Saturday, March 31, 2007

The Multipliers. At Last. 

It always intrigued me that noone, especially in academia, had bothered to do robust research on the downstream multiplier effects of the IT-ITES industry. Anyone who has looked at the industry in any seriousness knows there have to be serious multipliers involved. All of those cab drivers, construction workers, caterers etc are the multiplier at work, after all. Given the subsidies the industry enjoys, it would seem that the multipliers are probably the best public policy justification one could come up with.

Everyone has speculated about the multiplier effect, including me. This week, however, NASSCOM released the results of the first ever comprehensive study that I know of on the multipliers associated with the IT industry in India. The research itself was conducted by CRISIL and the main highlights are:

* For 1 job created in IT-ITES, 4 jobs are created in rest of the economy
* In 2005-06, maximum additional employment generated through consumption spending (2.49 million) followed by Operating expenses (2.1 million) and Capital expenditure(0.63 million)
* Re 1 spent on OPEX generates additional output of Rs 0.9 (Multiplier 1.9x). Re 1 spent on CAPEX generated additional output Re 1 (Multiplier 2x)
* Re 1 spent by IT-ITES professionals generates additional output of Rs 1.1 (Multiplier 2.1x)
* In terms of potential impact on the economy by 2010, total economic output could be as high as $120 billion, while jobs created (direct+indirect) could cross 115 million

I had a look at the methodology and it looks fairly robust as well. It includes a combination of I-O, surveys and financial statement analyses. The study, however, does not look at forward linkages (use of IT as input by others), but only backward linkages, so that leaves space for more research on multipliers.