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July 28, 1998


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N Vittal Email this story to a friend.

The globe is a square

Bad geometry is good economics when
networks make a plaza out of the planet.

If you are reading this on the Web, I don't have to tell you that Marshal McLuhan's dream of a global village has come true. And with it has emerged the concept of a 'global economy'.

This 'global economy' has happened mostly because of phenomenal advances in computing and telecommunications. Of course, there have been other circumstances responsible for the death of distance like the end of the Cold War and the setting up of the World Trade Organisation. But information technology, by far, has been the most significant in the creation of what we have come to call the 'global economy'.

What exactly do we mean by 'globalisation' in a 'global economy'?

Globalisation essentially involves free movement across international borders of four specific elements of an economy. These are (i) physical capital in terms of plant and machinery; (ii) financial capital in terms of finances invested in the capital markets; (iii) technology and (iv) labour.

International computer and telecommunication networks have not only opened access but also speeded up the free movement of these elements.

Take the case of financial capital. Thanks to optic fibre cables, it literally moves at the speed of light. Unfortunately, the recent currency crisis in Southeast Asia can also be traced to this particular 'boon'.

But before we discuss the implication of this any further, let us sharpen our focus a bit. The global economy has already morphed into the 'digital' global economy.

Here we must recognise the most significant development in the technology of this century, the technology of information.

Information technology is nothing but the coming together of computers and communications. If railroads were the decisive technology of the 19th century and automobiles of the 20th, information technology will fashion the century to come.

The Internet is already making the prophecy come true. According to one estimate, the Web has about a 100 million users. When so many people are over a particular kind of network, will they not take their economies over it? This should in fact change the meaning of commerce.

Already, the first mutation of commerce as we know it has appeared. Large businesses have begun to worry about the implications of e-commerce or electronic commerce!

Massachusetts Institute of Technology Media Labs chief Nicholas Negroponte was among the first to dramatically outline e-commerce in his best-selling book Being Digital. He speaks of commerce where more and more businesses trade bits of information instead of atoms of products.

Here's a pointer. In the US, about 45 per cent of the investments in office equipment go into purchase of computers and information technology systems.

This rising presence of information technology in businesses translates directly into the creation of what we may call the 'digital global economy'.

But not all countries are equally developed. When it comes to technology, the differences become more severe. This raises the issue of the widening divide between the information rich and the information poor. There is also talk about information apartheid.

The increasing pace of technology could become an opportunity for a country like India. Dr Vikram Sarabhai had pointed out that developing nations like India stand to gain by reaching the technological scene late. Then they can leapfrog through the intermediate stages that the developed nations had to go through.

For instance, India is not very much wired. We can therefore increasingly use modern wireless technology for our communications needs. Again, we probably missed out on the mainframe revolution. But now for the same reason, we can take advantage of the network revolution in the absence of legacy systems.

Information technology is highly versatile. After all, any economy comprises manufacturing and services. One can say there is no activity, no area of manufacturing or services, where one can apply information technology and not immediately gain advantage in terms of improvement in productivity and savings in costs and energy.

According to a recent publication of the US government, The Emerging Digital Economy, one of the most notable economic developments in recent years has been the rapid increase in investment in the IT sectors, computing and communications and their contribution to the gross domestic product.

It grew from 4.9 per cent of the economy in 1985 to 6.1 per cent in 1990 as the PC began to penetrate homes and offices. The next spurt started in 1993 with a burst of commercial activity driven by the Internet. From 1993 to 1998, IT's share of the economy would have risen from 6.4 per cent to an estimated 8.2 per cent.

With such rapid expansion, IT's share of total nominal GDP growth has been running at about double its share of the economy at close to 15 per cent.

This growth has been possible because IT is tailor-made to enhance the key elements of competitiveness in the global economy. Today, competitiveness depends on speed and IT is speed. Competitiveness depends on reducing costs, and a primary objective of IT is to do exactly that.

Email has eliminated the need for bothering about time zones in communication. In fact, multinational companies have become entrepreneurial Webs spread over the world only because of the nervous system that IT can provide.

As economies develop, the share of the service industry becomes more than that of manufacturing. In fact, developed economies like the United States have a very large percentage of the GDP in services, sometimes over 70 per cent. Because of this some people fear about the hollowing of the US economy. Nevertheless, it is a fact that the higher the percentage of the service economy, the greater is the state of economic development.

It is in the service industry, that IT provides the most opportunities because of its capacity for instant communication, random access and ability to handle large amounts of data.

In fact, computer aided design, computer aided manufacturing or management practices like the just-in-time technique would not be possible without IT.

Tough IT is increasingly becoming an integral part of the manufacturing process or the service industry, people have their fears. Jeremy Rifkin writes in The End of Work that computers may lead to jobless growth. This is being experienced especially, in Europe.

It is IT, which has also made possible the fantastic growth of software in India. The US companies find it easier to outsource work without any loss of their competitiveness in the global context.

The significance of the IT in global trade can also be deducted from the fact that one of the earliest agreements entered into after the WTO was formed was the Information Technology Agreement. India is a part of ITA.

By 2004 we expect duties on IT equipment to come down to zero. Already there is an agreement that there will be no taxes on Internet based e-commerce. These policy measures are designed to boost the global digital economy.

In a recent testimony to the US Congress, Federal Reserve Board Chairman Alan Greenspan noted "Our nation has been experiencing a higher growth rate of productivity output per hour worked in recent years. The dramatic improvements in computing power and communication and information technology appear to have been a major force behind this beneficial trend."

It has been suggested that these advances will create a "long boom" which will take the economy to new heights over the next quarter century.

Other economists remains sceptical of the contribution of the IT industry to overall productivity and yet there is limited direct evidence in government data of the United States that the investments made in IT have substantially raised productivity in many non-IT industries.

The increasing use of IT, particularly the Internet, demonstrates the need for designing and amending existing legal structure so as to have a set of appropriate cyber laws.

E-commerce also provides opportunities for frauds. One has to guard against cyber frauds. After all, as Oscar Wilde said "The thief is the artist. The policeman is only a critic." The issues of cyber laws are going to become increasingly important in the context of the global digital economy.

An interesting observation brought out in the US publication The Emerging Digital Economy is that IT has also helped to control inflation.

In fact, inflation in the United States would have been 3 per cent but this has been reduced by at least 1 per cent because of the increasing application of IT.

The Internet has really been the harbinger of e-commerce. Some facts about the Internet and e-commerce are really breathtaking:

  • Fewer than 40 million people around the world were connected to the Internet during 1996. By the end of 1997, over 100 million people were using the Internet.
  • As of December 1996, about 627,000 Internet domain names had been registered. By the end of 1997, the number of domain names more than doubled to reach 1.5 million.
  • Traffic on the Internet has been doubling every 100 days.
  • Cisco Systems closed 1996 having booked just over $100 million in sales on the Internet. By the end of 1997, its Internet sales were running at a $3.2 billion annual rate.
  • In 1996, Amazon, the first Internet bookstore, recorded sales of less than $16 million. In 1997, it sold $148 million worth of books to Internet customers. One of the nation's largest book retailers, Barnes and Noble, launched its own online bookstore in 1997 to compete with Amazon for this rapidly growing online market.
  • In January 1997, Dell Computers was selling less than $1 million worth of computers per day over the Internet. The company reported reaching daily sales of $6 million several times during the December 1997 holiday period.
  • Auto-by-Tel, a Web-based automotive marketplace processed a total of 345,000 purchase requests for autos through its Web site in 1996, for $1.8 billion in auto sales. As of the end of November 1997, the Web site was generating $500 million a month in auto sales ($6 billion annualised) and processed over 100,000 purchase requests each month.

Where does India stand in this emerging global digital economy?

I have been repeatedly pointing out for the last three years that when it comes to basic hardware we have miles to go. We have only 1.8 computers per 1,000 of the population while the world average is 25.

The world telephone density is 10 per cent and India's is 1.6 per cent. Policy measures to increase the availability of information infrastructure are the only way out for the country. It is a healthy sign that the National Agenda for Governance has taken note of the significance of IT.

What is important is the need to initiate policy changes quickly, so that we don't miss out on the global digital economy. I would suggest the following programme to be implemented immediately.

(i) Under the Income Tax Act, 100 per cent depreciation in the first year itself must be given for any investment made in information technology. This will encourage leasing of IT systems and overcome the hardware scarcity today;

(ii) The government must make it mandatory that any item subject to sales tax or excise should be bar coded. This will automatically introduce the application of information technology in the economy right from the manufacturing stage through wholesale to retail distribution;

(iii) EDI is already being considered for shipping and customs operations. This must be encouraged. Otherwise, there is a possibility that India may lose out on global trade.

(iv) India cannot participate effectively in the global digital economy unless the Indian government, both at New Delhi and the state capital, become technology minded. It is healthy that apart from the India's recognition as a software source, visionary leaders like Chandrababu Naidu of Andhra Pradesh are trying to push IT in state administration. One simple solution that is needed is that at least 2 to 3 per cent of the budget of every department must be earmarked for the application of IT. In this way the culture of IT will spread right across the entire spectrum of government and public administration.

(v) Equally important for India to participate effectively in the digital economy is the need for a very large size computer literate manpower. Today, the attrition rate in the software industry is 20 per cent and some claim it is as high as 50 per cent. To overcome this situation we will have to massively increase a number of computer literate students.

I would therefore suggest that full credits be given to computer studies in both the 10th and 12th classes. Further, practically in every degree course, there should be a module of information technology. In this way we will ensure that a whole generation of students which will come in the next three years, will be computer literate.

This will provide the substantial manpower needed for bringing a transformation in the nation's own economy and make it a part of the global digital economy.

Otherwise, today when we talk about global digital economy in the Indian context, we are mostly talking about software or those aspects of the Indian economy that are related to exports.

But ultimately, India cannot afford to play a very effective role unless the Indian economy also falls in line with the global digital economy. That means increasing application of IT in all aspects of manufacturing and services, right across the entire spectrum of our economy.

The global digital economy is a reality. The question is whether India will be able to make it in the brave new world. Previous columns: Critical mass | T.R.a.I | Santa Clause 11(2) | The Broadcasting Bill | The death of distance | S.O.S, getting the message out of the bottle | Force 7 from FICCI | Of railroads and info highways | Techno Politics | Cheating death: Ways to resurrect ITI | The HAM-handed miracle | Electronic governance | Which came first? | The four-engine design | Learning to learn | Heads 'n hands | Post-mortem | Where's the cash | Mr T S Eliot's digital wisdom | Banking on IT | R, R & R | Pots & Pans | The Changing Change | Reality check | Spectrum analysis | Global Slum | Rebooting democracy | Catalysts of change | Educational emergency | A card for all seasons | Moore, Metcalf & Gelder | Heads I win, tails you lose! | Loosen those tongues

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