The journey of India’s information technology sector to global success has been long. Yet official information on the size of this sector and its importance for the Indian economy has been lacking. The available information came from private sources, especially the National Association of Software and Services Companies (NASSCOM), or was restricted to data on exports collated by the Reserve Bank of India.

Fortunately, India’s, otherwise strong, statistical system, has finally decided to come to terms with this inadequacy and produce the first set of official estimates on the size of the IT sector. Using information available from ongoing surveys such as the Annual Survey of Industries and the surveys of the National Sample Survey Organisation, the Central Statistical Organisation (CSO) has put together a set of estimates (Ministry of Statistics and Programme Implementation, Value Addition and Employment Generation in the ICT Sector in India, April 2010)that are closer to similar estimates available for developed countries and would serve as indicators and the benchmark for an assessment of the current status and future development of the industry.

Going by the OECD’s definition, the CSO has included in the ICT sector: (i) the manufacture of electronic components, computers and peripheral equipment, communication equipment, consumer electronics, and magnetic and optical media; (ii) the wholesale trade in all of these items; (iii) the provision of telecommunications services; (iv) the provision of information technology services of various kinds; and (iv) the repair of computers and communication equipment.

The new estimates of GDP for this combination of sectors are by no means startling. As expected they establish that in absolute and relative terms the size of the ICT sector in India is now impressive. Estimated GDP (at 2-digit level of the National Industrial Classification) generated in the ICT sector has increased from Rs. 656 billion in 2000-01 to Rs. 2530 billion in 2007-08, which amounts to a compound annual growth rate of 21.3 per cent. The CSO estimates that the share of the ICT sector in total GDP has risen from 3.4 per cent in 2000-01 to 5.9 per cent in 2007-08. ICT services dominate the ICT industry and over time the share of ICT services in total GDP has increased from 3.1 per cent in 2000-01 to 5.5 per cent in 2007-08. This compares with the fact that the contribution of the ICT Manufacturing sector to GDP remains more or less constant at about 0.35 per cent during 2000-01 to 2007-08.

The obvious implication is that the growth of value added in the domestic ICT sector is predominantly on account of services, though the original intent of the IT strategy in India was to ensure adequate domestic production of all hardware (such as small- and medium-sized computers) for which domestic demand was substantial. The most noteworthy feature of the ICT sector is that the share of the ICT services sector in the contribution of ICT as a whole to GDP has been about 90 per cent during 2000-01 to 2007-08. This is largely because the success of India in the IT and IT-enabled services export area has encouraged liberalisation of hardware import that has limited the development of the hardware sector.

This has indeed made the ICT sector an important player in the services-led development trajectory that India has been experiencing. ICT services have increased their share in service sector GDP from 6 per cent in 2000-01 to 10 per cent in 2007-08. All this makes ICT services an important segment of the non-agricultural sector and gives rise to the impression that modern and more productive services are responsible for the dynamism of services and it contribution to GDP growth.

One rather surprising trend is that, even though the rapidly expanding communication services sector is a part of ICT services, the ‘computer and related services’ segment has grown steadily and come to dominate the ICT services industry. Its share in total ICT services increased from 46 per cent in 2000-01 to 61 per cent in 2007-08. One reason could that competition in the communications services segment has reduced prices and value added far more than it has in the IT services sector.

This rise to dominance of computer-related services is clearly related to India’s success in the IT and IT-enabled services areas. According to the Reserve Bank of India’s (RBI’s) balance of payments data, gross exports of software, business, financial and communication services amounted to 5.3 per cent of GDP at market prices in 2007-08, with software services exports touching 3.4 per cent of GDP. These figures compare with a merchandise exports to GDP ratio of 14.2 per cent.

India took advantage of the increase in the global exports of services with its share in world exports of services rising from 1.1 per cent in 2001 to 2.6 per cent in 2006. As a result India was ranked 11th among the world’s leading exporters of services. The only other developing country that contributed more than India was China. Within exports of services, Software and Non-software miscellaneous services dominate. Thus, by 2001, software services and Non-software miscellaneous services accounted for 60 per cent of total services exports and this figure had risen to 64 per cent by 2007-08. Clearly, software services exports and business process outsourcing (BPO) were responsible for India’s success as a services exporter.

The disconcerting feature here is the limited contribution to employment that this expansion of the ICT sector has made. A typical example is the IT sector, the contribution of which to employment does not compare with its role in the generation of income and foreign exchange. Going by NSS figures, employment in Computer related activities (Category 72 of National Industrial Classification 2004) which increased from 314 million in 1999-00 to 963 million in 2004-05, accounted for 0.2 per cent of the work force. If we consider categories 65 to 74 which covers all business services including Financial intermediation, and Real estate, renting and business activities, the share of employment in that sector is just 1.7 per cent.

This significant lack of correspondence between GDP and employment figures makes the remarkable growth of the ICT sector in particular and services in general a complex story that is yet to be fully understood.

Keywords: ICT sectorITNASSCOMGDPeconomy