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Increase IT Spend, Encourage Small IT Companies
By Tabrez Khan
Mumbai, Jun 22, 2009 1404 hrs IST
There's a strong case for progressively upping IT spend to boost economic growth as economic analysis shows that there s a positive correlation between IT spend and GDP growth. Although there are no exact figures available for India s IT spend to GDP ratio, indications are that its not more than two percent, which is an abysmally low figure compared to other strong economies of the world. The US has an IT spend to GDP ratio of around nine percent, while this ratio for China is also much higher than India.
The central and state governments together account for a large portion of this IT spend, with more than 30% of the country s IT spend each year attributed to them. Thus, the government can play a large role in improving the IT spend to GDP ratio of the country. IT spending can broadly be categorized under two types; one is direct IT spend on IT hardware and software while the other is in projects for enabling services such as e-governance in the social sector. The latter is extremely crucial in boosting economic growth in the long term, as it boosts productivity, enables empowerment of citizens and creates newer avenues for individuals to engage in productive economic activity. The central government s efforts in recent times under the National e-Governance Plan are a step in that direction.
However, the government must take a hard look at its policies while allocating IT projects to vendors. Its pre-qualification requirements regarding turnover and size of the players while inviting tenders for projects tends to create a situation where many a competitive but smaller player tends to get left out because they do not meet the stringent qualification criteria. Size should not be the sole parameter for allocating a project to an IT vendor, competence should be the most crucial parameter. While one would agree that the government has to keep adequate safeguards in mind such as ability of a vendor to complete a project, not considering companies for their smaller size alone is not a solution.
If the IT sector has to have a balanced growth, small and medium companies will have to be encouraged as well because they form the bulk of the industry in India Inc. This is not to say that smaller companies should be encouraged at the cost of competitiveness, however there should be a level-playing field for all.
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