Journal of Applied Input-Output Analysis, Vol. 10, 2004

Sources of Growth of Information Sector in India
During 1983-84 to 1993-94

By

Sikhanwita Roy, Tuhin Das and Debesh Chakraborty

Abstract
Of all the technologies of our time, progress in information technology (IT), no doubt, hadand continues to have the greatest influence on the global economy, making it possible tocollect, process, and transmit information at breathtaking speed and declining cost, thereby
increasing productivity and improving quality and efficiency in all types of industries andservices. Realizing such huge potential of information technology, the demand for informa

tion in every form seems to be steadily increasing throughout the world.
The Indian economy is no exception. Various government policies in the 1980s influenced
the growth and structure of the Indian IT industry. India witnessed an impressive growth ininformation sector in the last decade. The performance of India's telecommunications sector
got a shot in 1984. By 1999, India had an installed network of over 25 million telephonelines spread across 300 cities, 4869 towns, and 3,10,897 villages, making India's telecom
munications network the ninth largest in the world. The computer software industry in India
was identified as a major powerhouse for the incremental development of computer soft
ware. According to National Association of Software and Service Companies (Nasscom),the software industry in India was worth Rs.525 billion in 2001-02. The computer softwareand services exports rose from Rs.65 billion during 1997-98 to Rs.110 billion during 1998-

99, a growth of about 70%, making it the single largest export item constituting nearly 86%
of the total electronics export.

Realizing the importance of the Indian IT industry, we make an attempt in this paper tostudy the sources of growth of the information sectors of India during 1983-84 to 1993-94
with the help of input-output techniques.

1. Introduction
Of all the technologies of our time, progress in information technology (IT), no doubt,
had and continues to have the greatest influence on the global economy, making it pos
sible to collect, process, and transmit information at breathtaking speed and declining
cost, thereby increasing productivity and improving quality and efficiency in all typesof industries and services. Most industrialized countries and an increasing number ofReceived April 2003, final version received October 2004.

This is a revised version of the paper presented at the "Fourteenth International Conference on InputOutput Techniques" held at Quebec University, Montreal, Canada, 10-15 October, 2002. Thanks are due
to an anonymous referee for his valuable comments. Errors, if any, lie with the authors.

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Journal of Applied Input-Output Analysis, Vol. 10, 2004

newly industrializing countries had been using new information technology in areas asdiverse as education, health-care, manufacturing, finance and banking, transportation,commerce, publishing, energy conservation, and environmental management. Therefore,
it can be asserted that the impact of information technology on society is tantamount toa second industrial revolution as momentous in its implications as the first [Miller,
2001].
Realizing such huge potential of information technology, the demand for informa
tion in every form seems to be steadily increasing throughout the world. Having surpassed the $2 trillion mark in 1999, the global information communication technology(ICT) industry was assumed to smash through the $3 trillion threshold in 2004. The
global reach of the ICT revolution could be seen in the performance of both regions

and individual nations. U.S. remained world leader in terms of ICT spending in 1999

with $762 billion, followed by Japan ($362 billion) and Germany ($139 billion). The
top ten list was rounded out by the United Kingdom, France, Italy, Canada, China,
Brazil and Australia. The view that developed countries clearly dominate the top ICT

spending list, however, shifts dramatically when the emphasis is changed from 'total

spending' to 'growth in spending'. The regions with smallest base of information com
munication technology (ICT) are out spacing North America and Western Europe,

which are regions with mature ICT infrastructures. Eastern Europe and Latin America

ICT spending both grew at 42% between 1997 and 1999 compared to North America
and Western Europe, which edged up 15% and 13% respectively during the same pe

riod. The Middle East/Africa and Asia/Pacific stood the middle ground for spending
growth in these years with the former moving up 26% and the latter 18%.
This acceleration among developing nations was also apparent among the top ten

spending nations, where China's compound annual growth rate (CAGR) from 1992 to1999 was approximately seven times that of France and almost nine times that of Italy;

Brazil over four times the growth rate of those countries. Vietnam remained the world
fastest growing ICT market, sprinting at an almost 35% CAGR over seven years, 19921999. Other countries growing at better than 10% included Poland, Colombia, India,
Hungary, Romania and Slovakia.

This suggested that while the installed base for ICT remained in Northern econo

mies, the "hot markets" for build out of ICT global infrastructure were the regions withsmallest base of ICT.

In spite of the globalization of ICT, the top ten information economies represented
80% of global ICT market; the bottom ten in the rankings represented a collective
share of less than 1%. This disparity came to be known as the "Digital Divide" —thegap between nations that could and could not afford technology investments. The top

ten countries spending the most on ICT per capita were, respectively, Switzerland, Ja

pan, U.S., Sweden, Denmark, Singapore, Norway, Netherlands, U.K. and Australia.
Measured as a percentage of GDP, however, the list was topped by Sweden, New Zea

land, U.K., Colombia, Australia, U.S., Czech Republic, Canada, Hong Kong and Singapore. On the opposite end were Indonesia, Russia, Romania, Bulgaria, Thailand, Tur

key, other Middle East/Africa, Philippines, other Eastern Europe and Saudi Arabian
Gulf States.

In spite of the "Digital Divide", countries like China and Brazil made the "divide"
look much more like a digital opportunity. Since 1992, China's ICT spending had ex-Sources of Growth of Information Sector in India During 1983-84 to 1993-94

15

perienced a compound annual growth rate of approximately 30%. Were this rate of

growth to be continued over the next five years, China would represent a $177 billion
ICT marketplace by 2004. This strong positive momentum —the digital opportunity—presented itself in other measures as well. In comparative terms, China's share ofworldwide ICT spending increased more than any other country. Back in 1992, China

accounted for just 0.6% of global ICT spending. By 1999, this percentage jumped four
fold to 2.2%, while nations like, Germany slipped from 8.2% of world ICT spending

to 6.5% during the same period; France, moved down from 5.9% to 4.8% and Italy
went down from 3.5% to 2.6%.

Thus, we see that regions with smallest base of information communication tech
nology (ICT) were also becoming fastest growing ICT region. The Indian economy
was no exception. She too had been aspiring to modernize its infrastructure, transform
its industry and join the global economy.

Government policies have been highly influential in shaping the development
agenda of the Indian information economy. The realization of the importance of informatization of the economy was reflected in the computer policy of November 1984,
which signaled a substantial liberalization of import policy on complete computers,

computer kits and components. The period 1987 to 1990, however, witnessed a steadyreversal of some earlier import liberalizations because of concerns about impact of ear
lier liberalizations and changes in political economy of the state. So the policy at theend of this period was a compromise between the relative extremes of protectionism
and liberalization. Following the severe balance of payment crisis of 1991, computerindustry policy was again subject to a familiar set of liberalizations.
The policy changes in the eighties had positive impact on the growth and structureof the Indian IT industry. Along with other Asian countries such as Philippines, Malay

sia and Hong Kong, India witnessed an impressive growth in information sector in thelast decade. The performance of India's telecommunications sector got a shot in 1984.
In 1985, the Ministry of Post and Telegraphs was reorganized and a Department of
Telecommunication was formed under a new Ministry of Communications to focus ex

clusively on the telecommunications sector. There after a sea change occurred in thetelecommunications scenario. By 1999, India had an installed network of over 25 million telephone lines spread across 300 cities, 4869 towns, and 3,10,897 villages, mak

ing India's telecommunications network the ninth largest in the world.
The computer software industry in India was identified as a major powerhouse forthe incremental development of computer software. According to National Associationof Software and Service Companies (Nasscom), the software industry in India wasworth Rs.525 billion in 2001-02, whereas in 1995-96 its worth was not more than 42.4
billions. Various government policies identified software as thrust areas for exports,
which already achieved a certain measure of success. The computer software and serv

ices exports rose from Rs.65 billion during 1997-98 to Rs.110 billion during 1998-99,
a growth of about 70%, making it the single largest export item constituting nearly

86% of the total electronics export. According to a recent study conducted by Ernst
and Young, and sponsored by the Manufacturers' Association for Information Technology (MAIT), the Indian electronics hardware industry was expected to reach $25 billion in export by 2010. Though the software industry was primarily export oriented,

the Indian IT hardware industry was domestic market oriented. It grew at an average

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Journal of Applied Input-Output Analysis, Vol. 10, 2004

annual rate of 13% between 1995-96 and 2001-02.
The most important impact of the computer on the Indian economy was generated
by the Internet. According to a survey conducted by Nasscom, India had an estimated
1.6 million Internet subscribers and about 4.8 million users in August 2000. With thefavourable Internet service provision and policies of the government, these numbers
were projected to explode to about 15 million subscribers or roughly 50 million users
by 2003.

The Internet spawned the era of e-business (electronic business), which consisted

mainly of e-marketing and e-commerce. India was still in the infant stages of ecommerce. In 1999-2000, only Rs.4500 million worth of e-commerce (both business-to-business[B2B]

and business-to-consumer [B2C])

wastransacted.

McKinsey,theglobal consulting company, projected the e-commerce market in India at $10 billion by
2008.

Since the policy changes in the eighties had positive impact on the growth andstructure of the Indian IT industry, in this paper we propose to identify the sources ofgrowth of the Indian information sector during the period 1983-84 to 1993-94 with

1989-90 as the watershed year using Structural Decomposition Analysis (SDA). This
technique is regarded as one of the useful tools to identify sources of growth.

The paper is arranged in the following manner: We begin with the description of
two theoretical models developed in an input-output framework adopted for the present

study. This is followed by coverage and analysis of data. The results of the decomposi
tion analysis has been presented and analyzed next. The paper concludes with a synop
sis of the findings and their implications.

2. ModelFor the purpose of identifying the sources of growth in the various information sectors,

a Model based on Structural Decomposition Analysis (SDA) has been developed. SDA

are nowadays a common descriptive tool in studying changes over time. The central
idea is that the change in some variable is decomposed, usually in an additive way,

into the changes in its determinants. It thus becomes possible to quantify the underly
ing source of the changes. A good volume of literature with respect to SDA methodol
ogy and its application has developed in recent years. To name a few are Rose & Car
ter (1996), Albala-Bertrand (1999), Alcala et al. (1999), Mukhopadhyay & Chakraborty(1999), Dietzenbacher & Los(2000),

Drejer (2000),

During&Schnabl(2000),

Shishido et al. (2000), Jacobsen (2000) and de Hann (2001).

Two models based on Structural Decomposition Analysis (SDA) have been devel
oped which are presented below.

2.1 Model I
Model I starts from an accounting identity of demand and supply. In an open Leontief
system, the basic material balance between demand and supply can be written as

Sources of Growth of Information Sector in India During 1983-84 to 1993-94

X = Ui (Di + Wi) + Ei

17

(1)

where

Xi = domestic production of commodity i
Di = domestic final demand for commodity i

Wj = intermediate demand for commodity iE= exports of commodity i

Ui= domestic supply ratio defined by (Xi - E) / (Di + Wi)

i.e. the proportion of intermediate and final demand produced domesticallyin sector i

Noting that the intermediate demand is determined by production levels and inputoutput coefficient matrix, W = AX, equation (1) in matrix notation can be expressed as
X = uD + uAX + E

or X = (I - uA)-'(uD + E)
= R (uD + E)

(2)

where

R

=(I-uA)-'u= diagonal matrix of sector domestic supply ratioA= the matrix of input-output coefficient (a^)
and X, D and E are vectors

Using equation (2) we can transform the basic material balance equation into information balance equation as

eX = e[R(uD + E)](3)

where e is a diagonal matrix composed of ones and zeros. The ones appear in the column locations that correspond to information sectors and all the other elements of thematrix are zeros. The matrix selects the information rows from input-output table.
The change in output of information sectors between the base year (0) and thecomparison year (1) can be written as
AeX = e (X, - Xo)= e [R, (u,D, + E,) - Ro(uoDo + Eo)]

(4)

Adding and subtracting eRiUiDo , eRiEo and eRiU0D0 in equation (4), we have
AeX = e [R.UiDi + R,E, - RouoDo - RoEo + R,u,D0 - R.u.Do+ R,E0 - R.Eo + RiUoDo - RiUoDo]= e [R,u,(D, - Do) + R.(E, - Eo) + R,(u, - uo)Do+(R, - Ro)uo Do + (R. - Ro)Eo]= e [R,u,AD + R,AE + R,AuD0 + AR(u0 Do + Eo)](5)

Now AR = R, - Ro

= -RKR,)-' - (Ro) -']Ro= -Ri[I - UiAi - I + UoAo]Ro= R,[u,A, - UoAo]Ro
Adding and subtracting UiA0 in equation (6), we have,

(6)

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Journal of Applied Input-Output Analysis, Vol. 10, 2004

AR = Ri [uiAi - UiAo + UiAo - uoAo]Ro= Ri [ui(Ai - Ao) + (ui - uo)Ao]Ro= R.u.AARo + R,AuAoRo(7)

Substituting (7) in (5)AeX = e[R,u,AD + R.AE + R,AuD0 + R,u,AARo(uoDo + E>)+ R,AuAoRo(uoDo + Eo)]
= e[R,u,AD + R,AE + R.AuDo + R,AuA0X0 + R,u,AAX<,]= e[R,u,AD + R.AE + R,Au(D0 + A0X0) + R.u.AAXo]
Thus the total output of information sectors can be decomposed into its sources
by category of demand as

AeX = e[R,u,AD + R,AE + R,Au(D0 + Wo) + R,u,AAX0](8)

The first term on the right hand side denotes the impact of the change in domestic

final demand; the second one the impact of change in exports and the third term measures the import substitution effect on production of information goods and services as

expressed by changes in domestic supply ratio. The fourth term denotes the impact ofchanges in input coefficients. This effect represents widening and deepening of interin
dustry relationship over time brought about by the changes in production technology as
well as by substitution among various inputs, although one cannot separate these twocauses.

Each term in the decomposition is multiplied by elements of the Leontief domes
tic inverse. The terms therefore capture both the direct and indirect impact of eachcausal expression on gross output of information sectors taking account the linkages
through induced intermediate demand.

In the decomposition equation, import substitution is defined as arising fromchanges in the ratio of imports to total demand. This implicitly assumes that the im
ports are perfect substitute for domestic goods, since, the source of supply constitute an
integral part of the economic structure.

The aggregate contribution of import substitution to growth, as defined here, issensitive to the level of industry disaggregation. For example, it is possible to havepositive import substitution in every industry but have the ratio of total imports to total
demand increase because of changes in the industry composition of demand.

The effect of changes in input coefficient includes changes in the total coefficientand does not separately distinguish between

imported anddomestically produced

goods. Thus, the input coefficients may remain constant (Aay = 0) and hence the lastterm in (8) will be zero even though there are changes in domestic supply ratio.
Changes in technology are defined as changes in the total coefficients while anychanges in the intermediate domestic supply ratios are included in the import substitu
tion term.

Assuming that changes in information use technologies and changes in noninformation technologies within each sector are separable, the effect of change in input coefficients or often termed as technological change can be further decomposed into theeffect of technological changes in information use and the effect of technologicalchanges in noninformation use . We can do so by partitioning and writing the changes

Sources of Growth of Information Sector in India During 1983-84 to 1993-94

19

in technical coefficients as(A, - Ao) = (A,., - Aw) + (A,.n - Ao.N)(9)

where Ai represents the information rows of technical coefficient matrix and AN repre
sents the non-information rows. Thus,
eRiiiiAAXo= eRiUi(Ai - Ao)Xo= eRiUi[(Au - Ao.i) + (Ai.n - A0.n)]X0= eRiUi(Au - Ao.i)Xo + eRiUi(Ai.N - A0.N)X0(10)

While the first term of equation (10) captures the effect of changes in information
inputs, the second term shows the effect of changes in non-information inputs. This
tells us that the change in intermediate information demand can be caused not only bychanges in direct information inputs (Ai) but also by changes in direct non-information
inputs (An). Furthermore, the changes in direct input requirements will be multiplied
across the economy, through inter-industry input-output linkages, which are quantified
by the total requirement matrix, R.

Domestic final demand can be further decomposed into growth effect and mix ef

fect. If we define XD as the ratio of domestic final demand between any two periods,
which is used to indicate the factor of proportional growth during the period i.e.

where D represents domestic final demand vector and[i is a unit row vector

Gd is a diagonal matrix whose diagonal elements are A,Dthen the effect of domestic final demand change can be further decomposed into:eR,u,AD= eR,u,[D,-Do]
Adding and subtracting eRiUiGdD0= eR,u,[D, + GdDo - GdD0 - Do]
Rearranging terms then yields

eR,u,AD = eR.u, [Gd- I] Do + eR,u,[D, - GdD0](11)

The first term of equation (11) shows the effect of growth in domestic final demand and the second term depicts the effect of mix in domestic final demand.
In addition, we can also calculate the information output changes that originate inindividual domestic demand categories, such as, private final consumption expenditure(PFCE), government final consumption expenditure (GFCE), gross fixed capital forma

tion (GFCF) and change in stock (CIS). Mathematically this is very simple, because fi
nal demand in the input-output system is additive. Thus

eR,u,AD = eR,u,2jh ADh[(Gd - I) Doh + (D? - Gd Eft)]

(12)

20

Journal of Applied Input-Output Analysis, Vol. 10, 2004

where ADh is the change in information output resulting from changes in domestic
demand category h.

We summarize the hierarchial structure of the estimation equations in Table 1.

Table 1: Structural Decomposition of Change in Information Output Based on
Sda (Model I)
Factors

Equation

Change in information output

e (X, - Xo) = e [R, (u,D, + E.) - Ro (u0 Do + Eo)]

Domestic final demand effecteRiu,[D, - Do]

Effect of mix

eRiUifD, - Gd Do]

Effect of growtheR,Ui[Gd - I] Do

For demand source heR,u.[(Gd - I) DS + (D1,1 - Gd Do1)]

Export effecteR,(E, - Eo)

Import substitution effecteR,(u, - uo)(Do + Wo)

Technical coefficient effecteRiUi(Ai - Ao)Xo

Information input coeff.

eRiUi(Au - Ao.i)Xo

Non inf. input coeff.

eRiUi(Ai,N - Ao,n)Xo

2.2 Model II
In the previous model the sources of import substitution have been ignored. Also, sev

eral authors like Chenery and Syrquin (1986) and Syrquin (1988) have pointed out thatthe role of the last factor i.e., technology has been underestimated for a long time. In
this model, our aim is to investigate these two aspects of the structural transformation.
The prime difference between the previous model and this is that in the latter importhas been endogenized.
First, we define:X?j = element (i,j) of the matrix of intermediate deliveries supplied by domestic
production

M!j = element (i,j) of the matrix of intermediate imports by origin
so thatXij = Xy + My = element (i,j) of the matrix of intermediate deliveries
Then, we define:

D? = element i of the vector of domestic final demand supplied by domestic pro
duction
D!" = element i of the vector of imported domestic final demandso that

Di = D? + Dl" = element i of the vector of domestic final demand
Next, we define

Ei = element i of the vector of exports
Then we have the input-output accounting identities

Sources of Growth of Information Sector in India During 1983-84 to 1993-94

X = XJ + D? + E

21

(13)

where Xs denotes the i element of vector of gross output supplied by domestic production

Finally we defineuf= a diagonal matrix with uf = D?/ Di as the element on the main diagonal (i.e.

uf is the domestic supply ratio of the domestic final demand for product i)
Ad = the matrix of domestic input-output coefficient

Rd = [I- Ad]~' = the Leontief domestic inverse matrix

Am = matrix of imported intermediate input coefficients with a,™ = My / Xd as ele
ment (i,j), andA= Ad + Am , i.e. the matrix of total (domestic plus imported) input-output coef

ficients

Then equation, in obvious notation reads: Xd = Ad Xd + uf D + E from which it easily
follows that

Xd = Rd (uf D + E)

(14)

Using equation (14) we can transform the basic material balance equation into information balance equation as

eXd = eRd (uf D + E)

(15)

where e is a diagonal matrix composed of ones and zeros. The ones appear in thecolumn locations that correspond to information sectors and all the other elements ofthe matrix are zeros. The matrix selects the information rows from input-output table.
The change in output of information sectors between the base year (0) and thecomparison year (1) can be written as

Ae Xd = eRd (u!D,+ E.) - eRS (u0 Do+ Eo)(16)

From the above equation (16) we can easily derive

Ae Xd = e[Rd u{ AD+ Rd AE + R? Auf Do + ARd (uS Do + Eo)](17)

The first term on the right hand side denotes the impact of the change in domestic
final demand (supplied by domestic production), the second one the impact of thechange in exports and the third one the impact of substitution of imports by local domestic final demand (import substitution of final products). The fourth term denotes thechange in the Leontief domestic inverse matrix that will be decomposed below into im
pact of technological change and of import substitution of intermediate products.

Now ARd = Rd AAd Rt
So equation (17) can be rewritten to

Ae Xd = e[Rd ulAD + Rd AE + Rd Auf Do + Rd AAd XS](18)Since it is clear that AAd is caused by technological change as well as by importsubstitution of intermediate products, we have to separate these two effects from eachother.

The ratio %/ ayo - 1 is the change in the total technical coefficient which we will

22

Journal of Applied Input-Output Analysis, Vol. 10, 2004

take to be the rate of technological change (=TC). Consequently, when we multiply a^oby (1+TC), we obtain a value of a,™ in period 1 (denoted by &5>') that would have been
observed if a™ would only have been affected by technological change; i.e.

ajo' = (aij, / aij0) aS>(19)

Consequently, a™! - ayj/ denotes that part of a!]1 that is caused by import substituionof intermediate products only. Since ajji = ayi - ajj1! , -( a?i - ago') denotes the same ef
fect on the domestic technical coefficients, in matrix notation:-(AT - AS1') where A?' is the matrix with typical element ago'
Now we have

AAd = AA - AAm= -(A? - AS1') + [AA - (Aomf- AS1)](20)

The typical element of AS1'- AS1 is: ayi'- a™o . Since alp'denotes the value of a? thatwould be observed in period 1 if a!]1 was only affected by technological change, sub

tracting a™0 from ago'yields the change in a,™ caused by technological change only.
Substitution of (20) into (18), the resulting expression is

AeXd = e[Rd u! AD + Rd AE + Rd Auf Do - Rd (AT - AS")XS+ Rd [AA - (AS1'- Aom) ] XS](21)

In equation (21), the fourth term denotes the impact of substitution of intermediate

products by domestic production and the fifth term denotes the impact of technologicalchange.

Decomposition of the impact of technological change over sectors
It is clear that the last term in equation is equal to the sum of the effects of technologi

cal change in each sector j on i. For a more informative analysis of the impact of tech
nological change, we therefore determine the individual impact of technological change
in sector j on the growth of output of sector i.

Let us consider the last term of equation. Let 0" denote the vector of which allelements are equal to zero and let Aaf denote the jth column of AA (= Ai - Ao) and letq" denote the jth column of AS1'- AS1, and define the following matrices:
Bj = ((r....(T Aaf 0~(T) j = l,...,nQ = ((T....(r q ~ 0~0") j =l,....,nandThen obviously

AA= J;, Bj and A?'- AS1 = £J]L, Q
so that

R2 [AA - (AS1'- AS1) ] Xd = £;, R2 [Bj - Q] Xd(22)

The (nxl) vector R2 [Bj - Q] Xd denotes the impact of the technological change insector j only, on the output of each on the n sectors.

Sources of Growth of Information Sector in India During 1983-84 to 1993-94

23

The matrix that contains the vectors RftBj - Q] X? (j = l,...,n) will be called D.
Obviously for the information sector we have:

eDi = eRo [AA - (AS1'- AS1)] Xi(23)

where i = (1...1), i.e. the summation vector.

It is to be noted that the elements on the i* line of eD can be interpreted as being theimpact of technological change in each of the n sectors on the gross output growth of

the ith information sector. Alternatively, the elements on the jth column of eD measures
the impact of technological change in sector j on the gross output growth of each of
the information sectors.

We summarize the hierarchial structure of the estimation equations of Model II in
Table 2.

Table 2: Structural Decomposition of Change in Information Output Based on
Sda (Model II)
Factors

Equation

Change in information output

eR? (u! D, + E,) - eRo (uS Do + Eo)

Domestic final demand effect.

eR? u! AD

Export effecteR? AE

Import substitution effect (final demand)eR? Auf Do

Import substitution effect (int. demand)eR? (AT - AS1')

Technical coefficient effecteR? [AA - (Aom'- Ao)J Ao

3. Coverage and Analysis of Data
The basic data are the three input-output tables of the Indian economy for years 198384, 1989-90 and 1993-94 prepared by Central Statistical Organisation of India (1990,
1998, 2001). They are made comparable by suitable aggregation to 35 order. These 35
sectors

are grouped into two broad categories: information and noninformation. Infor

mation activities are those which either intrinsically convey information process, produce or distribute information. The sectors that are clubbed under information sector

are office computing, communication equipment, electronics equipment and communi
cation. Those activities which do not satisfy the above criteria are termed as noninfor
mation. The two tables are adjusted to 1993-94 prices level by using deflators. A detailed list of aggregation of sectors is provided in the Appendix.

4. Results
Before discussing the results, it is important to present a very brief account of themacro economy of India and its relation to the information sector. The Gross Domestic

Product (GDP) growth of Indian economy in the post reform period has improved from

24

Journal of Applied Input-Output Analysis, Vol. 10, 2004

an average of about 5.7% in the 1980s to an average of about 6.1% in the post liberali
zation period initiated in the mid 1991, making India one of the ten fastest growing
countries in the world. The Tenth Five Year Plan proposes that Tenth Plan should aim
at an indicative target of 8% GDP growth for the period 2002-2007.

This acceleration in the growth rate is not possible without tapping on the opportunities offered by the international economy in terms of markets, investment and tech
nologies. Therefore, a sustained high rate of growth of exports is essential. The Gov
ernment of India has singles out Information Technology (particularly software) as ahigh-priority thrust area for expansion.

4.1 Model I
For the purpose of identifying the sources of growth in the various information sectors,

the Model I has been used. Table 3 gives the first substantive results of the analysis.
Table 3: Sources of Output Growth for Information Sector of India
Rs. Millions

1983/84-1989/90

Change in output
1. Domestic final demandMixGrowth

2. Export

3. Import substitution
4. Technical coefficient

Information input coeff.
Non information input coeff.

1989/90-1993/94

50532.74

66294.22(100.00)(100.00)

45299.95

43694.55(89.64)(65.91)4630.158403.85(15.10)(12.68)37669.80

35290.70(74.55)(53.23)7179.34

6646.86(14.21)(10.03)1779.68-788.90(3.52)(-1.19)-3726.24

16745.92(-7.37)(25.46)

1926.9313066.59(3.81)(19.71)-5653.14

3677.52(-11.19)(5.55)* Figures in the bracket show percentage contribution to the total change in output

Between

1983-84 and1989-90, India's total information output increased by

Rs.50532.74 million. The increase was even larger during 1989-90 to 1993-94. It wasof order Rs.66294.22 million. The lower increase during 1983-84 to 1989-90 was aninevitable result of the increasing reversal of liberalization in the late Eighties, com

bined with hikes in excise and customs duties [Jain, 1992]. For example, in 1987-88
budget, the government raised most import duties and reimposed excise duty on com

puters at 10%. The next budget again imposed a uniform import duty of 98% on allcomputers and peripherals.

Sources of Growth of Information Sector in India During 1983-84 to 1993-94

25

Whatever may be the magnitude of increase, the growth for both the periods was

induced mainly by the domestic final demand. Most of the increase in domestic final
demand during the Eighties was an outcome of increased demand for consumer elec
tronics viz. colour TV, VCR, etc. For example, colour TV market grew steadily from1985-86 to 1989-90, from 0.74 million sets to 1.3 million sets [Sundar, 1994]. Afterthe buoyant growth in the Eighties, the Indian consumer electronics industry was hit bydemand recession in the early Nineties. There was a marked drop in the domestic sales

due to erosion of purchasing power caused by double-digit inflation, penal duties andstoppage of consumer credit by finance companies. The result was fall in domestic fi
nal demand share in the growth of information sector from 90% during 1983-84 to

1989-90 to 66% during 1989-90 to 1993-94. However, reduced sale of consumer elec
tronics was not the only cause. The domestic IT industry, in particular the IT hardware,

faced a traumatic year in 1991-92. While the IT industry as a whole grew by 22.7%,
domestic sales grew by only 12.5% compared to the 22% growth record in 1990-91.

Sales fell following the foreign exchange crunch after the Gulf War. This resulted in

expenditure squeeze on government departments with the Finance Ministry's obsession
with reducing the budget deficit, the deferred computerization plans of nationalizedbanks and the railways and the general stagnation in the Indian industry. The domestic
hardware market remained in a state of uncertainty in

1992-93 too. The recession

showed no signs of abating and the government expenditure still remained curtailed.
Adding to all these troubles, communal disturbances towards the end of the year
brought havoc on transport and hence on production.
Compared to the domestic final demand, the contribution of export was relatively

low. It was 14% during 1983-84 to 1989-90. Certain inherent problems related to ex

port of information goods and services could be identified behind this [Hanna, 1994].
For example, value addition norms under Duty Exemption Scheme for IT export pro
duction were too high. Secondly, duty drawback procedure for fixation of brand rates
and all industry rates took long time, thus blocking the working capital limits. Thirdly

policy changes very frequently affected production and exports. Lastly, export consoli
dation of cargo ex-India was not allowed resulting in high freight.

The contribution of export during 1989-90 to 1993-94 fell from 14%, achieved in

the previous period, to 10%. The main reason for such reduced contribution of exportin the later period could be traced back to the destination of Indian information goods
and services. Majority of IT (hardware) products from India went to the USSR or otherformer eastern block countries, under bilateral trading agreements and were paid in ru
pees. The Eastern European countries bought IT products, mainly computers, from In

dia only because this avoided the necessity to spend hard currency for new technology.
But as the Eastern European economies were drawn into the international capitalized
economic order in the early Nineties, such bilateral agreements were initially dropped

as all payments had to be made in hard currency.
As far as changes in the domestic supply ratio were concerned import substitution
for information goods and services took place only during 1983-84 to 1989-90. Thechange in domestic supply ratio had increased information output by 4%. But during

1989-90 to 1993-94, its contribution was negative (-1%). This implied that instead of
substituting imports by domestic production, greater dependence on imports was seen
to take place, although at a very marginal level. If computer industry in India was

26

Journal of Applied Input-Output Analysis, Vol. 10, 2004

taken as a representative of the IT sector, it was found that the liberalized trade regime
during this period, along with its domestic market orientation, resulted in the emer
gence of a predominantly kit-assembling industry, heavily dependent upon import ofhigh-tech products and components. According to Bureau of Industrial Costs and Prices(BICP) analysis, even those components that were domestically produced had an inbuilt import bias in the form of raw materials such as silicon, germanium, electronic
grade chemicals etc. to the extent of 35% of their prices. There were three major reasons behind the increased dependence on imports

during 1989-90 to 1993-94. First,

the cost of information goods and services that were domestically produced was very
high compared with those imported. Hence, demand for import of information goods
increased. Secondly, the requirement of information output for various sectors of theeconomy was largely guided by the advice of their technical collaborators or joint ven

ture partners. As a result, domestic output of information goods and services remained
low, but at the same time, substantial imports took place. Thirdly, the government wasof the optimistic view that liberalization of imports and reduction in tariffs would en
hance access to advanced technological platform and to the productive tools needed for
an internationally competitive IT industry and for diffusing IT throughout the economy.
Thus, there was an increase in imports during 1989-90 to 1993-94.
So far change in technical coefficient as a source of growth was concerned, it had
retarding effect on the growth of information sector during

1983-84 to

1889-90.

Though the technical coefficient change in the information sector increased information
output during this period, the non information sector seemed to be very orthodox regarding the change in technology. On the other hand during 1989-90 to 1993-94 pro

duction technology changes acted as a boosting factor for the increase in the informa
tion output associated with final demand shifts. Compared with the information output

requirements of using 1989-90 production technology to satisfy 1993-94 final demand,
the adoption of 1993-94 production technology increased the output of information
sector by Rs. 16745.92 millions which was nearly 25% of the total change in informa
tion output. Almost all the change in information output brought about by change inproduction technology came from increased use of information as the input. This wasreflected by the fact that direct information input coefficient increased the information
output by Rs. 13066.59 millions or nearly 20%. The contribution of non-information

portion was relatively small (6%). Such slow response of non-information technologi
cal coefficient effect towards increment in the output of information sector was mainly
because adoption of information technology involved huge investment and also altera
tions in production routines.

The domestic final demand effect could be viewed from two different dimensions:(1) the effect of growth of domestic final demand for information output and the effectof mix (i.e. spending pattern of final users)(2) the sources of domestic final demand such as private final consumption expenditure(PFCE), government final consumption expenditure (GFCE), gross fixed capital forma
tion (GFCF) and change in stock (CIS).

The two dimensions intercepted one another and were different aspects of the same do
mestic final demand shifts. However, each provided a unique insight into the relation
ship between domestic final demand and information output in the Indian economy.

Almost all the increase in information output resulting from domestic final de-Sources of Growth of Information Sector in India During 1983-84 to 1993-94

27

mand shift during both the period came from the changes in growth of domestic final
demand. While in the initial period it resulted in India's information output to increaseby 75%, for the latter it was 53%. Changes in spending mix of domestic final demand
led to an additional 15% and 13% growth in information output for the two periods respectively.

Table 4: Sources of Growth of Domestic Final Demand for Information Sectors ofIndia During 1983-84 to 1989-90
Rs. Millions
Mix EffectDomestic Final Demand

PFCE Effect

GFCE Effect

GFCF EffectCIS EffectGrowth EffectTotal

7630.15

37669.80

45299.95(15.10)(74.55)(89.64)366.86

1566.52

1933.38(0.73)(3.10)(3.83)

2525.9412390.63

14916.57(5.00)(24.52)(29.52)4149.3621173.22

25322.57(8.21)(41.90)(50.11)585.642541.80

3127.44(1.16)(5.03)(6.19)^Figures in the bracket show percentage contribution to the total change in output

Table 5: Sources of Growth of Domestic Final Demand for Information Sectors ofIndia During 1989-90 to 1993-94
Rs. Millions

Mix EffectDomestic Final Demand

PFCE Effect

GFCE Effect
GFCF EffectCIS EffectGrowth EffectTotal

8403.8535290.70

43694.55(12.68)(53.23)(65.91)1695.026118.967813.98(2.56)(9.23)(11.79)9070.45

5310.1714380.62(13.68)(8.01)(21.69)9694.54

15943.76

25638.30(14.62)(24.05)(38.67)-12053.88

7915.53-4138.35(-18.18)(11.94)(-6.24)* Figures in the bracket show percentage contribution to the total change in output

Table 4 shows the relative contribution of various sources of domestic final demand. Investment expenditure (GFCF) and government consumption (GFCE) were themain forces behind the increase in information output associated with domestic final
demand shift during 1983-84 to 1989-90. While contribution of GFCF was 50% that of

GFCE was 30%. Contribution of private expenditure (PFCE) was merely 4%. The useof IT by private organization was limited particularly among small and medium enter
prises. Awareness of the potential benefits of IT among the enterprises was low. They

28

Journal of Applied Input-Output Analysis, Vol. 10, 2004

were almost unaware of the technological options and of the best practices to realize

the benefits, such as, the needs to adopt

new managerial practices and business proc

ess, to undertake complementary investments in relevant training and supports services

and identify and pilot strategic application. These private organizations were also un
willing to pay for 'intangible services' such as technical assistance or consultancy serv

ices for planning information systems, redesigning business process, analyzing informa
tion requirements, educating senior staff in information resource management or pro
viding professional advice on hardware or software acquisition [Hanna, 1994].
Like the previous period, investment demand played the lead role towards the increase in output due to domestic final demand during 1989-90 to 1993-94 (table 5). It
contributed nearly 39%. Government expenditure was also quite effective in increasing

information output during this period. The experience of the most successful industrial
izing countries suggests that governments can influence the use of IT through its roleas an investor and consumer, and as catalyst, strategist or regulator. As an investor, thegovernment continues to have an important role in the development of information
technology manpower, telecommunications infrastructure, specialized R&D institutions,and other IT related infrastructures and institutions. Government are dominant consum

ers of IT in all countries, and their procurement practices are influential in determining
standards, domestic competition, common adoption practices, and in general, the paceand character of IT use. As catalysts, governments have designed mechanisms and pro

grams to speed up the learning and diffusion process through demonstration projects,

subsidized consultancy services, and training and information services. Most OECD

countries and newly industrialized economies (NIEs) have introduced a special set ofprogrammes that focused on the modernization of small- and medium firms. India has
followed the footsteps of the these developed nations [Hanna, 1994]. Government ex

penditure, hence, contributed nearly 22% towards the growth of information sector dur
ing 1989-90 to 1993-94.

During this period, the demand for information goods and services from the pri
vate sector increased to roughly 12%, which was much higher than the previous year's

contribution of 4%. The inducement to incur expenditure on information goods andservices by private sector was largely due to the role played by the government. By co
ordinating the different facets of IT, the government captured externalities and hence
encouraged the private expenditure in the development and diffusion of IT. In East
Asian newly industrialized economies, in particular, governments have played such arole by investing simultaneously in specialized education and training, demonstration
projects (such as civil service-wide computerization, inter-ministry networking, tradeand financial networks), telecommunications infrastructure and technology diffusion institutions [Hanna, 1994]. By acting on a broad and coherent strategy, governments inthese economies have sought to create an environment conducive to private investment
in and effective adoption of IT. The different implementing agencies (public and private) were able to act in concert, exerting significant peer pressure.

Tables 6 and 7 divide the information output changes into changes in output offour information sectors. While the electronics equipment and communication equip
ment were the major information industries during 1983-84 to 1989-90, the communi
cation sector remarkably grew into prominence leaving behind other information indus
tries during 1989-90 to 1993-94. Nearly 60% of the growth of information output wasSources of Growth of Information Sector in India During 1983-84 to 1993-94

29

due to communication sector. If number of telephone lines was taken as an index of
expansion of telecommunication in India, then it can be seen that it increased from 5
million in 1990 to 12 million in 1995, an increase of 7 million. But the increase wasof only 1.5 million during 1985 to 1990. The growth of communication and communi
cation equipment industries were primarily due to the New Economic Policy (NEP) in
itiated by the government during 1991. Under the NEP, changes regarding deregulationof industries including telecom sector was effected. Manufacture of telecom equipment

was delicensed and thrown open to the private sector with the objective to increase
production and improve quality.

Among the demand side causes, the main factor responsible for this change was

the domestic final demand expansion. Though for the information sector as a whole,the domestic final demand growth effect was more powerful than the mix effect for
both the periods, there were exceptions to this at sectoral level. For example, during
1883-84 to 1989-90 the mix effect was stronger than growth effect for office comput

ing machines, electronics equipment and communication equipment industries. How
ever, during 1989-90 to 1993-94 the growth effect dominated the mix effect in all theindustries except in office computing machines.
The output of office computing machines declined during both the periods understudy. Reduced domestic demand and lower information input requirement (as reflectedby technical coefficient changes) were the principal factors that caused output of this
sector to decline during both the periods.

Table 6:

Sources of Output Growth for Individual Information Sectors of India,
1983-84 to 1989-90
Rs. Millions

OfficeComputing

Machines
Domestic final

demandMix

GrowthExportImportsubstitution
Technical coeff.

Information
input coeff.
Non information
input coeff.
Total

Communication

Electronics

Equipment

Equipment

Communication

Total-2773.13

9949.8428530.47

9592.7845299.95(-5.49)(19.69)(56.46)(18.98)(89.64)-5527.35

5042.61

23366.16-15251.27

4630.15(-10.94)(9.98)(46.24)(-30.18)(15.10)2754.214907.235164.30

24844.05

37669.80(5.45)(9.71)(10.22)(49.16)(74.55)-1085.35

3613.57

3413.55

1237.587179.34(-2.15)(7.15)(6.76)(2.45)(14.21)3313.06-1059.57

1122.82-1596.63

1779.68(6.56)(-2.10)(2.22)(-3.16)(3.52)-1326.64-537.89434.99-2296.70-3726.24(-2.63)(-1.06)(0.86)(-4.54)(-7.37)

36.18

60.59

66.72

1763.43

1926.93(0.07)(0.12)(0.13)(3.49)(3.81)-1362.81-598.47368.27-4060.13-5653.14(-2.70)(-1.18)(0.73)(-8.03)(-11.19)-1872.0711965.95

33501.82

6937.0350532.74(-3.70)(23.68)(66.30)(13.73)(100.00)*Figures in the bracket show percentage contribution to the total change in output

30

Journal of Applied Input-Output Analysis, Vol. 10, 2004

Table 7: Sources of Output Growth for Individual Information Sectors of India,
1989-90 to 1993-94
Rs. Millions

OfficeComputing
Machines
Domestic final

demandMix

GrowthExportImportsubstitution
Technical coeff.

Communication

Electronics

Equipment

Equipment

Communication

Total-1586.97

8588.89

16001.24

20691.40(-2.39)(12.96)(24.14)(31.21)(65.91)-2480.542057.276100.7727263.51

8403.8543694.55(-3.74)(3.10)(9.20)(4.11)(12.68)893.576531.62

9900.46

17965.05

35290.70(1.35)(9.85)(14.93)(27.10)(53.23)6646.8680.09

864.19280.265422.32(0.12)(1.30)(0.42)(8.18)(10.03)-383.06-457.43-470.69522.74-788.90(-0.58)(-0.69)(-0.71)(0.79)(-1.19)-464.804362.16

1710.3911135.97

16745.92(-0.70)(6.58)(2.58)(16.80)(25.26)

Information-485.104309.121670.617569.53

13066.59

input coeff.

(-0.73)(6.50)(2.52)(11.42)(19.71)3677.52

Non information

20.31

49.93

40.80

3566.48

input coeff.

(0.03)(0.07)(0.06)(5.38)(5.55)-2354.74

13356.47

17520.07

37772.4366294.22(-3.55)(20.15)(26.43)(56.98)(100.00)

Total*Figures in the bracket show percentage contribution to the total change in output

Table 8: Sources of Growth of Domestic Final Demand for Individual Information
Sectors of India During 1983-84 to 1989-90
Rs. Millions

OfficeComputing
Machines
Domestic
demand

PFCE

GFCE

GFCF

CIS

final

Communication

Electronics

Equipment

Equipment

Communication

Total-2773.13

9949.8428530.47

9592.7845299.95(-5.49)(19.69)(56.46)(18.98)(89.64)-168.69

906.4611539.37

2639.4214916.57(-8.05)(0.56)(10.00)(1.31)(3.83)-4067.01

282.66664.24

1933.385053.48(-0.33)(1.79)(22.84)(5.22)(29.52)-777.627841.33

12390.24

5868.6325322.57(-1.54)(15.52)(24.52)(11.61)(50.11)3127.44(6.19)

2240.19919.40-452.63420.48(4.43)(1.82)(-0.90)(6.45)*Figures in the bracket show percentage contribution to the total change in output

Sources of Growth of Information Sector in India During 1983-84 to 1993-94

31

Table 9: Sources of Growth of Domestic Final Demand for Individual Information
Sectors of India During 1989-90 to 1993-94
Rs. Millions

OfficeComputing
Machines
Domestic

final

demand

PFCE

GFCE

GFCF

CIS

Communication

Electronics

Equipment

Equipment

Communication

Total-1586.97

8588.89

16001.24

20691.40(-2.39)(12.96)(24.14)(31.21)(65.91)

107.752236.60-1912.58

7382.217813.98(0.16)(3.37)(-2.88)(11.14)(11.79)-116.21235.025563.518698.3014380.62(-0.18)(0.35)(8.39)(13.12)(21.69)-1867.62

9117.08

12107.926280.9325638.30(-2.82)(13.75)(18.26)(9.47)(38.67)289.11-2999.81

242.39-1670.03-4138.35(0.44)(-4.52)(0.37)(-2.52)(-6.24)43694.55*Figures in the bracket show percentage contribution to the total change in output

Almost similar pattern was observed regarding contribution of different categories

of domestic final demand for both the periods, with the exception of communication
sector. While nearly 12% of the increase in output in communication sector was induced by investment expenditure during 1983-84 to 1989-90, government consumption

expenditure (13%) and private consumption expenditure (11%) were the main growth
inducing factors in the latter period.
Export effect, as evident from tables 6 and 7, though had an impact much lessthan domestic final demand, had its presence felt in communication equipment (7%)

and electronics equipment (7%) industries during 1983-84 to 1989-90 and in communi
cation sector (8%) during the following period.

So far changes in domestic supply ratio was concerned it had a mixed impact onvarious information sectors. Import substitution, though in small degree, had been pos

sible in sectors viz. office computing machines and electronics equipment in the initialperiod and in communication during the later period.
The growth reducing effect of technical coefficient change during 1983-84 to 1989

-90 for the information sector was primarily due to negative technical coefficient effectin office computing machines (3%), communication equipment (1%) and communica
tion (5%) sectors. However, growth due technical coefficient change during 1989-90 to

1993-94 was induced through communication sector (17%), communication equipment(7%) and electronics equipment industry (3%).

4.2 Model II
In Table 10 we present the empirical findings of the decomposition analysis following

Model II over the period 1989-90 to 1993-94. This Model separates the effect of tech
nological change and the effect of import substitution of intermediate products present
in the technical coefficient change.

Before analyzing the findings of the model it would be helpful to recall certain

32

Journal of Applied Input-Output Analysis, Vol. 10, 2004

facts. The Bhabha Committee Report, published in the late Sixties, set the stage for thedevelopment of the industry. The authors of the Report, with research background andconditioned by a political philosophy that was relevant and popular at that time, natu

rally placed considerable emphasis on Science and Technology, as was then known.
Self-reliance at any cost was seen as a national goal. But with the passing of time,these national goals changed and government policies were tuned accordingly.
The period 1989-90 to 1993-94 was a phase with two different sets of policies
overlapping (discussed at the beginning of the paper). While the years 1989 and 1990

experienced reversal of import liberalization in the past years, the years ahead of 1990
saw renewed liberalization.

The figures for import substitution effect of Model II (table 10) reflected this pic
ture. Though import substitution took place with respect to intermediate demand, ac

counting 9% of the growth in information sector, this was not the case for final demand. Instead, to meet the final demand, the economy increasingly depended on im
port of information goods and services. Approximately 12% of the domestic output of
information sector was reduced due to this. But this increased import for final demand
was mainly in the form of foreign investment. The share of capital formation in the total import of information goods and services increased from 33% in 1989-90 to 74% in
1993-94 [Central Statistical Organization (C.S.O.) 2002], though both private consump
tion expenditure and government expenditure shifted towards domestic production dur

ing this period. Most of the foreign investment took place in communication equipment
and electronics equipment industries. For example, as the demand for telecommunica
tion became higher with the passage of time, the state owned Indian telephone industry
was not able to manage with its slender resources and support from Department of
Telecommunications (DOT). This left no choice for the government but to induce for

eign companies to expand the telephone network. The companies which were inducted
were Alcatel (France), which collaborated with Indian Telephone Industries Limited(ITI) for the manufacture of switching equipment at Mankapur, Fujitsu (Japan), Simens(Germany), Ericcson (Sweden) and American Telephones and Telegraphs [The Hindu,
1994].

Import substitution in intermediate demand was probably the result of danger felt
by various industries associated with import dependency on foreign suppliers, espe

cially those required on recurring basis. They feared that import of information items
might lead to a situation where for routine repairs foreign technicians had to be invited.
It was also likely that manufacturers would likely squeeze the network operators while
supplying spares. There might even be a situation when spares would not be available
because either they migrated to other technologies or the product was no longer intheir manufacturing programme. Therefore, various industries felt safe to use input pro
duced domestically. However, not all users averted import. Industries that used commu
nication equipment and electronics equipment intensively as their intermediate inputs
depended more on imports than on domestically produced goods. Output of communi

cation equipment and electronics equipment was reduced to the extent of 2% and 3%
respectively due to this. One such sector is medical and health. Imports of medical
electronic equipment by hospital and other medical organizations were always liberally
allowed by the government. A large number of medical equipment characterized as live
saving was imported by medical agencies at zero import duty. Whole body scanners,

Sources of Growth of Information Sector in India During 1983-84 to 1993-94

33

ultrasound scanner, specialized portable and non portable X-ray machines, implantablepacemakers, radiography and radiotherapy equipment constituted the major items ofimports by the medical and health sector. Statistics on import of radar and allied items

by defence industry also indicated substantial increase of imports over time. While dur
ing 1990-91 the figure was Rs.96 millions, it was Rs.953 millions during 1993-94 [Department of Electronics, 1996]. This was mainly because imported items were competi
tively priced and qualitatively superior.

Table 10: Sources of Output Growth for Individual Information Sectors of India,
1989-90 to 1993-94 (Model II)
Rs. Millions

OfficeComputing

Machines
Domestic

final

demandExportImportsubstitu

Communication

Electronics

Equipment

Equipment

Communication

Total

42018.95-2252.70

9186.56

16320.16

18765.93(-3.40)(13.86)(24.62)(28.30)(63.38)112.702718.06

974.533089.316893.60(0.17)(4.10)(1.47)(4.66)(10.40)-218.77-4448.34-1763.43-1584.43-8014.97

tion (final dd.)(-0.33)(-6.71)(-2.66)(-2.39)(-12.09)

Import682.83-1239.70-1942.42

8293.415794.11tion (int. dd.)

(1.03)(-1.87)(-2.93)(12.51)(8.74)

Technological-676.207093.483931.259208.27

19602.53

changeTotal

substitu(-1.02)(10.77)(5.93)(13.89)(29.57)-2354.74

13356.47

17520.07

37772.4366294.22(-3.55)(20.15)(26.43)(56.98)(100.00)*Figures in the bracket show percentage contribution to the total change in output

Complete import substitution (whether for final demand or for intermediate demand) would be possible only if quality of domestic products was improved. This
would require technological change in the mode of production. The Seventh Plan

aimed at the long term economic development through planned and progressive restructuring of industry. It stated that, "The trends of shift from traditional industries to basic
metals, fertilizers and industrial manufactures will have to continue with an increasing

share for the emerging technology intensive industries. In the evolution of an industrial
structure capable of meeting domestic needs and competing in world markets, 'sunrise'industries have a special role to play. The investment pattern and policy frame-workshould facilitate structural change within the industrial sector towards high-technology,
high value added and knowledge-based industries like electronics, advanced machine

tools and telecommunications" [Planning Commission1, 1985]. The main objective of
the restructuring process both in Seventh and Eighth Plan was to usher in a pattern ofindustrial development which would take India into the ranks of leading industrial
country of the world. In order that achievements of science and technology were sys
tematically absorbed in the industrial sector, the plans emphasized that suitable incen

tives should be provided to encourage investment in modernization. The government

should create an economic environment which rewarded technological upgradation and34

Journal of Applied Input-Output Analysis, Vol. 10, 2004

penalized inadequate effort. Encouraging modernization and technological upgradation

together with injecting a substantial degree of competition would bring about a reduction in costs and improvement in quality [Planning Commission, 1992].
During 1989-90 to 1993-94 technological changes increased demand for informa

tion goods and services by nearly 30%. The change in technology was made possible
by substitution of information goods for labour in response to the rise of the prices oflabour relative to price of information goods. For example, in banking and insurance
sector clerical jobs were replaced by computers which were supposed to be more pro

ductive than labour.

Another possible way through which technological changes increased demand for
information output was by changing the output mix of industries from primary input
intensive goods to those requiring more high-tech intermediate inputs for their production. Recognizing that electronics could make various significant contributions towards
improvement, the Eighth Plan envisaged rapid introduction of electronics in almost all
sectors of the economy. For example, the communications sector should largely bebased on electronic switching system. Power generation and transmission network
should make increasing use of electronics. Thermal power plants should depend onelectronic control and instrumentation systems. High Voltage direct current transmission
using high power thyristor controls should be introduced during the Plan period. Op
eration of steel plants should be optimized through the introduction of on-line comput

ers for a more effective and dynamic control and monitoring of the production facilities

and integrated operation of the different units of the plant. Use of computers in freight
operation, information system and in passenger reservation should be introduced inrailway transport network. Setting up model coal mines using electronics equipment forcommunications, safety and other activities were also emphasized in the plan. Electron

ics was expected to change radically the organizational and physical set up of coalmines in the country. Other capital-intensive sectors where programmes for introduction of electronics were targeted were fertilizers, oil exploration and production andtextiles. System engineering organizations were expected to play a vital role in the ap
plication of electronics in diverse sectors by stimulating electronics production throughtheir backward and forward linkages with the manufacturers and the using sectors.

A new dimension in the five year plans was the introduction of electronics inservices. The plans emphasized wide use of electronic diagnostic aids in the healthservices. The extension of communication and broadcasting services to the rural popu

lation was expected to assist substantially the programmes for rural development. As it
is known that timely information is a vital input to the planning and the executing

agencies, the national information set-up based on computerization was to be extended
right up to the district level to facilitate exchange of information on monitoring andimplementation of schemes and timely collection of various statistics on economic performance. The use of computers as an aid to the education system should also be
evaluated.

Implementation of the above directives, as laid down in the Seventh and EighthPlan, led to change in output mix during 1989-90 to 1993-94. The share of output ofsectors like transport services, electricity, banking and insurance, education and research, communication and other services in the Indian economy increased during thisperiod [C.S.O. 1998, 2000]. Again, these were the industries that were demanding highSources of Growth of Information Sector in India During 1983-84 to 1993-94

35-tech inputs during this period for rapid technological changes in their production proc
ess. The result was increase in output of information sector through increased interme

diate demand for information goods and services by these industries (table 6.3). For
example, demand for information goods and services was increased through communi
cation services, electricity, communication equipment, transport services, other services
and banking and insurance by 7%, 5%, 5%, 4%, 3% and 3% respectively.
So far sectoral sources of the impact of technological change on information out
put change were concerned table 11 provided the results. The technological change ef
fect on office computing machines was negative during 1989-90 to 1993-94. Change intechnology in sectors like construction (sector 22), medical and health (sector 27),
other services (sector 28), coal and lignite (sector 4), agriculture (sector 1), textiles(sector 9), rubber and plastic products (sector 12), metal and metal products (sector 17)

and electrical machines (sector 19) had negative impact on the output growth of this
sector.

The net effect of technological change on communication equipment industry was

positive. This was mainly caused by the changes in technical coefficients in communi
cation (sector 34), electricity (sector 23), transport (sector 25) and other services (sector

28). Nearly 11% of the total increase in output of information sector due to technologi
cal change was jointly contributed by these sectors. However, unfavourable technologi
cal change in leather and leather products (sector 11) and non-metallic products (sector16) industries lowered the communication equipment production by nearly 1.16% and0.12% respectively.

Technological changes in sectors like banking and insurance, communicationequipment and electricity were primarily responsible for the growth of the electronics
equipment industries. Of all the information sectors it was the communication sector

Table 11: Sectoral Sources of Technological Change During 1989-90 to 1993-94(Percentage)
Sectors
Office computing

Machines
Communication
Equipment

1

2

3

4

5

6

7

8

9

-0.02

0.01

-0.03

-0.17

0.00

0.01

0.01

0.00

-0.02

0.01

0.01

0.00

0.05

0.00

0.00

0.02

0.00

0.00

-0.02

0.00

-0.01

0.04

0.00

0.00

0.08

0.04

0.13

Communication

0.49

0.06

0.00

-0.11

0.04

0.09

0.14

0.00

-0.06

Total

0.46

0.07

-0.04

-0.19

0.04

0.10

0.25

0.04

0.05

10

11

12

13

14

15

16

17

18

0.00

0.00

-0.02

0.01

0.00

-0.01

0.00

-0.01

0.01

0.00

-1.16

0.04

0.01

0.01

0.02

-0.12

0.01

0.07

Electronics Equipment

Sectors
Office computing
Machines
Communication
Equipment
Electronics Equipment

0.03

0.01

0.00

0.01

0.01

0.09

0.01

1.04

-1.82

Communication

0.06

-0.01

-0.37

0.14

0.06

-0.13

0.08

0.05

0.35

Total

0.09

-1.16

-0.36

0.17

0.08

-0.03

-0.03

1.09

-1.39

36

Journal of Applied Input-Output Analysis, Vol. 10, 2004

19

20

21

22

23

24

25

26

27

-0.01

0.01

0.10

-0.76

0.00

0.00

0.08

0.05

-0.12

0.77

-0.05

0.07

-0.09

3.07

0.00

2.58

0.01

0.01

0.25

-0.14

0.48

0.39

1.02

0.00

0.40

2.00

0.00

-0.01

-0.40

0.65

-0.32

1.36

0.05

1.26

1.11

0.28

1.00

-0.58

1.30

-0.78

5.45

0.05

4.32

3.17

0.17

28

29

30

31

32

33

34

35

Total

-0.21

-0.01

0.00

0.02

0.02

0.01

0.02

0.01

-1.02

1.00

-0.01

0.01

-0.01

0.08

0.06

4.32

0.01

10.77

Sectors
Office computing
Machines

Communication
Equipment
Electronics Equipment
Communication
Total

Sectors

Office computing
Machines
Communication

Equipment
Electronics Equipment

0.01

0.01

0.02

0.01

1.11

0.32

0.40

0.01

5.93

Communication

2.44

-0.11

0.14

0.04

4.11

0.10

2.08

0.23

13.89

Total

3.24

-0.12

0.17

0.06

5.32

0.49

6.82

0.26

29.58

that felt the maximum benefit of technological changes that took place in the economy
during 1989-90 to 1993-94. Technological changes in communication equipment (sec

tor 32), communication (sector 34), other services (sector 28), electricity (sector 23),transport services (sector 20) and banking and insurance (sector 26) primarily led theoutput of communication sector to grow. Their contributions are nearly 4%, 2%, 2%,
1% and 1% respectively.

Other findings of this model were more or less same as those derived from Model
I. As in the previous model, here too, the domestic final demand was the importantfactor for the growth of information sector. It contributed nearly 63% of the total
growth as against its 66% in the previous model. The share of export remained same at
10% in both the models. Though the model developed in this chapter helped us to

identify the areas of import substitution, summing up the effects of import substitution
for final demand and those for intermediate demand led to negative net effect (-3%).

This was, more or less, in conformity with the finding of the previous model where theimport substitution effect during the period 1989-90 to 1993-94 was approximately 1%.

5. Conclusion
The growing importance of the IT industries both in India and abroad has aroused interest in IT in almost all spheres of the economy. Though a good volume of literature

has developed in recent years which have dealt with IT, not many studies in India canbe traced till date that throws some light on various aspects of information sectors. The

present study makes an attempt to identify the sources of growth of this sector during
pre liberalization period and liberalization period.

Sources of Growth of Information Sector in India During 1983-84 to 1993-94

37

The driving force behind the growth of information sector during 1983-84 to 1993
-94 was the domestic final demand. Increase in demand for exports of information
goods and services did induce growth of this sector but it was much less than the do
mestic final demand. Technical coefficient change effect showed a dramatic change be
tween the two periods. From its negative effect in the initial period it became the sec

ond most important contributor towards the growth of information sector. Though sub
stitution of imports by domestic production was possible during 1983-84 to 1989-90,
greater dependence on import was observed during the latter period.

Industries in general preferred to satisfy input requirement of information goods
and services by those produced indigenously rather than going for imported ones, inspite of the liberal import policies adopted during 1989-90 to 1993-94. However, there
were exceptions to this. Industries using electronics or communication equipment intensively in their production process went for imported inputs mostly because of theirprice competitiveness and superior quality. Dependency of final demand on imports
was mainly due to increased foreign participation in the form of foreign investment.
Consumption expenditures, whether private or government, were in favour of domestic
production.

Note
1. Planning Commission is an apex body of Government of India which formulates theFive Year Plans.

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