The next phase in infotech growth calls for innovation beyond jobs, exports

India must look beyond employment and export growth to innovation that can compete with the US and China

My column last month focused on the international governance of the internet. This month, I turn to the national strategy in India for future information technology (IT) development. Over the past three-plus decades, the most significant substantive advance in India has been in the provision of new information and communication services. The two themes are closely connected. The spread of internet-related connectivity is deeply linked to the rapid transformation of the communication system — first through the rise in mobile phone availability and usability, and then with the emergence of smartphones.  

The rapid development of information and communication services is one area where India has done well. This is evident in the expansion of cellular mobile phone users to 1.12 billion by early 2025, with over 70 per cent of them using smartphones. As for the internet, the Telecom Regulatory Authority  of India reports about 1 billion internet subscribers as of June 2025. This vast expansion in information and communication services in India is a combination of substantial foreign companies entering India for the supply of phones and internet service, and effective public spending on communication service infrastructure. 

India also experienced a boom in an infotech industry focused more on the provision of information services than on hardware manufacturing. In 1990, the turnover of the infotech industry in India was about $10 billion. Today, it has expanded to about $250 billion.  The industry employs around 4.5 million people, the second-highest figure in the world. The take-off of the infotech industry in India came at the end of the 20th century, when software programs, which generally used only a two-digit specification of the year, had to be modified to cope with the millennium change. This was a labour-intensive task that the IT companies in India were well-placed to undertake.  In fact, its subsequent spectacular growth is also a product of the sizeable availability of infotech-trained experts.   

The significant contribution of the infotech industry to gross domestic product (GDP) and exports is essentially a product of the large availability of workers with relevant knowledge and skills. Note also that much of the entrepreneurship came from new starters and not established conglomerates, with the exception of the Tata group through Tata Consultancy Services. There is also a flood of new starters that are using the availability and vast access of internet-linked services. The basic message from the growth in the infotech industry and the rapid rise in exports is that in India, accelerated growth in GDP and exports, which are closely connected, depends on our skilled workforce and the high potential for new entrepreneurship starters.  That is the prime policy lesson from the most successful area of our development over the past 35 years. 

The impact of the information and communication-related development has led to the rapid development of a digital economy. The development of ecommerce, which had a turnover of about  ₹10 trillion in FY24 and is expected to grow threefold by 2030, has led to a significantly fresh scope for  small and medium enterprises. This has also been facilitated by the digital payment system, Unified Payments Interface, which now handles around 20 billion transactions a month, connecting nearly 500 million customers with about 65 million merchants, and is having a huge impact on the nature of banking operations. Ecommerce has also been enabled by Aadhaar for verification and by the Jan Dhan Yojana, which expanded bank account coverage to 89 per cent of adults in 2024. The employment impact of ecommerce is manifest in what is called the gig economy, which involves temporary work contracts, for instance, for delivery service providers, or freelance work under an apex digital service provider, such as taxi drivers under Uber or Ola.

 

In urban India, this development of broader information services access, widespread telephonic communication and everyday commerce being shaped by the digital economy is the most significant change in the lives of most people. 

What is the way ahead for this new information economy? Right now we have a major forward development in IT in the form of artificial intelligence (AI), which has the potential to be as transformative as the introduction of electricity power in the 19th century, particularly in its variety that goes beyond data analysis and summary to generating possible options for action. It is reputed to be something that will replace employment of persons whose task is to process information for producing and providing products and services. For instance, in radiology, an AI application will be much more thorough than a human in assessing abnormalities in the images taken. However, the impact on the use of information for specific purposes will be less affected.  

It is possible that the application of AI can reduce the routine demand for skilled labour. However, at present the use of AI is largely for information access. Even in radiology, where the expectation was that the requirement of analysing personnel would come down, evidence suggests that the impact has instead been an improvement in their performance. Moreover, AI is based on large language models and vast data sources. Utilising these effectively does require some organisation of the accessible data and the IT industry in India is well-placed to provide this service.  

The ambitious programme for AI development formulated by the Government of India will also be well-served by this reservoir of worker expertise. I believe that the human potential of infotech-knowledgeable workers is so strong in India that it will likely lead to more foreign companies establishing capability centres here. A recent example is the decision of the Google group to set up a major AI centre in India. The shenanigans of Donald Trump against technology workers migrating to the United States will accelerate this outsourcing by AI-driven companies there, many of which are headed by chief executives of Indian origin. 

India’s public policy must ensure that its strength in infotech lies not only in the large availability of qualified workers, but also in the development of significant capacity to build models and programs in emerging areas such as AI. The recent specification of the Research and Development Innovation Fund includes AI as a priority area. It is meant to be focused on “high-risk, high impact projects” that will probably mean support for startups, a desirable way of supporting “creative destruction”, which is essential for innovation. Creative destruction will cause upheavals in some established sectors but also create new sectors, and this requires a different type of policy support. Hence, the next step in our infotech strategy should be to look beyond employment and export growth, and move towards innovation that can soon compete with the US and China. 

 

desaind@icloud.com