takeoff, government initiative to establish an online platform (by ending the monopoly of APMC, the new online initiative will allow the farmers to sell their produce to different private buyers and get better prices.) for agricultural produce to overcome rigidities of the Agriculture Produce Marketing Committee (APMC) laws can be transformative for the agricultural sector and the rural landscape.

These projects and initiatives have inspired the growing confidence in the hypothesis of IT-empowered rural development, led to an increasing number of policy initiatives, and provoked a growing number of private-sector and foundation-based projects. Yet it is fair to say that no macro-scale breakthrough has yet occurred.

Additionally, the project also envisages to undertake comparative studies of China and India in the ICT space, including benchmarking India against China in relevant areas of ICT – infrastructure, including telephone landlines; mobile phones; Internet users; Internet servers; and fixed broadband. Besides, comparative studies will also analyze what ICT-based strategies have the two countries employed in sectors, such as education, healthcare, rural development focusing on agriculture, e-payments, urbanization and the like.

Working Papers of the ICT India Project:

"Application of Drones in Indian Agriculture"

"Strengthening Early Childhood Education: Using Smartphones in India"

"How can Smartphones Bring About a Developmental Breakthrough in School Education?"

"ICT-Driven Development and the 2022-23 Union Budget of India"

"How Smartphones can Bring About a Developmental Breakthrough in Agriculture"

"India Digital Ecosystem of Agriculture and Agristack: An Initial Assessment"

"Manufacturing the Digital Revolution: Building a Sustainable Supply Chain for ICT-Driven Development in India"

"Role of Information and Communications Technology in Improving Equity and Quality of Education in India"

"Delivering Next-Generation Public Services through Mobile Technology"

"Information and Communications Technology for Teacher Training in India"

"The Role of Information and Communications Technology in Rural Entrepreneurship in India"