Abstract
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.
This is a preview of subscription content, access via your institution.
Notes
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.
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.
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.
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’.
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).
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).
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.
For detailed description Refer to-GOI (2013): “Report of the Committee for Evolving a Composite Development Index of States”, Ministry of Finance, New Delhi.
For more details, refer to Annexure in UNIDO (2015).
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.
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.
References
Abramovitz, M. 1986. Catching up, forging ahead, and falling behind. Journal of Economic History 46 (2): 385–406.
Aghion, P., E. Caroli, and C. Garcia-Penalosa. 1999. Inequality and economic growth: The perspectives of the new growth theory. Journal of Economic Literature 37 (4): 1615–1660.
Ahmed, Nadim, P. Schreyer, and A. Wolfl. 2004. ICT investment in OECD countries and its economic impacts. Paris: Organisation for Economic Cooperation and Development.
Baily, M.N., and R.Z. Lawrence. 2001. Do we have a new e-conomy. American Economic Review, Papers and Proceedings 91: 308–312.
Baldwin, R., and J. Lopez-Gonzalez. (2013). Supply-chain trade: A portrait of global patterns and several testable hypotheses. National Bureau of Economic Research (NBER) Working Paper No. 18957, NBER, Cambridge, MA.
Berndt, E. R., C.J. Morrison, and L.S. Rosenblum. (1992). High tech capital formation and labor composition in US manufacturing industries: An exploratory analysis. National Bureau of Economic Research Working Paper No. 4010.
Bresnahan, T., E. Brynjolfsson, and L. Hitt. 2002. Information technology, workplace organisation and the demand for skilled labour. Quarterly Journal of Economics 117: 339–376.
Brynjolfsson, E., and L. Hitt. 2002. Computing productivity: Firm level evidence. Philadelphia: Mimeo, The Wharton School, University of Pennsylvania.
Caroli, E., and J. Van Reenen. 2001. Skilled biased organizational change? Evidence from a panel of British and French establishments. Quarterly Journal of Economics 116 (4): 1449–1492.
Cohen, S.S., DeLong, J.B., Zysman, J., 2000. Tools for Thought: What is new and important about the ‘eeconomy’. Berkeley Roundtable on International Economics, Berkeley CA, Working paper no. 138.
Commander, S., and J. Svejnar. 2011. Business environment, exports, ownership and firm performance. The Review of Economics and Statistics 93 (2): 528–541.
Doms, M., T. Dunne, and K. Troske. 1997. Workers, wages and technology. Quarterly Journal of Economics 112 (February): 235–290.
Fagerberg, J. 1987. A technology gap approach to why growth rates differ. Research Policy 16 (2–4): 87–99.
Falk, Martin (2004). ICT-linked firm reorganisation and productivity gains. Austrian Institute of Economic Research (WIFO), Vienna, WIFO Working Papers, No. 216. http://hdl.handle.net/10419/128770.
Fare, R.S., M.N. Grosskopf, and Z. Zhang. 1994. Productivity growth, technical progress and efficiency change in industrialised countries’. American Economic Review 81 (1): 66–83.
Gordon, R.J. (2003). High tech innovation and productivity growth: Does supply create its own demand? National Bureau of Economic Research Working Paper No. 9437, January.
Grosskopf, S. 1986. The role of the reference technology in measuring productive efficiency. The Economic Journal 96: 499–513.
Indjikian, R., and D.S. Siegel. 2005. The impact of investment in IT on economic performance: Implications for developing countries. World Development 33 (5): 681–700.
Jorgenson, D.W., and K.J. Stiroh. 2000. Raising the speed limit: US economic growth in the information age. Brookings Papers on Economic Activity 1: 125–211.
Jorgenson, D.W. (2001). Information technology and the US economy. American Economic Review 91: 1–32.
Joseph, K.J. (2002). Growth of ICT and ICT for development: Realities of the myths of the Indian experience. WIDER Discussion Papers, World Institute for Development Economics (UNU-WIDER), No. 2002/78, ISBN 9291902810.
Joseph, K.J., and V. Abraham. (2007). Information technology and productivity: Evidence from India’s manufacturing sector. Working Paper 389, Centre for Development Studies, Trivandrum, Kerala, India.
Kraemer, K.L., and J. Dedrick. 2001. Information technology and economic development: Results and policy implications of cross-country studies’. In Information technology, productivity and economic growth, ed. M. Pohjola. Oxford: Oxford University Press.
Krueger, A. 1993. How computers have changed the wage structure: Evidence from micro data, 1984–1989. Quarterly Journal of Economics 108 (February): 33–61.
Lazerson, M. (1990). Subcontracting as an alternative organisational form to vertically-integrated production. Discussion Paper, DP/20/1990, Inter-National Institute of Labour Studies, Geneva.
Mohnen, P. 2001. International R&D spillovers and economic growth. In Information technology, productivity and economic growth, ed. M. Pohjola. Oxford: Oxford University Press.
Morrison, C.J. 1997. Assessing the productivity of information technology equipment in US manufacturing industries. The Review of Economics and Statistics 79 (3): 471–481.
Motohashi, K. (2005). IT, enterprise reform and productivity in Chinese manufacturing firms. University of Tokyo mimeograph.
Nickell, S.J., and J. Van Reenen. (2000). Technological innovation and economic performance in the United Kingdom. Centre for Economic Performance, London School of Economics Working Paper No. 51.
OECD. (2000). Measuring the ICT sector. OECD, Paris. http://www.oecd.org/dsti/sti/it/prod/measuring.ict.pdf.
OECD (2009). Guide to Measuring the Information Society. Accessed at http://www.oecd.org/sti/measuringinfoeconomy/guide.
Oliner, S.D., and D. Sichel. 1994. Computers and output growth: how big is the puzzle?’. Brookings Papers in Economic Activity 2: 273–334.
Parsons, D.J., C.C. Gottlieb, and M. Denny. 1993. Productivity and computers in Canadian banking. Journal of Productivity Analysis 4: 91–110.
Pohjola, M. 2002. The new economy: facts, impacts and policies. Information Economics and Policy 14: 133–144.
Romer, P.M. 1993. Ideas gaps and objects gaps in economic development. Journal of Monitory Economics 32: 543–573.
Sharma, S., and N. Singh. 2013. Information technology and productivity in Indian manufacturing. India Policy Forum, National Council of Applied Economic Research 9 (1): 189–238.
Shepard, S.B. (1997). The new economy: what it really means. Business Week, 17 November. http://www.businessweek.com/1997/46/b3553084.htm.
Singh, N. (2014). Information technology and its role in India’s economic development: A review. Working Paper, No. 718, University of California, Economics Department, Santa Cruz, CA.
Stiroh, K.J. 2001. What drives productivity growth? FRBNY Economic Policy Review 16: 37–59.
UNDP. 1999. Human development report 1999. New York for UNDP: Oxford University Press.
UNIDO. (2015). Industrial Development Report 2016. The Role of Technology and Innovation in Inclusive and Sustainable Industrial Development. Vienna.
Verspagen, B. 1991. A new empirical approach to catching up or falling behind. Structural Change and Economic Dynamics 2 (2): 359–380.
Waverman, L., Meloria M., Melvyn F. (2005). The Impact of Telecoms on economic Growth in Developing Countries. In Vodafone. 2005. Africa: The Impact of Mobile Phones. Vodafone Moving the Debate Forward. Policy paper Series. No.3. London: Vodafone.
World Bank. (1999). Knowledge for development. World Development Report 1998/99, New York: Oxford University Press for the World Bank.
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Gupta, M., Kumar, M. Impact of ICT Usage on Productivity of Unorganised Manufacturing Enterprises in India. Ind. J. Labour Econ. 61, 411–425 (2018). https://doi.org/10.1007/s41027-018-0134-3
Published:
Issue Date:
DOI: https://doi.org/10.1007/s41027-018-0134-3