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September 8, 1997


N Vittal

Which came first?

It is the old chicken and egg question. Infrastructure is vital for economic growth. But is growth itself a catalyst for development of infrastructure?

The poser comes into sharp focus in the current debate on one sector of modern infrastructure - telecommunications.

A study has shown that 1 per cent increase in telephone density results in a 3 per cent increase in GDP. It is also a fact that companies which have a higher telephone density have a higher GDP.

There seems to be a direct correlation between telephone density and GDP. But which is the cause and which is the effect?

Development of infrastructure calls for heavy investment. According to an estimate of the Common Minimum Programme (the political and economic agenda of the ruling coalition of parties) we will need Rs 7 trillion of investment in infrastructure immediately to maintain our economic growth at 12 per cent.

In the case of telecommunications, for instance, we would like to see a telephone connection happen on demand in the Eighth Five-Year Plan period. For this we would need an investment of Rs 560 billion. Internally, we can only generate Rs 330 billion. Rs 230 billion, therefore, has to come from outside the government, namely, the Indian private sector and multinationals.

Those who are opposed to the liberalisation of the telecom sector argue that the telephone density should be taken as an index of GDP development and not the other way round. But as Sam Pitroda pointed out long ago, the provision of infrastructure like telecommunication results in income growth in rural areas.

For example, in Karnataka, when tomato growers realised, thanks to telecommunications technology, that they would fetch a better price in Madras than in Bangalore, they diverted their produce to Madras.

Having been secretary, Department of Electronics, I too witnessed the dramatic impact of telephone infrastructure in boosting the computer software industry. In 1990, the persistent demand of the software industry was high-speed data communication. The perception of the Department of Telecommunications was that there is no immediate demand and in any case their priorities were different.

The DoE then came forward and invested Rs 120 million in setting up earth stations linked to Intelsat at Bangalore, NOIDA, Trivandrum, Hyderabad, Gandhinagar and Bhubaneshwar.

The new infrastructure had a dramatic impact on software exports which zoomed from $100 million in 1989-90 to $800 million in 1995-96.

Telecommunications by itself can also be a means of creating new employment and growth. For example, in Bangalore's Software Technology Park there is a company called Health Scribe which does the work of transcription of the dictation given by the American doctors when they examine patients under the American Health Insurance Schemes. The dictation come via voice mail through satellite communication. The trained stenographers of the Indian Company transcribe the whole dictation and it is sent beck to the USA. Because of the 12 hours time gap between India and the USA it is almost an online service so far as the US clients are concerned. Another new business that can create a bibliographic database industry. The global business here is of the order of $12 billion.

Dr Vishawanathan of INSDOC has estimated that between 300,000 and 3,000,000 jobs can be created in the bibliographic database business. Even if we take a job creation of 300,000 it will make a significant contribution.

Once the telecom infrastructure is provided, distance is of no considerations. It has been rightly observed that effective modern telecommunication means the death of distance.

So when we talk of economic growth and telecom as an infrastructure, it is not just an issue of carrying out the existing business with greater velocity but also an issue of creating new opportunities.

Examples of conscious decisions to invest in and improve on the infrastructure as a means for catalysing growth can be seen in other countries too: Park Chung Hee had the vision in South Korea when he ordered massive construction of highways, then vastly improving the communication network in the country.

Hitler thought of the autobahns which will have the dual purpose of not only providing faster means of communication by road but also providing emergency landing runways for the aircraft. Such a conscious identification of infrastructure as an instrument for growth is needed.

Even though we pay lip service to the need for infrastructure in our country, when it comes to actual implementation, we fail. We do not have the massive resources needed for investment.

The logical solution is to attract substantial investment from outside. This seems to be generally recognised. But then investment will not come unless those who invest get reasonable returns.

Investment has to come from the Indian public sector or PTNCs. It is here that our economic common sense comes into conflict with populist perceptions. The ghost of East India Company is subliminally raised and multinationals are seen as a threat.

It is very obvious that if we really want infrastructure to emerge as an effective catalyst to growth we should consciously adopt policies which will attract investment and ensure a reasonable rate of return to those who invest. For instance, take the telecom sector. The conditions under which the tenders have been invited and restrictions imposed in terms of interconnectivity are such that many companies are finding that it is not worth their while to invest.

The Indian Institute of Management, Bangalore, has come up with a study which says that those who invest in basic telecom services in India may not be able to manage a return of over 2.5 per cent. The minimum we can do is to ensure that the return on investment is reasonable. I would even suggest that we should make it substantially attractive because, after all, we are one of the 200 countries in the world.

There are many other countries which are trying to attract investment. We have to be particularly attractive. This is because the ensuing benefit to the country in terms of jobs and economic development.

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

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