Home India 2005 India: the future knowledge economy

India: the future knowledge economy

by david.nunes
Shirish B. Purohit
Deepak Pareek
Issue:India 2005
Article no.:6
Topic:India: the future knowledge economy
Author:Shirish B. Purohit and Deepak Pareek
Title:CEO and Founding Director, and Executive Advisor to the CEO
Organisation:Midas Communication Technologies
PDF size:76KB

About author

Shirish B. Purohit is the CEO and a founding director of Midas Communication Technologies Pvt. Ltd. Mr Purohit oversees all organisational and operational aspects of the company including business development, project management, technology, applications development, finance and administration. Mr Purohit has over 15 years of experience managing design and development activities in industrial automation, monitoring and control systems, telecom and networking products. Before Midas, Shirish B. Purohit founded Texel Systems, which specialised in automating test and measurement systems. In 1994, Shirish co-founded Midas. Mr Purohit holds a Bachelor’s Degree in Electrical Power & Electronics from REC, Nagpur, and an M.Tech in Electrical Engineering from IIT, Madras. Mr Purohit specialised in integrated circuits and systems design. Deepak Pareek, Executive Advisor to the CEO of Midas Communication Technologies is a strategist, speaker and author. Mr Pareek has spoken regularly on topics related to management, banking, leadership and technology at the IMF, CBI, Nasscom, UNIDO, WBG, WTO, AfDB and ADB. Mr Pareek has delivered keynote addresses and workshops at ITFinance Africa 2003, the International Conference on e-business and Telecommunication Networks (ICETE), Portugal, Internet World, Hong Kong, and Institute for Development and Research in Banking Technology (IDRBT), to mention a few. Mr Pareek has authored articles and reports for Consulting Base, CIO, WSJ, Banker Analyst, The Manager, Strategist, The Bankers and various other magazines and reputed websites. Mr Pareek has earned degrees in electronics engineering and in business, specialising in strategic management. Mr Pareek has served as a visiting faculty member at institutions such as IIM, ICFAI, NIBM (India), KITA (South Korea) and IBBM (Malaysia).

Article abstract

Although much is said of India’s transformation into an ICT economy, vanquishing socio-economic challenges, illiteracy, poverty and the digital divide, 79 per cent of India’s population lives in villages without the infrastructure to sustain a knowledge economy. Even if the most optimistic projections of IT-related job creation come true, this industry will employ at the most a couple of million people. Moreover, business process outsourcing is a commodity; competition is driving prices down and many call centres are already struggling.

Full Article

Technology is the buzzword today. Today’s technology would have been sci-fi stuff for us at the beginning of the 20th century. Today, information technology is the field to be in. India’s success in Information Technology (IT) during the last decade has been spectacular. Entrepreneurs, bureaucrats and politicians are now working to get India on the IT bandwagon and leapfrog into a knowledge-based economy. Isolated instances of villagers sending and receiving email messages or surfing the Internet are being promoted as examples of how India can achieve this transformation, while vanquishing socio-economic challenges such as illiteracy, poverty and the digital divide. Likewise, although only a miniscule fraction of the population has access to computers and the Internet, e-Governance is being projected as the way of the future. There is no dearth of fascinating stories about IT-enabled changes, yet there is little discussion about whether such changes are effective and sustainable in the absence of the basic infrastructure that citizens in more advanced economies have access to. Technology is changing our lives in a big way–it has progressed in leaps and bounds–but this progress has been mainly IT-centric. IT has indeed generated profits, but its contribution to India’s development is debatable. Almost 20 per cent of the Indian population is ‘e-connected’ and is leading an ‘e-life’ of sorts. The students within this fraction of the Indian society make good use of the information on the World Wide Web, but what of the remaining 80 per cent? What do the ‘IT-genies’ have to offer them? US president, Bill Clinton, was mightily impressed to see that women in a tiny Rajasthan village conduct their dairy business through a networking system. Now that is something to boast about if you ignore the fact that there are lakhs (hundreds-of-thousands) of villages in India without basic amenities living and working in poverty. “A knowledge economy is one that relies intensively on human skills and creativity, the utilisation of human intellectual capital supported by life-long learning and adaptation, the creative exploitation of existing knowledge, and extensive creation of new knowledge through research and development.” The statistics speak loudly and clearly. Seventy nine per cent of India’s population lives in villages without the amenities or infrastructure to sustain a knowledge economy. Although 60 per cent of the population is considered literate, note that ‘literacy’ in this context is to read and write simple words, in any language, with or without formal schooling. This criterion is so simplistic that it is almost irrelevant within the framework of a knowledge economy. Yet, central and state governments in India are investing millions of dollars in promoting IT-based initiatives and the IT industry, as vehicles of social and economic transformation. Are we putting the cart before the horse? Even if substantial IT investments are justifiable, how must the IT revolution proceed so that the nation is benefited in a wholesome, balanced, way? India as a knowledge economy The economic value of IT depends greatly on the economic progress a nation has already achieved. IT can make existing processes more effective and efficient, but cannot substitute for the lack of basic infrastructure. What is good for a developed country, like the US, is not necessarily so for a developing country, like India, where the basic infrastructure for a successful economy such as educational opportunities, healthcare, electricity, drinking water and capital are still in short supply. The impact of IT is best understood when the fundamental differences between the innovations and ventures of industrial and knowledge-based economies are recognized. Industrial growth derives from investments in large-scale infrastructure such as railroads, roadways, power grids and dams. These, in turn, support the growth of physical-asset intensive industries (e.g. the steel, chemical and transportation industries) that create and move physical entities such as people, water and goods. The ventures of an industrial economy typically employ large numbers of workers with minimal training, education and skills. These ventures have the potential to uplift large sections of the population. In contrast, innovation in the knowledge economy usually engenders highly specialised knowledge–intensive products and the large-scale capture, movement and usage of information using a sophisticated network infrastructure–for example computers, cable, fibber and routers. Further, despite all the hype of moving into a ‘new’ economy, the fact is that economic development is cumulative. The past matters; economic development builds on preceding accomplishments. The industrial economy made agriculture more efficient and productive. The productivity of agricultural labour skyrocketed with the use of industrial and biological innovations including tractors, fertilisers, irrigation systems, pesticides and genetically engineered seeds. It is not surprising, therefore, that the greatest source of real productivity, growth and efficiency attributed to the information economy derives in the long run not from the information economy itself, but from its effects on the industrial economy. The ‘leapfrogging’ argument, whereby India skips massive industrialisation and moves straight into the information economy, is suspect. Proponents of the leapfrogging argument frequently advance the example of Indian villages that, without any electronic communications, directly adopt a cellular phone, rather than work their way up through physically connected communication systems. This example provides some excellent symbolism, but the underlying argument is not scalable to a national economy. IT, job growth and government investment From a social planner’s perspective, it is important that wealth not only be created, but that it is distributed so that all sections of society benefit. The development of IT in India has, by and large, focused on developing and delivering IT services to support the more advanced economies of the world–e.g. the US, Japan, the UK and Germany. Even if the most optimistic projections of IT-related job creation in the next decade come true, this industry will employ at the most a couple of million people. Moreover, is this model economically sustainable in the long run? Call centres, by and large, are commodities. Due to intense competition, prices for some of these services have fallen so dramatically that many call centres are already struggling to survive. Also, it is very likely that other developing nations with even cheaper labour and growing English-speaking populations will compete with India in this area in the near future. Call centres, unlike manufacturing plants, can be shifted easily from one country to another–it is difficult to achieve ‘lock-in’ in this arena. The actions of the government in the recent past have tilted in favour of the IT sector. The government needs a more balanced policy–one that ensures that the core industrial sector is not ignored in the rush toward IT. IT, population and education It is fashionable now to say that India’s population constitutes one of her greatest assets. That viewpoint is misleading. People are assets only when they can meaningfully participate in the cycle of value creation and consumption–either by exercising buying power, or creating products and services of value to others, or by creating and harnessing knowledge. Distance learning and e-learning are already being touted in some quarters as solutions to India’s educational challenges. The proffered argument is that IT can enable cheap and widespread delivery of education. This reasoning ignores the real problem facing the Indian educational system–i.e. how can we encourage poor, uneducated, children to go to school, stay in school and progress to higher institutions of learning? The answer lies in understanding physiology and economics, rather than in implementing technology. Presenting technology as the solution to India’s educational challenges is troublesome in two ways. First, it diverts our attention from issues that should really be on the front burner. Once attention and resources are diverted, getting back on track is a monumental task. Secondly, as castles in the air are soon blown away by the winds of reality, it does a serious disservice to the more limited yet substantial and real benefits of technology. IT and culture A knowledge economy is characterised by a culture of innovation, which provides incentives for innovation and intellectual property protection. The culture of innovation supports the view that to try hard and fail is perfectly fine. Yet, the Indian psyche has historically been averse to blessing risky ventures–in fact, education is seen as a way to avoid risky options, rather than to enable intelligent risk-taking and entrepreneurship. This hinders innovation, because meaningful innovation is rarely without risk. This attitude carries into the corporate arena. The Indian manufacturing and automobile industry was almost static for three decades before competition brought rapid change. Competition breeds innovation–lacking competition, there is little incentive for corporations to innovate. Not surprisingly, as market competition has increased, R&D spending by US firms has increased sharply, at an annual rate of over 6 per cent from 1995-2000. While one side of the cultural coin pertains to the incentives for innovation, the flip side pertains to its protection. Ideas, unlike property, cannot be protected by a fence or by guards. Intellectual property protection is not a purely economic issue–it has important cultural aspects as well. The economic angle can be addressed by defining newer and stronger patent laws and punitive procedures. However, the cultural issues will decide whether such protection can be enforced. Addressing the cultural angle is a challenge–it requires that even without the threat of punishment, we draw a clear, disciplined, boundary between what is ours to take and keep and what is not. Making the cultural shift requires that we stop treating intellectual property rights in a casual manner. In the context of intellectual property, economic measures and cultural shifts should proceed hand-in-hand before the spirit of entrepreneurship in India can take full flight. The road to technology A society divided by social and economic fissures must think carefully about how it achieves economic and technological advance. In India, particular attention needs to be paid to when, where and in what form IT and technological advances are encouraged. The stakes are quite different when it comes to the formulation of national economic policy. The formulation of national policy requires important tradeoffs between the benefits to industrial sectors, regions and classes of people. The quest for superior technology must be moderated by an understanding of its implications at the social level–what is good for a corporation or entrepreneur may not always be good for society, and vice-versa. Successful technology adoption will move at a pace and direction in harmony with changes in the socio-economic fabric. The role of the government in ensuring such harmony cannot be underestimated. This is especially true in India where the government remains responsible for a significant fraction of the economic output and is actively involved in shaping rules and regulations as India integrates into the global economy. India’s IT sector symbolises the potential of Indian industry to perform at world-class standards. Led by some visionaries, and supported by thousands of employees and entrepreneurs, the IT sector embodies much of what can go right when human enterprise is given free rein. IT can change how the society communicates, collaborates, lives, works and plays, but offers little to the population that is more concerned with day-to-day survival. It is not surprising that, while India is considered a software superpower, its Internet penetration is grouped with Latvia, Thailand and Indonesia. The success of IT in Indian corporations does not mean it can solve India’s myriad economic challenges. Just as rain can lead to floods and destruction, an obsession with IT and the knowledge economy is not useful in India. To help, the IT rain must fall at the right place, in the right quantity, at the right time and for right purpose. Economic policies of a developing country cannot be based on ‘herd’ behaviour, and upon what is momentarily hot in the international market. The aggressive pursuit of IT is not the sole pathway to a first-class economy, despite the glowing success of high-profile IT companies. After all, a country is not a company!

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