Shaping India’s ICT
Industry Comparative
Advantage
Supervised by: Dr. C.H. Horstmeier
Vitasari AnggraeniS2610841
Pelsterstraat 42A, 9711KM Groningen, The Netherlands +31-633459734
1 DECLARATION BY THE CANDIDATE
I hereby declare that this thesis, “Shaping India‟s ICT Industry Comparative Advantage”, is my own work and by my own effort and that it has not been accepted anywhere else for the award of any other degree or diploma. Where sources of information have been used, they have been acknowledged.
Name : Vitasari Anggraeni Signature :
V. Anggraeni
2 Abstract
Information and Communication Technology (ICT) is rapidly developing in the era of globalization. ICT not only brings the world society closer together, but has also been contributing to reduce the cost of transaction and cost of production in economic activity. Furthermore, the use of ICT is expected to escalate the economies of scale. As late-comers, developing countries (including India) use ICT as a means to leapfrog economic development. The Indian government has used ICT as a means of escalating economic development, reflected in the New Economic Policy since the market liberalization in 1991. By opening its market to free trade, India has to compete with ICT products from other countries, therefore it has to have a comparative advantage in this industry.
According to David Ricardo‟s theory of comparative advantage, a nation will conduct free trade of a product that has comparative advantage. In the latter study, the Heckscher-Ohlin theorem explained that it is a matter of the difference in endowment of factor production.
Meanwhile, the Stolper-Samuelson theorem emphasizes the benefit of free trade that makes India choose to participate in international market. Along with Mill‟s argument about the state‟s
intervention in a neoliberal paradigm, this study uses these existing theories to analyze and explain what happens in India‟s ICT development. Through its government policies, the role of state and private sector has been changing after the period of market liberalization: private sectors are granted more access in ICT industry and have become the main players.
Previous studies have shown that India is at the forefront of ICT industry. However, few studies try to explain from the perspective of comparative advantage with state intervention. This study finds that Indian government‟s policies have shaped India‟s endowment of factor
production to be able to compete in the international market. Indian workers are prepared to participate in the ICT industry through an educational system which is regulated by the
3 Table of Contents
Introduction ... 4
Chapter 1 ... 9
Rethinking the Theory of Comparative Advantage in India‟s ICT Industry ... 9
1.1. Comparative advantage as the engine of free trade ... 9
1.2. Methodology ... 21
Chapter 2 ... 24
The Role of the State and Private Sectors in India‟s ICT Development ... 24
2.1. India‟s comparative advantage in ICT industry and the Policy Goals ... 24
2.2. The Government‟s Role and Private Sector‟s Involvement in India‟s ICT Development. 31 2.3. Education and the Availability of Workers. ... 43
Chapter 3 ... 52
Positioning India‟s ICT Industry in the International Competition ... 52
3.1. India‟s ICT industry Performance in the International Market ... 53
3.2. ICT Role in India‟s Economic Development ... 64
Conclusion ... 81
V. Anggraeni
4 Introduction
India‟s billion-sized population, economic future, and growing military are perceived as the main reasons why it is predicted to become one of the global superpowers. Since the economic reform in 1991, India‟s economy has been focusing on the information and communication technology (ICT) industry as its comparative advantage.1 ICT industry is a part of service sectors that consist of electronics, software industry, information technology (IT), information technology enabled service (ITeS)2 including business process outsourcing (BPO),3 and telecommunication sector.4 The scope of the term ICT industry is based on the industry profile definition that is elaborated in India‟s Ministry of Communication and Information Technology Annual Report 2014-2015.5 The report also mentions the Indian government‟s initiative in technology reliant economic growth called „Digital India‟ which puts ICT as the main focus. Under this initiative, India expects to empower a knowledge society and economy.
In an article published in The Economist on June 3, 2014, economists have tentatively suggested that India‟s GDP growth will be higher than China within one or two years,6
yet its GDP per capita now is less than a quarter of China‟s. 7 As it is the case with superpower countries like the US and China, economic growth is the main driver of development and will eventually increase the country‟s bargaining power.
Since 1991, India has moved from a socialist license-Raj system to market liberalization in the era of globalization.8 License-Raj was India‟s policy as a result of a planned economy, where all aspects of the economy were controlled by the State and licenses were given to
1 Pradip Ninan Thomas, “Digital India: Understanding Information, Communication and Social Change,” Thousand
Oaks, Calif: SAGE Publications, 2012.
2 ITeS, an acronym for Information Technology Enabled Service, is the entire scale of operations which exploit IT
for enhancing efficiency or organization. These services include call centers, medical billing and coding, back office operation, legal databases, content development, web services, etc. “IT Enabled Service,” IT-info, accessed
September 17, 2015, http://www.itinfo.am/eng/it-enabled-services/
3 Business Process Outsourcing (BPO) is a sub-segment of ITeS. It is an activity of contracting a specific business
process to a third-party service provider. “Business Process Outsourcing,” Wikipedia, last modified September 15, 2015, accessed September 17, 2015, https://en.wikipedia.org/wiki/Business_process_outsourcing
4
Indian Ministry of Communications and Information Technology, Electronics and Information Technology Annual Report 2014-2015, Government of India, accessed September 7, 2015,
http://deity.gov.in/sites/upload_files/dit/files/annual_report_2014-2015.pdf.
5 Ibid. 6
“GDP Growth in India and China: Catching the Dragon,” The Economist, February 9, 2015, accessed June 3, 2015, http://www.economist.com/news/business-and-finance/21642656-indias-economy-grew-faster-chinas-end-2014-catching-dragon
7
“Data,” The World Bank, accessed March 23, 2015, http://data.worldbank.org/indicator/
8 Shyama V. Ramani and Adam Szirmai, “Innovation in India: The Challenge of Combining Economic Growth with
5
selected private sectors.9 This socialist economy was influenced by Union of Soviet Socialist Republic‟s (USSR) economic success during the 1950s. India developed a non-alignment policy during the Cold War era, but at the same time India received economic aid from both the USSR, and the US. In the post-Soviet era, the neoliberal-Washington Consensus model flourished around the world and advocated free-trade. This neoliberal ideology aimed to induce developing countries to liberalize their markets, including India.10 The model was proposed by the US and supported by international organizations such as the International Monetary Fund (the IMF), World Bank, and World Trade Organizations (WTO).11 India left the State-led development strategy and merged in a competitive global market economy.12
Market liberalization and democracy within the framework of globalization represented a perfect timing for India to become an economic power. Democracy and economic liberalism are two inter-related aspects that India has been promoting in the region and international world.13 Although it is well equipped to become one of the economic powers, it has never effectively developed to be one yet, regionally and internationally. India‟s influence in the South Asia region for example, has to compete with other big powers from outside the region, such as China and the US.
The liberalization had changed the Indian state‟s rationale and role, and the dynamic relation between state, private sector, and society. Since India‟s national independence in 1947, the government‟s aim was to promote economic development.14 But the state has performed less efficient in India than in other similar emerging countries, like China. This thesis will examine how India uses its comparative advantage as a leading country in the ICT industry to strengthen its economic development in the current international economy.
9
“License-Raj,” Wikipedia, last modified March 15, 2015, accessed March 27, 2015, http://en.wikipedia.org/wiki/Licence_Raj
10 Anjan Chakrabarti and Anup Dhar, “Rethinking and Theorizing the Indian State in the Context of New Economic
Map,” in Development and Sustainability: India in a Global Perspective, ed. Sarmila Banerjee and Anjan Chakrabarti (New Delhi: Springer, 2014), 17.
11 Ibid.
12 Sarmila Banerjee and Anjan Chakrabarti, “Introduction,” in Development and Sustainability: India in a Global
Perspective, ed. Sarmila Banerjee and Anjan Chakrabarti (New Delhi: Springer, 2014), 3.
13
David Mitchell, “The Meaning of a Rising India: (Re)Examining India as Regional Power in South Asia,” (Paper presented FLASCO-ISA, Joint International Conference, Buenos Aires, 2014),
http://web.isanet.org/Web/Conferences/FLACSO-ISA%20BuenosAires%202014/Archive/27030f2f-028b-4d0e-8b35-e24fe5ff366a.pdf
14 Shyama V. Ramani and Adam Szirmai, “Innovation in India: The Challenge of Combining Economic Growth
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The theory of comparative advantage will be used as the theoretical background of the thesis. The thesis will be constructed on the ways in which the theory can be used to explain and analyze India‟s past and present economic development in general, and specifically, the ICT industry. The theory of comparative advantage will be elucidated in relation to the role of the state in promoting economic liberalization. The liberal theory of comparative advantage was first articulated by David Ricardo, a stock trader and a Britain Parliament Member in the 19th century. According to Ricardo, free trade, as part of the liberalist view, binds the universal society of nations throughout the world.15 The theory is still relevant until now to explain motives of free trade in a global market. Ricardo suggested that by specializing in the product a country makes best and engaging in free trade, this country can benefit, even if other countries make the
products better.16 He stated that this benefit from trade can be obtained even if a country does not have an absolute advantage (lower production cost than another country, for example). He
induces countries to specialize in a certain product, even though the production cost of that product is higher than another country. The theory of comparative advantage can explain how India competes in free trade with its ICT industry. Many states have engaged to liberal economy through participation in international trade, and the market continues to expand.17 And India is clearly one of them.
The perspective used in this study is the interaction between the state and private sectors as main actors in shaping India‟s economic power and economic policy of development. ICT sectors have become well-developed in India under this changing state‟s rationale and role after the liberalization. India might be able to use the ICT industry as its comparative advantage, to narrow down the inequality gap in the country and to chase vast GDP growth to compete with other large economic countries. India should maintain its comparative advantage to attract foreign direct investment (FDI) and promote the industry. Furthermore, the thesis will explain what the state has done to encourage the ICT industry and the role of the private sector. The thesis will also elaborate on how India has dealt with the process of structural economic
development. Education became important in India‟s economic development process, as people were educated to become users of technology, while universities participated as relevant actors in the research and development process. On the one hand, corruption and inequality remain the
15 Ibid.
7
main challenge to the state. On the other hand, India is a high-tech powerhouse in the rising global economy. Using economic indicators, India will be compared to other large powers in the international market competition.
The hypotheses of the thesis are:
1. The state‟s decision to enter the market liberalization and its changing role that followed has strengthened India‟s economic development.
2. The theory of comparative advantage can explain how the Indian ICT industry contributes to India‟s economic development and its share in the ICT international competition.
The thesis will be constructed by interpreting a case study (India) by applying a known theory (comparative advantage) to a new realm (how India uses its ICT comparative advantage to compete in international market). According to Odell, this method is included in the
disciplined interpretative case study.18 The thesis uses both qualitative and quantitative methodology. Qualitative method will be used in a literature review on India‟s ICT industry growth and policy. This will include statements from the governments, media publications, books and research papers. And the quantitative method consists of official economic indicator data to support the qualitative analysis.
The thesis aim is to answer the main question:
“How did the ICT industry be used by the Indian state to develop and compete in
international market?”
The main question will be detailed in three sub-questions divided in three chapters and one conclusion chapter. The first chapter of the thesis will elaborate the theoretical framework answering the sub-question on how the theory of comparative advantage explicates what happens in India‟s economic development. Furthermore, the chapter will discuss the development of the theory since 19th century and how it conducts a nation‟s economic policy under the neoliberalism paradigm. Second chapter will analyze the process of structural economic development on ICT industry in India after the liberalization in 1991 up until now. This chapter will answer the sub-question: how did Indian government policies cause ICT industry in India to develop after the liberalization? Analysis will be focused on the government policies that made the dynamic
18 John S. Odell, “Case Study Methods in International Political Economy,” International Studies Perspectives
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interaction between two actors in Indian ICT industry development: the state and private actor, and the role of education. Third chapter is the analysis to answer the sub-question of to what extent did the ICT industry be used by the Indian government as a catalyst to increment India‟s economic position in international competition, especially against other large economic powers and developing economies. This chapter uses economic indicators of ICT share in India‟s GDP and India‟s ICT share in world exports. Additionally, this chapter will demonstrate the growth of ICT international competition in which India contributes as one of the important players. The conclusion will be drawn in the last chapter of the thesis. It will summarize how the research questions have been answered by the previous chapters. India‟s comparative advantage
9 Chapter 1
Rethinking the Theory of Comparative Advantage in India’s ICT Industry
1.1. Comparative advantage as the engine of free trade
The theory of comparative advantage was first introduced in the 19th century under the liberal theories of political economy by an English political-economist, David Ricardo.19 The theory is a part of the liberal perspective, which largely governs today‟s economy.20
Before the comparative advantage concept was introduced, Adam Smith‟s theory of absolute advantage was the
foundation for analyzing how countries conduct trade with each other. He stated in The Wealth of
Nations (1776) that a country will benefit from trade if it exports products that have an absolute
advantage (for example: lower production cost than another country), and then imports products that have higher production cost than another country.21 On the contrary, Ricardo argued that benefit can not only be gained by a country with an absolute advantage, because trade can also benefit a country which exports products with higher production cost than another country which produces the same products.
In the Principles of Political Economy and Taxation (1817), Ricardo wrote that the gains from trade do not depend on a country or an individual having an absolute advantage.22 He proposed that a country can gain from trade by having a comparative advantage. In brief, Ricardo pleaded that international trade based on comparative advantage will benefit all
countries involved. His original example is the trade between England and Portugal. 23 Here, the example will be modified according to the thesis topic but with the same point to deliver. To make the example concrete, the trade of electronic apparatus and furniture between India and Indonesia will be used as an example. India has been promoting trade in its semiconductor and electronic system industries worldwide.24 Research and specializations are being conducted to support this plan.25 Meanwhile, Indonesia has been maximizing its domestic resources in the
19 Robert O‟Brien and Marc Williams, Global Political Economy (Palgrave Macmillan. 2010), 13. 20 Ibid., 14.
21 Theo S. Eiche, John H. Mutti, and Michelle H. Turnovsky, International Economics (London and New York:
Routledge, 2009), 16.
22 Ibid., 16. 23 Ibid., 16. 24
“About us,” India Electronics and Semiconductor Association, accessed October 3, 2015, http://www.iesaonline.org/aboutus/index.html
25 “About industry research,” India Electronics and Semiconductor Association, accessed October 3, 2015,
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furniture industry to increase its share in the global furniture market.26 According to data provided by the United Nations,27 in 2014, India exported USD 43 million worth of electronic apparatus to Indonesia, while Indonesia exported USD 9 million worth of furniture to India. On the import side, India imported USD 2.9 million worth of electronic apparatus from Indonesia, whereas, Indonesia only imported USD 2 million of furniture from India. Using the Ricardian model, it will be explained why India gained from exporting the electronic apparatus and Indonesia from exporting the furniture.
In this example, India produces both electronic apparatus and furniture more efficiently than Indonesia does (see Table 1). But, compared to Indonesia, India has a greater advantage in producing electronic apparatus (with 4 units per worker compared to 1 unit per worker) than in the furniture (with 9 units per worker compared to 7 units per worker). In this illustration, with 10 workers India commits to produce 40 units apparatus, or 90 units furniture. Meanwhile, with the same amount of workers Indonesia commits to produce 10 units apparatus, or 70 units furniture. To understand why India has comparative advantage in electronic apparatus over furniture, will be used denotation as follow. Assume that the amount of workers required to produce one unit of furniture in India is Wf, and the amount of worker to produce one unit of electronic in India is We. The amount of worker to produce one unit of furniture and one unit of electronic apparatus in Indonesia is W’f’ and W’e’. According to the Ricardian model, India is more relatively productive in electronic apparatus than Indonesia, if We/W’e’ < Wf/W’f’:
→ 0.25/1 < 0.11/0.14 = 0.25 < 0.78
It means that compared to Indonesia, India is more efficient in electronic apparatus making (0.25) than in furniture making (0.78).
Equivalently, India has a comparative advantage in electronic apparatus which means that it has a lower opportunity cost28 for electronic apparatus in terms of furniture than Indonesia, if
We/Wf < W’e’/W’f’:
→ 0.25/0.11 < 1/0.14 = 2.27 < 7.14
26 “Govt expects furniture, handicraft exports to rise to $3b this year,” The Jakarta Post, March 15, 2014, accessed
October 3, 2015, http://www.thejakartapost.com/news/2014/03/15/govt-expects-furniture-handicraft-exports-rise-3b-year.html.
27 “UN Comtrade: International Trade Statistics,” United Nations Department of Economic and Social Affairs,
accessed September 15, 2015, http://comtrade.un.org/data/
28 Opportunity cost is the difference in return between investing in an abundant factor of production product and a
11
It means that the cost to produce electronic apparatus compared to furniture in India is lower (2.27) than in Indonesia (7.14). The cost is represented by the numbers of workers required to produce each product. The less number of the workers required, the less the cost is.
Table 1. India and Indonesia production results without trade.
Country Resources Products
India 10 workers 40 units apparatus 90 units furniture Indonesia 10 workers 10 units apparatus 70 units furniture TOTAL 50 units apparatus 160 units furniture
To enter trade relations between two countries, each has to shift its resources to one specialized product, either electronic apparatus or furniture. Therefore, India will shift its workers to the product with the more comparative advantage, which is electronic apparatus. Likewise, Indonesia will allocate more workers to the more competitive product, which is furniture. India shifts two labors to produce electronic apparatus, and Indonesia shifts five labors to produce furniture due to its inefficiency problem. Using the same assumption of labor
productivity, India and Indonesia will produce more electronic apparatus. In comparison with the production before the labor shifting, both countries will have more units of both products. In total, both countries will have 53 units of electronic apparatus and 177 units of furniture. As seen in Table 2, 12 Indian labors produce 48 units of electronic apparatus and 8 other produce 72 units of furniture. In Indonesia, 5 labors produces 5 units of electronic apparatus and 15 others
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Table 2. India and Indonesia production results after the labor shifting. Country Resources Products Resources Products
India 12 labors 48 units apparatus 8 labors 72 units furniture Indonesia 5 labors 5 units apparatus 15 labors 105 units furniture
TOTAL 53 units apparatus 177 units furniture
Now that both countries specialize on the basis of comparative advantage, India increases its production of electronic apparatus from 40 to 48 units, and Indonesia increases its production of furniture from 70 to 105 units. Therefore, both countries will seek the good it does not
specialize on (India seeks for furniture and Indonesia seeks for electronic apparatus). Under such a situation, both countries agree on the rate at which Indian electronic apparatus will be traded for Indonesian furniture. The price of Indian electronic apparatus traded to Indonesia must be lower than the cost of production if Indonesia produces the apparatus locally, and the price of Indonesian furniture traded to India must be lower than the cost of production if India produces the furniture locally. The low price of each product will cause the rise of demand on each product. Therefore, the price of electronic apparatus exported by India to Indonesia has risen because of the growing demand in Indonesia, and can be traded with more furniture. Hence, India has improved its standard of living by having more furniture and more electronic
apparatus. While in Indonesia, the price of furniture has risen as a result of the rising demand of Indonesian furniture in India, and hence, by exporting the same amount of furniture, Indonesia can have more electronic apparatus. Indonesia has an improved standard of living as well, because it can have more electronic apparatus and more furniture. The gain from the trade that underlies from a division of labor is the principle of comparative advantage.29 As the result of specialization in production, real income arises.
A neoclassical Ricardian model restriction holds that all goods traded use the same proportions of factor productions.30 While in fact, factor of production intensities differ across
29 Theo S. Eiche, John H. Mutti, and Michelle H. Turnovsky, International Economics (London and New York:
Routledge, 2009), 18.
30 Arnaud Costinot, Dave Donaldson, Jonathan Vogel, and Ivan Werning, “Comparative Advantage and Optimal
13
sectors. This leads to the next discussion on why India has a comparative advantage in electronic apparatus rather than furniture, whereas Indonesia has a comparative advantage in furniture rather than electronic apparatus. It will be explained using the Heckscher-Ohlin theory.31 The Heckscher-Ohlin model assumes that what drives countries to trade is the difference in the endowment of factor productions. In one country to another, the availability of capital and labor for production process is different. For example, India has an abundance of capital, while
Indonesia has an abundance of labor. The Heckscher-Ohlin theorem indicates that a country will tend to have a comparative advantage in, and therefore export, those commodities which require the intensive use of the factor production it has in abundance.
Since India is abundant in the capital factor of production rather than labor, the cost of capital compared to wage is lower in India than in Indonesia. Relatively, Indonesia is a labor-abundant country. With its capital-labor-abundant, India is likely to be more efficient in the electronic apparatus production techniques, and therefore, it can produce the electronic apparatus at a lower cost and relatively at a lower price to furniture than Indonesia can, while Indonesia can produce furniture, the labor-abundant product, at a lower cost in comparison to electronic apparatus than India can. The Heckscher-Ohlin theorem suggests that differences in the factor endowment in production, and differences in the mixtures of factor production in different commodities can explain why India has the comparative advantage in electronic apparatus and Indonesia has the comparative advantage in furniture. This model can be used to analyze the abundance factor of production that India has in ICT industry in the next chapter, and consequently in their
engagement in the international market.
Next question in this sub-chapter that needed to be answered is: what effects will be experienced by a country when it opens to a trade if it abandons the relatively scarce factor of production that it has. For example, as a capital-abundant country, India has to disfavor the labor-abundant industry, such as furniture. Therefore, there will be decreases in the furniture industry, not only will the workers lose their job, but the return on investment will also decline. The important contribution in the analysis of consequences of free trade for a country was set by Wolfgang Stolper and Paul Samuelson in 1941,32 and known as the Stolper-Samuelson theorem.
31 Joseph M. Griecho and G. John Ikenberry, State Power and World Markets, (New York and London: W. W,
Norton & Company), 42.
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On one hand, entering a free trade by specializing in a product that has an abundant factor of production will consequently cause the owner of the relatively abundant factor of production in that country to gain more returns and incomes.33 On the other hand, this model of comparative advantage based free trade can cause the owner of the relatively scarce factor of production to experience a fall in their returns and incomes.34 For example, in the case of India and Indonesia, after the trade happens, India‟s electronic apparatus manufactures will have an increasing demand for their product, and to catch up this demand they need to enlarge production.
Eventually, it will be necessary for them to add workers and capital equipment, since electronic apparatus is a capital-intensive product. Stolper-Samuelson theory indicates that the source for workers and capital would come from the furniture industry. The capital moves from the
furniture industry to electronic apparatus industry because the electronic apparatus manufactures with the abundance of capital will be willing to pay higher wage and offer higher return in capital investment. Therefore, the prospect of electronic apparatus industry will attract workers and capital owners. The only way to prevent this is the furniture industry should offer higher payment and return than the electronic apparatus industry. Thus, a high demand in electronic apparatus industry will lead to the rising of welfare (higher salary and higher return on investment) in both electronic apparatus and furniture industries. Furthermore, the Stopler-Samuelson theory argues that with the rise of electronic apparatus price in India, the return on investment will raise even higher in percentage. Not only do the investors (capital owners) enjoy the benefit from an increasing electronic apparatus units purchased, but they also gain benefit from the price changes.
With this scheme of free trade, workers of furniture industry in India will experience a decline in their income. This situation occurs because of this process: the capital-abundant industry means, compared to each unit of furniture, each unit of electronic apparatus is made with a high deal of capital and less workers. As a result, workers in the electronic apparatus industry will be partially released. Thus, more workers are available than the number of jobs provided in both electronic apparatus industry and the reduced furniture industry. These available workers, then, are willing to work with lesser wage than before the trade happens. Therefore, with a free trade, owner of the relatively scarce resource (workers) in India would
15
face a decrease in their income. According to the Stolper-Samuelson model, the decrease in wage will not be offset by the decrease of furniture prices as it becomes abundant with imports from Indonesia.35
The Stolper-Samuelson model finds that even though free trade is profiting India as a country, it is costly for a particular group within India (Indian workers). Hence, Indian workers might resist the openness of trade. Workers in Indonesia, as the owner of labor-abundant factor of production, would gain from a free trade, and thus would support the state in a free trade. On the opposite side, the capital-owners in Indonesia would be resistant to the trade openness. The Stolper-Samuelson theorem determines that gains from trade are so great that those who benefit from the trade could compensate those who lose, and both groups would be more advantageous with trade than without.
Ricardo‟s core principle is that trade with specialization based on comparative advantages, can profit all participants. Additionally, it does so because of the allotment of workers to its most productive employment. Hence, with a greater amount of production and consumption of goods globally, profits generating would be possible. Ricardo suggests that freer trade fosters technological innovations and advances common interest among nations.36
The latter work of comparative advantage in foreign trade that carries Ricardo‟s study came from John Stuart Mill. He explained that the equilibrium price is determined by demand considerations in each country. Mill further analyzed the influence of the elasticity of demand, changes in technology, country size, and other factors.37 In his article titled Of the Laws of
Interchange between Nations; and the Distribution of the Gains of Commerce among the Countries of the Commercial World (1844), Mill argued that the advantage of foreign trade will
be shared based on the demand elasticity and the reciprocal demands.38 He also added the cost of carriage element in trade.39 Mill then adjoined the effects of taxes and country‟s terms of trade.40
35 Ibid., 48. 36
Joseph M. Griecho and G. John Ikenberry, State Power and World Markets, (New York and London: W. W, Norton & Company), 35.
37 Theo S. Eiche, John H. Mutti, and Michelle H. Turnovsky, International Economics (London and New York:
Routledge, 2009), 20.
38 Pedro Schwartz, The New Political Economy of J.S.Mill, (Wiltshire: Redwood Press Limited, 1968), 43. 39 Ibid., 44.
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The terms of trade is the value of a country‟s export relative to its import. In other words, it is the price of export goods divided by the price of the import goods.41
In the real world where hundreds countries and thousands of goods are involved in international trade, James Harrigan42 exemplifies a three-country Ricardian theory with many commodities and transport costs. He accounts the relative labor productivities and relative wage rates, and adds the implications of transportation costs to the pattern of trade. His explanation will be best described with this following example. Imagine three countries engaged in a trade: Sri Lanka, India, and China. He points out several predictions:
With an equal productivity in India and China, Chinese wages must be lower than Indian to allow India to export a certain product.
If anything else is similar, then Chinese will export lighter commodities with greater value per kilogram, while India will have a comparative advantage in heavier commodities with lower values per kilogram.
On one hand, a decrease in the relative cost of transport will allow China to export
commodities with a less value per kilogram, and the increasing demand of China worker will raise its wage.
On the other hand, a decrease in the relative cost of transport will make India produce and export a lesser heavy commodities, and the decreasing demand for Indian worker will reduce its wage.
In terms of the ICT industry trade, the transportation cost is relatively insignificant. The demand in this industry is more wage rate and capital driven. In fact, the world has become interdependent and much smaller with information and communications technology
development.43 ICT enables lower production costs and speeds up innovation by connecting people in sharing knowledge and trading goods. Trade and investment are important tools to make technology and skills available. ICT has become vital to be integrated with national
41 World Trade Organization, World Trade Report 2011, The WTO and Preferential Trade Agreements: From
Co-Existence to Coherence, accessed September 30, 2014,
https://www.wto.org/english/res_e/booksp_e/anrep_e/world_trade_report11_e.pdf
42 Theo S. Eiche, John H. Mutti, and Michelle H. Turnovsky, International Economics (London and New York:
Routledge, 2009), 25.
43 Pekka Lindroos and Misha Pinkasov, “Information society: The ICT Challenge,” OECD Observer, no. 240/241,
December 20013, accessed September 14, 2015,
17
developments, either to increase a nation‟s comparative advantage with its innovation, or as a commodity in the international trade itself.
In a world with many goods, countries will export goods and services in which it has a higher productivity in comparison with other countries. Transportation cost, in the latter work, is considered to be an important factor beside wage.44 Again, in the ICT industry, this cost is rather insignificant. Another factor impacting ICT industry that Ricardian model has already indicated in his early work is the difference in technology. A country chooses to trade not only because it has an abundance-factor of productivity, but also because it has a different preference. Using the previous example of the trade between India and Indonesia, even if both countries have the same production cost in furniture, but if customers in Indonesia demand a particular furniture made in India, then India might export furniture to Indonesia.
Trade generates chances for countries to achieve higher level of consumption and
welfare.45 By specializing in electronic apparatus for example, India may generate economies of scale as a result of larger run of electronic apparatus production. This economy of scale
eventually leads to accelerated India‟s aggregate growth rate. The development of trade theories and empirical evidence46 suggest that the openness to trade can enhance a long-term growth, because it increases market opportunities for home country firms and provokes competition; hence, it boosts these firms to develop and to invest in new technologies. Trade also enhances chances for these firms to adopt technologies from outside the home country.
The world economy is not a perfect market. It has been a compound of closure and openness. The dynamic shift of the world economic development over time suggests that it takes more than just a simple economic model to capture what is going on.47 It requires a
comprehensive frame of work between actors that are involved in the international trade. This means to take in the role of the state and its competitive system in directing, by all means, the development of the world economy. States govern their society and at the same time run in the
44 Theo S. Eiche, John H. Mutti, and Michelle H. Turnovsky, International Economics (London and New York:
Routledge, 2009), 25.
45
Joseph M. Griecho and G. John Ikenberry, State Power and World Markets, (New York and London: W. W, Norton & Company), 50.
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world political economy. States construct regulation to guard trade and investment, and
capitalism model of welfare creation has fed states with the power to compete with other states.48 State intervention has been introduced by Mills in his essays. Not that he is standing against democracy, but in the meaning that free market does not work by itself as it intertwined with other social political aspects. 49 He emphasizes the role of the state in providing education and better regulation for the people.50 Like Ricardo, Mill admits that the continuous declining of a large amount of capital to new enterprise can cause a short-term damage to the working class.51
The role of the state in society from Mill‟s work will be used in this thesis. Mill divided state interventions into legislative functions and administrative functions.52 The administrative function is necessary to run when external effects occur. External effects are consequences of individual activity to other individuals. According to Mill,53 the state must provide better
education and better regulation to the people. In a perfect competition mechanism, Mill proposed that state‟s role is to administer education, to implement health legislation, to protect workers repositioned by machinery, and to provide public service. Furthermore, he stated that in underdeveloped state, intervention to anything related to general importance is necessary; not because individuals cannot efficiently achieve it, but because they will not perform it.
In the latter development, there is a group of scholars whose school of thought is similar to Mill‟s. This group has been named the „neo-liberal‟ economists.54
Neoliberal governments realized that the free trade system will escalate the economic growth, but it also creates a domestic social instability. This instability is created by the process of trade openness discussed earlier, whereby a group of people which has relatively scarce factor of production will be left behind. Along with the lowering barrier of trade and capital movement, regulation and
interference of government are necessary in such system. 55 The idea legitimates the concept of welfare state, which pursues economic expansion and protects social welfare.
48 Ibid., 94.
49 Pedro Schwartz, The New Political Economy of J.S.Mill, (Wiltshire: Redwood Press Limited, 1968), 113-115. 50 Ibid., 118-152. 51 Ibid., 118-152. 52 Ibid., 118-152. 53 Ibid., 149. 54 Ibid., 151.
55 Joseph M. Griecho and G. John Ikenberry, State Power and World Markets, (New York and London: W. W,
19
Under neoliberalism, the state nature is to enable individuals to compete and trade freely and to guard the result of the trade. Neoliberal economists claim that if government allows to presents in the market as an enabler, it will result in a greater economic growth. According to the Economic Survey, a yearly report of Indian Ministry of Finance, an enabling state in economic activity is by default a state that permits instead of prevents.56 A crucial view of this paradigm is the arrangement regarding foreign investment, profits, innovations, property rights, and
protection of individuals from unfair practice and social insecurity.57 The role of the state as an enabler in neoliberalism, consequently, changes the conception of individual as well. The
individual is not a laissez-faire man of exchange anymore, but is also a human capital that can be the engine to generate profit for himself and has a rational choice.58 Therefore, to nurture
individuals to be able to perform in a competitive market without the state‟s direct intervention, education and training are needed to be provided for them. In other word, the state needs to cultivate the human capital.59 Under the umbrella of neoliberalism, a country will tend to exploit its comparative advantage in order to be able to compete in the international market to escalates economic development.
Due to the differences in the history of every country in the world, the entry point and process to market liberalization differ too. India started the market liberalization in 1991
alongside with the flourish of the neo-liberalism in the post-Cold War era. The planned economy was replaced with the neo-liberal thought of free trade followed by welfare-state theory and democracy. In the era before the liberalization, the state governed the market economy, which was known as License-Raj system. Competition and free trade were not an option under such governance.
Indian state itself, as part of states competing in international markets, has to re-position its role to assure a smooth ongoing process in entering market liberalization.60 The market liberalization brought by neoliberal ideology is inseparable with a welfare capitalism idea. Moving from a state-controlled economy to the neoliberalism, India has to reposition the role of
56Ministry of Finance Government of India, Economic Survey 2009-2010, accessed September 16, 2015,
http://indiabudget.nic.in/es2009-10/chapt2010/chapter02.pdf
57 Anjan Chakrabarti and Anup Dhar, “Rethinking and Theorizing the Indian State in the Context of New Economic
Map,” in Development and Sustainability: India in a Global Perspective, ed. Sarmila Banerjee and Anjan Chakrabarti (New Delhi: Springer, 2014), 22.
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the state in economic development. Now, the state must practice a new conception of
intervention. The goal of the state is to allow individuals to compete and trade in the market and guard the result of trade from harming the society.61 Individual actors seeking economic gain are the main idea for neo-liberalism, and this has altered the Indian state‟s rationale after the
liberalization. The need of India is to have an enabling state.62 According to the Economic Survey,63 in order to enable the functioning of economy, the conception of an enabling state can promote a greater efficiency and a higher productivity. Understanding the Indian state‟s rationale in the context of neoliberalism will allow to further analyze the Indian economic reform and to distinguish the role of the state and the changing policy.
The neoliberalism rationale in economic science is based on the classical comparative advantage theory, which believes that a free trade will benefit all countries by exploiting comparative advantage that can escalate competition, develop the economy, and eradicate poverty.64 However, there is another issue in the technology-led economic development. India has to deal with the digital divide. This is an inequality regarding the access to and impact of information and communication technology.65 Digital divide is not simply a technical or
financial issue, but wider than that, it indicates people exclusion in the process of development.66 In the Indian economic development, the state‟s guidance to competition is the manifestation of the economic transformation. In 1991, the role of the state boiled down in the flow of
privatization, fiscal policy and monetary regulation.67 During the process of structural economic development, India needs a revolution in education, which grasps information technology, advances innovation and stimulates a market competitive environment.68
61 Ibid., 19.
62 Ministry of Finance Government of India, Economic Survey 2009-2010, accessed September 16, 2015,
http://indiabudget.nic.in/es2009-10/chapt2010/chapter02.pdf
63 Ibid.
64 Anjan Chakrabarti and Anup Dhar, “Rethinking and Theorizing the Indian State in the Context of New Economic
Map,” in Development and Sustainability: India in a Global Perspective, ed. Sarmila Banerjee and Anjan Chakrabarti (New Delhi: Springer, 2014), 20.
65 “Digital Divide,” Wikipedia, last modified September 15, 2015, accessed September 21, 2015,
https://en.wikipedia.org/wiki/Digital_divide#Overcoming_the_digital_divide.
66
Pradip Ninan Thomas, Digital India: Understanding Information, Communication and Social Change (Thousand Oaks, Calif: SAGE Publications, 2012), 16.
21 1.2. Methodology
The thesis is constructed using the disciplined interpretative case study by Odell.69 Based on this methodology, a new realm, presented by India‟s ICT comparative advantage in international competition can be described using the existing theory of comparative advantage. The first chapter elaborates the theory of comparative advantage as the engine of free trade under the liberalism theory, which later is developed into neo-liberalism when explaining the case of India. The literature review of the comparative advantage starts with Ricardian theory as the foundation of free trade during the 19th century. In the development, John Stuart Mill‟s thoughts have
contributed to the early studies of state‟s intervention in foreign trade which later developed as neoliberalism. Mill also contributed to the explanation of comparative advantage theory by adding transportation cost and the impact of elasticity of demand.
The theory of comparative advantage will explain India‟s comparative advantage in ICT industry, and therefore produce and export it. To explain how comparative advantage works in a real world where countries have different factor-abundance of production, this study will use the Heckscher-Ohlin model. This theory is able to explain that countries tend to specialize, and therefore export, on a product in which it has abundant factor of production, capital or labor. The Heckscher-Ohlin model helps understand the factors of production that India has in ICT industry. In this case, India has an abundant factor of relatively cheap-skilled labor in ICT industry in comparison with its competitors from both developed and developing countries. The Heckscher-Ohlin model further will indicate how India preserves its factor-abundance. Indicators used in this analysis are the Indian government‟s actions and policies, government spending and private sector investment in education, enrolment in higher institution and technical education, and employment shares in ICT industry.
Free-trade is an inseparable component of neoliberalism. After the end of the Cold-War, neoliberalism was flourished and brought impacts to the India‟s market liberalization in 1991. It will give a context in Indian state intervention in ICT industry and explains the changing role of the Indian state in the ICT development. Furthermore, it will explain how the state‟s intervention works in India under the neoliberalism influence. India‟s government initiatives are also an integral part of the state‟s intervention in the market. These actions are the New Economic Policy
69 John S. Odell, “Case Study Methods in International Political Economy,” International Studies Perspectives
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and the Digital India70. The New Economic Policy (NEP) was established as a result of the structural adjustment program which covers liberalization in trade and industrial policy, public and financial sector, capital market, foreign investment, and tax system.71 Digital India is a joint agenda from Indian ministries which aims to empower digital society and knowledge economy. In discussing India‟s policies and structural economic development, official documents and reports from the Government of India will be significant contributions to the analysis. These reports are useful because they do not only present numbers, but also analytical frameworks and government‟s strategies.
Engaging in the international market has pros and cons. This discussion will lead to the use of the Stolper-Samuelson theorem in explaining the group of people that will be hurt by the free trade. Stolper and Samuelson elaborate the impact of trade to the group who has abundant factors of production and to the group who has scarce factors of production. Inevitably, there will be groups of people who support or resist the opening of trade. The Stolper-Samuelson theorem will describe the overall advantages of free-trade, which even the group that is left behind in India‟s industrialization will benefit from the opening of trade. In India‟s ICT industry, the groups who have scarce factors of production indicated are workers in non-ICT industry, like manufacturing industry and farming. The Stolper-Samuelson theorem further explains that ICT development will expedite India‟s economic development. Indicators for this analysis are India‟s GDP growth, India‟s ICT share in GDP growth, foreign direct investment (FDI) growth, and India‟s ICT market share in international market.
A quantitative analysis will be used to support the qualitative analysis throughout every chapter. It is used to explain the basic comparative advantage theory regarding the trade between India and Indonesia. Export and import performance data are obtained from United Nations Commercial Trade (UN Comtrade) website. The UN Comtrade website is used because it can provide detailed data of goods traded based on the HS Code up until the year 2014. HS Code stands for Harmonyzed System code, which refers to the standard in the international trade to classify specific traded products.72 Other quantitative data used in the next chapter of empirical
70 Government of India Ministry of Communications and Information Technology, Electronics and Information
Technology Annual Report 2014-2015, accessed September 8, 2015, http://deity.gov.in/sites/upload_files/dit/files/annual_report_2014-2015.pdf.
71 Ibid.
72 “Harmonyzed System,” Wikipedia, last modified August 27, 2015, accessed September 3, 2015,
23
study are India‟s GDP growth over the years after the market liberalization, ICT industry
contribution in India‟ GDP, and Indian FDI growth. The empirical chapter will also require data on service sectors and ICT industry performance in India and worldwide as an indicator of Indian ICT performance in the international competition. These data will be extracted from the World Bank, United Nations Conference of Trade and Development (UNCTAD), United Nations Development Programme (UNDP), Indian Ministry of Finance, Indian Ministry of Statistics and Programme Implementation, Indian Ministry of Communication and Technology Industry, Indian Ministry of Human Resources Development, United Nations
Telecommunication Development Sector (ITU-D), and other official publications. The World Bank and UNCTAD websites will be used because it can present data since the market liberalization started in 1991. ITU-D itself is a United Nations agency specialized in ICT development in developing countries including the work in narrowing the digital divide. The Indian government‟s reports used in this thesis are official reports published in official websites.
The indicators above are used in the empirical chapters to construct how the values of India‟s endowment of factor production are formed after the market liberalization. These changes further resulted in India‟s comparative advantage. The equations in the earlier part of this chapter explain how the value of workers and capital shaped India‟s comparative advantage in the electronic apparatus. In a bigger scope, which is India‟s ICT industry, the equation will not be used further because the study is focusing on international political economy context.
Consequently, focusing on the equation will make the thesis more statistics driven instead of political economy driven. Furthermore, equation requires raw data, which due to several restrictions could not be obtained. Using analysis from the literature reviews, empirical
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24 Chapter 2
The Role of the State and Private Sectors in India’s ICT Development
2.1. India’s comparative advantage in ICT industry and the Policy Goals
The global village has become narrow as technology and communication evolve. In economy, the role of ICT industry is to promote efficiency and economic development.73 The ICT industry consists of Information Technology (IT) industry and telecommunication industry. According to the Indian Ministry of Communication and Information Technology annual report,74 the scope of the industry includes electronics, software industry, IT, information technology enables services (ITeS) which includes business process outsourcing (BPO), and telecommunication sectors. The same report stated that ITeS and software industries are the largest contributors to the service sector export.75 India also leads in the global outsourcing market, business process outsourcing (BPO), and IT service outsourcing with 55% share in global market in 2014 as compared to 45% in 2009.76 During the first decade after market liberalization, India registered software industry‟s export growth rate at around 50% yearly, and it was higher than the global performance
growth.77
The share of India‟s ICT in the country service sector has developed significantly over the years. According to the Ministry of Statistics and Programme Implementation Annual Report 2014-2015, the service sector industry has grown vastly over the years in terms of value addition and employment creation.78 The contribution of the ICT industry to the service sector has also grown rapidly over the years, replacing traditional services like transportation and travel.79 The Indian ICT industry growth is a part of the international growth in the ICT industry
73
Debabrata Datta, Soumyen Sikdar, and Susmita Chatterjee, “Telecommunications Industry in the Era of Globalization with Special Reference to India,” in Development and Sustainability: India in a Global Perspective, ed. Sarmila Banerjee and Anjan Chakrabarti (New Delhi: Springer, 2014), 277.
74 Government of India Ministry of Communications and Information Technology, Electronics and Information
Technology Annual Report 2014-2015, accessed September 8, 2015, http://deity.gov.in/sites/upload_files/dit/files/annual_report_2014-2015.pdf.
75 Ibid. 76 Ibid. 77
Nagesh Kumar, “National Innovation Systems and the Indian Software Industry Development,” in Innovation in India: Combining Economic Growth with Inclusive Development (Cambridge: Cambridge University Press, 2014), 146, http://dx.doi.org/10.1017/CBO9781139794640.
78
Government of India Ministry of Statistics and Programme Implementation, Annual Report 2014-2015, accessed September 16, 2015, http://mospi.nic.in/Mospi_New/upload/mospi_annual_report_2014-15.pdf.
79 Gaurav Nayyar, The Service Sector in India’s Development (Cambridge: Cambridge University Press,2012), 52,
25
during 1970-1990, the period of time where inventions in computer, telecommunication, and internet service started.80 In 1970s, email was first sent, Microsoft and Apple were born, and video game system was introduced. In 1980s, the first basic software for computer was launched by Microsoft and IBM, Apple Macintosh was released, and the first computer virus was
invented. The world wide web (www) and the first graphical browser were born in 1990s. The inventions continue in the following years, and now, ICT has integrated with many industrial sectors.
Service industry, including ICT, is the industry that develops parallel with the
development of manufacturing and agriculture industry. Govar Nayyar shows that in India, the contribution of skill-intensive industries was heightened more than the world average between 1981 and 2000.81 Globalization, that brings the world societies closer, has lowered the cost of transaction and the cost of production of goods. As a result, the industry itself is able to narrow down capital needed to run the service industry. Nayyar also stated that service sector is a
relatively less capital intensive industry to start with, and as a result, capital is not much a burden for the industry to develop in the dynamic changes of a competitive market.82 Furthermore, Nayyar argued that firms prefer to enlarge their business when the cost of production is cheaper than if they buy the good or the service in the market. Therefore, business will fancy to outsource production process because it is cheaper for them, and India is one of the countries with the comparative advantage in the outsourcing industry.
During the liberalization of India, service industry benefited from the market reform. This sector earns from the opening to private ownership and foreign direct investment (FDI).83 It leads to the rising number of India‟s companies expanding in ICT industry- domestic and abroad. The other benefit that the service sector gets from market liberalization, is cheaper and easier access to the factor of production in this industry.84 ICT industry requires skillful workers in information technology and communication. Therefore, education is another important factor that influences the availability of skilled workers in the ICT industry in India.85 This thesis indicates that India‟s factor abundance in ICT production is defined by the changing structural
80
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development after the market liberalization, well-educated yet relatively cheap workers, and the growth in international demand.86
Opportunity cost is a crucial term in defining a country‟s comparative advantage.
Opportunity cost is the difference in return between investing in an abundant factor of production product and a scarce factor of production product.87 It means that if India chooses to produce electronic apparatus, its opportunity cost is the gain in producing furniture as explained in the previous chapter. In that sense, when a country chooses to specialize in a product, it has to accelerate its growth to cover up the loss from not producing the other product. India has to accelerate the ICT industry growth as the consequence of specialization in the ICT industry. According to the Ricardian model, capital efficiency and labor productivity are what India needs to focus on in order to reach this goal. In the recent development, capital and labor are still significant factors, which are very dependent on other factors, such as education, technology innovation, consumer preferences, government‟s regulations, and international competition itself. In this study, all these factors will be contracted into three points: workers, government‟s
policies, and international competition. Using the Heckscher-Ohlin model, the specialization in certain industry is based on the endowment factor of production. Following chapters present India‟s endowment of factor production in the ICT industry. The roles of government policies are to build the environment for India‟s ICT industry to develop, and therefore, has a
comparative advantage in comparison to other countries competing in international competition. The main reasoning of the analysis, which is based on these three factors in India will be explained as follows.
2.1.1. Workers.
Worker is closely connected with education and technological innovations. Workers in ICT industry are required to be skillful in information technology and communication services. This requirement of skill-intensive industry drives Indian people to obtain an education in that sector. Investment in the tertiary education in IT has been made by the government, for example in Indian Institutes of Technology. IIT is a public tertiary education institute substituted by Indian taxpayers. The language of instruction is
English. Together with the Indian Ministry of Human Resources Development (MHRD),
86 Ibid., 52.
87 “Opportunity Cost,” Investopedia, accessed September 18, 2015,
27
it initiates free online lectures under the National Program on Technology Enhanced Learning.88 IIT has gained recognition in the US, and even China will adopt its model of education.89 IIT ranks in top universities of the world for computer and information technology.90
However, the education requirement may vary across different sectors.91 Not only does it provide the market with high-tech skilled workers in subsectors like
telecommunication and software industry, India also empowers its middle skilled worker such as in business processing outsourcing subsector. India is benefited by its high number of English-speaking young workers. This advantage can be traced back in the Indian history under British colonization. The British expected to unite India by using English as the national language.92 Even after Indian independence in 1947, English is still the major language in business and government institution.93 On the other hand, Indian workers are among countries with low level of wage.94 One of the contributors of a low wage worker is that Indian supply of workers is abundant. The high competition in the ICT industry makes Indian workers accept relatively lower wages in order to be accepted in the position. 95
2.1.2. Government‟s policies.
India was facing a current account deficit since the first half of 1980s. In the second half of 1980s, the deficit widened and funded by short-term external debt.96 Its continuous current account deficit worsened by the increase of the world oil price and the slow growth of India‟s trading partners.97 Indian state reacted over the economic crisis in 1991
88 “Indian Institutes of Technology,” Wikipedia, last modified September 22, 2015, accessed September 23, 2015,
https://en.wikipedia.org/wiki/Indian_Institutes_of_Technology#Educational_rankings
89
Ibid.
90 “QS World University Ranking by Subjects 2015 – Computer Science and Information System,” QS Top
Universities, accessed September 17, 2015, http://www.topuniversities.com/university-rankings/university-subject-
rankings/2015/computer-science-information-systems#sorting=rank+region=+country=+faculty=+stars=false+search=
91 Ibid.
92 T. Suphapakorn, “Comparative Advantage – India,” Academia, accessed September 22, 2015,
http://www.academia.edu/5161699/Comparative_Advantage_-_India.
93
Ibid.
94 Ibid. 95 Ibid.
96 Valerie Cerra and Sweta Chaman Saxena, “What Caused the 1991 Currency Crisis in India?” IMF Working
Papers, Vol. 49, No. 3 (2002): 395-425, accessed November 19, 2015, https://www.imf.org/External/Pubs/FT/staffp/2002/03/pdf/cerra.pdf
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by accepting the International Monetary Fund (IMF) financial assistance program.98 India has to follow IMF neo-liberalist idea. India reformed its economic structure with
deregulation, removal of trade barriers (including non-tariff barriers), and adjusting Indian Rupee exchange rate.99 During the same period, India has continued the economic development with the ICT industry as the main driver.
Indian state initiatives in enabling ICT industry has started since 1980s, before the market liberalization. Later in 1998, a Task Force was formed by the state to take on the IT national movement involving governmental and non-governmental institutions.100 The government has recognized India‟s comparative advantage in ICT with its
communication service at a reasonable price.101 To maintain this advantage, the government took an initiative to improve the IT infrastructure. It includes reevaluating the software sector, monopoly withdrawal, reduction of custom duties, and removing the limitation on the location of software investment.102 The government fulfilled 78 per cent of suggestions from the Task Force for the growth of ICT sector.103
The starting point for India‟s ICT export in 1991 was Software Technology Parks of India (STPI). STPI is a government initiative that established to promote and escalate exports of India‟s software industry.104
The objectives of this initiative are to promote software export, to instrument exporters with Software Technology Parks (STP) or Electronics and Hardware Technology Parks (EHTP), to deliver report of IT-related industry, and to create a supportive environment for small and medium entrepreneur in IT field.105 STP designs allow software companies to set up operations in affordable and
98 J. Cain, Rana Hasan, and Devashish Mitra, “Trade Liberalization and Poverty Reduction,” in India’s Reforms:
How They Produced Inclusive Growth, ed. Jagdish Bhagwati and Arvind Panagariya (Oxford: Oxford University Press, 2012), DOI:10.1093/acprof:oso/9780199915187.003.0004.
99
Ibid.
100 Gurshaminder Singh Bajwa, “ICT policy in India in the era of liberalization: its impact and consequences,”
GBER Vol. 3 No. 2: 49-61, accessed September 21, 2015,
http://www.globalbuiltenvironmentreview.co.uk/Documents/3.2%20Article%204.pdf 101 Ibid. 102 Ibid. 103 Ibid. 104
“About STPI,” Software Technology Parks of India, accessed September 21, 2015, https://www.stpi.in/l1010l2010l301260l40172.
105 “Objectives of STPI,” Software Technology Parks of India, accessed September 21, 2015,
29
comfortable locations and plan their investments.106 The results of STP are centered ICT industries spread in its states‟ territories. Among them are Bangalore, Hyderabad,
Mumbai, Gujarat and several other cities which are famous for their ICT services.107 In line with the neo-liberalism principles regarding the welfare state, India‟s ICT is considered as a way out to eradicate poverty and narrow the inequality gap. By
generating Indian export through the ICT industry, the State expects to generate economies of scale. However, there are other issues in the technology-led economic development. India has to deal with the digital divide that indicates people exclusion.108 The access and connection of technology and communication to individuals is necessary to give the opportunity to enhance social and economic capital to achieve economic gains. Therefore, in India, ICT is used in various government development programs. Currently, India initiates a Digital India program,109 a joint agenda from Indian ministries and departments, which objective is to empower digital society and knowledge economy. This program will further discuss in the next sub-chapter.
2.1.3. International competition
India‟s total trade in the service sector has increased in number over the years. According to data from UNCTAD, India‟s total ICT export was only USD 714 million in 2000, and reached USD 5,358 million in 2013.110 UNCTAD shows that India‟s ICT total export of ICT goods and services, account for 1.11% of total India‟s export in 2005. This share has increased up to 2% in 2010, but declined in 2013 to 1.6%. On the import side, India‟s share of ICT import compared to the world is decreasing over time, from 7.64% in 2005 to 5.78% in 2013. The share composition of service that India trades in international market has changed as well. Transport and travel are decreasing and other services are steadily increasing.
106
“Export Promotion Scheme,” Government of India Department of Electronics and Information Technology, accessed September 21, 2015, http://deity.gov.in/content/export-promotion-schemes-dpl-elec.
107 Government of India Ministry of Communications and Information Technology, STPI Annual Report 2014-2015,
accessed September 20, 2015, https://www.stpi.in/l1010l2010S301600l40192
108
Pradip Ninan Thomas, Digital India: Understanding Information, Communication and Social Change (Thousand Oaks, Calif: SAGE Publications, 2012), 16.
109 Government of India Ministry of Communications and Information Technology, Electronics and Information
Technology Annual Report 2014-2015, accessed September 8, 2015, http://deity.gov.in/sites/upload_files/dit/files/annual_report_2014-2015.pdf.
110 “Data Center,” United Nations Conference on Trade and Development, accessed September 18, 2015,
