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Impact of ICT Usage on Productivity of Unorganised Manufacturing Enterprises in India


The boom of ICT which started during late 1990s in the USA has now spread to the whole world and is not only altering the way the production process is carried out but also enhanced productivity levels of the enterprises. India’s growth is largely ICT-led growth as witnessed in the case of services sector; however, for the growth of the manufacturing sector, ICT diffusion is required which is in lieu of the fact that at the global level, the manufacturing sector is witnessing an increased share of ICT enabled vis-a-vis core production activities. The large firms have largely succeeded in terms of adoption of ICT infrastructure, but difficulties lie with the small firms which have been comparatively slower in this process over the period of time. In this context, this paper attempts to assess the extent of ICT diffusion across small enterprises and the impact of ICT usage on firm and labour productivity, based on unit-level data from 67th (2010–2011) and 73rd (2015–2016) rounds of NSSO. The findings reveal that ICT usage is not only beneficial for the large firms but also beneficial for the smaller firms alike, which calls for a prompt policy action towards their upgradation in this regard.

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  1. The term ‘New Economy’ is generally used to refer to the increased use of ICT in industries which have given a whole new shape and context to the production structure and processes being carried out today. Cohen et al. (2000) point out, the ongoing transformation of our economy has been given many names: a ‘post-industrial society’, an ‘information society’, an ‘innovation economy’, a ‘knowledge economy’, a ‘network economy’, a ‘digital economy’, a ‘weightless economy’, and an ‘e-economy’. This basically got thrust by three major developments: (1) technological breakthrough in the mid-1990s in the semiconductor manufacturing industry (Jorgenson 2001), (2) increase in network computing due to the rapid diffusion of a widespread information infrastructure—the Internet and (3) labour productivity appears to have picked up in the United States in the mid-1990s.

  2. At present, the Informal Economy is normally identified as a Shadow Economy which escapes the net of visibility of the authorised public and legal institutions leading it to connote the ways of living in two forms—first is the Survival economy (where people have very meagre or just enough incomes to survive and to save on the costs of operation in the formal economy, they usually tend to hide or rather escape the net of identification of the formal system of operation) and Second is in the form of Black economy (where all sorts of illegal activities are undertaken not only by low but also affluent income groups). The increased ICT usage among low income groups (where primarily self-employed people constitute the majority section of the population) would definitely help to bring the Survivalist form of Informal Economy into the Formal Economy by reducing their costs of operation and mitigate the operation of Black Economy to a great extent although complete non-operation of the latter cannot be ruled out owing to the malicious activities being confronted by the users of ICT in everyday life.

  3. The Technological Gap Theory considers technological knowledge as the core engine of development. It focuses on how economic development is fuelled by the international diffusion of technical knowledge, the development of capabilities by economic actors who adopt that knowledge and the institutions that facilitate that adoption.

  4. The patterns of trade today have intensified the process of Subcontracting or Outsourcing (integration of a parent firm with the subcontracted firm to carry out the functions as specified by the parent firm (Lazerson 1990) which exists embedded within a single or multiple Value Chains operating across the globe. The parent (large) firms are usually the lead firms located in high income countries while the subcontractor or supplier firms (usually small in size) are located in the low income countries, the interaction between which enables the process of ‘transfer of knowledge’.

  5. It refers to the contribution in output, employment, export earning, etc., resulting from the production of ICT related goods and services that are limited to just one segment of the economy (Kraemer and Dedrick 2001).

  6. It refers to IT induced development through enhanced productivity, competitiveness, growth and human welfare resulting from the use of this technology by different sectors of the economy and society (Joseph 2002).

  7. This indicator has been borrowed from OECD (2009) indicators of measuring the Information Society. As far as the use of Internet is concerned, it is assumed that the enterprises which are duly equipped with the ‘Computers’ would also be working on Internet as well for their daily business operations. Also since the proportion of Computer using enterprises is already very small so adding more specifications to it has been avoided so as to make the sample size relevant to produce significant results.

  8. For detailed description Refer to-GOI (2013): “Report of the Committee for Evolving a Composite Development Index of States”, Ministry of Finance, New Delhi.

  9. For more details, refer to Annexure in UNIDO (2015).

  10. Though TFPG in case of ICT-based enterprises seems to be higher than non-ICT enterprises, it can be noted that the difference does not seem to be very substantial hence may not lead to any significant conclusion on the impact of ICT usage on firm productivity. However, it needs to be recognised that the ICT-based enterprises comprise just a miniscule fraction of the total unorganized manufacturing enterprises as compared to non-ICT enterprises and even a small incremental value indicates that impact of ICT usage on firm productivity cannot be ignored altogether and may lead towards the development of such policy initiatives which would benefit the firms at large in the coming years of industrial growth wherein digitization is supposed to play a key role.

  11. Asset Quintiles are worked out by considering investment of an enterprise in Fixed Assets, i.e. machines and machinery tools. It is normally understood that the enterprises which have greater levels of investment would be more inclined towards adoption of ICT-based infrastructure, but the estimates have pointed otherwise giving an indication that enterprises are incurring investment towards adoption of ICT-based infrastructure irrespective of the Asset Quintile they fall into.


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Correspondence to Mitali Gupta.

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Gupta, M., Kumar, M. Impact of ICT Usage on Productivity of Unorganised Manufacturing Enterprises in India. Ind. J. Labour Econ. 61, 411–425 (2018).

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