Information and Communication Technology and Economic Growth in India

This paper examines the sources of economic growth in Indian economy since the 1980s, with particular focus on the role of information and communication technology (ICT). The impact of ICT on economic growth is analyzed via two main channels. The direct contribution of ICT investment to aggregate economy and manufacturing growth, and the indirect impact of ICT on Total Factor Productivity Growth (TFPG) in ICT using and ICT producing sectors. The results suggest an increasing role of ICT investment in driving aggregate economic growth in India, though largely limited to the service sector. Moreover, the economy has not been successful in spreading the ICT spillover effect across the board, thus limiting the productivity gain from ICT use. Whereas we see an improving productivity growth in ICT using market services and their contribution to aggregate productivity growth, the manufacturing sectors lags quite behind. Indeed, India׳s export oriented ICT sector has helped gain efficiency improvement in its fast growing service economy, while there is still large potential for ICT use in the manufacturing sector. The paper opens further avenues for improving the data on ICT investment, and also stresses the need for more detailed sectoral analysis of the impact of ICT on economic growth, treating computer related and software services separatel