Saturday, March 31, 2007

A Brand New Model? 

A lot of bandwidth has been used up to discuss what model of development India should adopt: the Chinese model, the American model, the French model etc. I myself have sucked up quite a bit of bandwidth on this issue. However, I was reading an Indian business magazine (I apologize, I cannot remember which one) recently that made an altogether different and valid point. India is, in fact, following a model that has never been tested before. According to the magazine, not once in world history has a large-sized country gone into rapid industrialization mode, while also guaranteeing universal franchise or a vote for all of its citizens. When you think about it, this claim is probably true. Forget China, think about the U.S., Soviet Union, the U.K., France, Germany etc. Not one of those countries actually industrialized while everyone had the vote. In fact, in a country like Switzerland, all cantons gave women the right to vote as late as 1991. Effectively, this means India is following an untested model and the risks associated with such a model are what stand in the way of quicker growth (the stuff we tear our hair over, on this blog).

I have never seen this observation made anyplace else, and I figured I should share it with you. What do you think? Can you think of any prominent countries that industrialized while also being a full democracy?

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.

What is it about Bandwidth in India? 

I am cross-posting a bunch of posts I had made earlier this month on the Indian Economy Blog. This one is the first.

There is no shortage of hype about India's superpowerdom in IT and Telecom. However, the truth seems to be far from it. Why is it that there is not a single provider out there who is capable of providing decent broadband access, for instance? The prevalent logic seems to be that the only thing that matters is price, seemingly oblivious to the fact that some consumers may be price-insensitive when it comes to fast and reliable broadband access. The U.S. is not the model to follow, but even so, you could get 3-4 MBps thoroughput at any given time for $40 a month (Rs 1800 approx). I bet there's at least a million households in India that are willing to pay Rs 2000 a month to get decent access. I certainly would be willing to pay that much.

Instead, all you have are providers who claim to provide you high bandwidth, but then place download limits. What do you need 1 MBps for, if you can only download 1 GB worth? A single album from Itunes is about 700 MB, so what's the point? Surely, you don't need high bandwidth to check emails? If they give you unlimited download, they restrict your speed to 256 KBps maximum. So, what the hell are these guys thinking? Or is there some problem with the bandwidth available to each of these ISP's? It seems to make no sense otherwise, when there is an obvious business model in price discrimination, right?

I know the available bandwidth in India today exceeds 20 TB. The question is how much of this is lit. Does anyone know? Secondly, are there any ISP's out there that are actually providing high bandwidth residential access with unlimited downloads? I am sure lots of ZS readers would like to know, besides me.