Abstract and Project Proposal

Project Title:
Diffusion of Information and Communication Technologies in India: Labour Market Implications for Developing Countries

Recipient Institution:
Indian Institute of Information Technology
1st Floor, Innovator Tower, International Technology Park,
Whitefield Road, Bangalore-560066
INDIA

URL: www.iiitb.ac.in

Project Leader:
M.Vijayabaskar, Post-Doctoral Fellow
baskarv@iiitb.ac.in

Amount and Duration: USD 8, 400.00 / 12 months

Commencement Date: April 2002

This project will examine how different modes of use of information and communications technologies (ICTs) impact labour market outcomes in developing countries where policy makers face a dilemma as they encourage ICT based industrialisation to simultaneously generate employment and improve economic productivity. If the emergence of a new ICT industry promises to generate employment, deploying ICTs to automate and rationalize existing industries threatens to cause job losses and skill redundancies.

This dilemma is especially evident in India. Although India's success with software exports has encouraged other developing countries to emulate it, the Indian software industry has neither generated significant employment nor has it contributed to improving the efficiency of the domestic economy, thus making it an ideal case to analyse the dilemma.

Measures to overcome this dilemma in India are evident in the steps to promote more labour-intensive ICT service industries and to encourage ICT diffusion by liberalizing the economic regime. As the labour market impact of these efforts is unclear, the project will examine the impact of ICTs in two industries. One is the call-centre and transcription industry, a new ICT service industry in India. The other is the older automobile manufacturing industry, which is deploying ICTs to reap productivity benefits. 150 employees from thirty firms in each industry will be interviewed to understand changing work organization and employment conditions.

The findings of this study project will provide policy makers in developing countries with insights into how the trade-off between generating employment and improving productivity by deploying ICTs is mediated through various labour market institutions.

Project Background: ICTs and Labour Market Outcomes in Developing Countries
This project will examine how different modes of use of information and communications technologies (ICTs) impact labour market outcomes in developing countries. Policy makers in developing countries face a fundamental dilemma as they try and take advantage of the ICT-led third industrial revolution. On one hand, since ICTs are a new and rapidly growing economic sector, creating an ICT industry can generate vast employment opportunities. Further, since ICTs are also enabling technologies, the growing share of knowledge-based production globally warrants that, from a macro-economic perspective, economies develop a degree of technological capability in this sector if they are to compete in international markets. From a micro-economic perspective, promoting ICT based industrialisation and deploying ICTs in pre-existing industrial sectors can impart greater flexibility and efficiency to production systems in user industries.

On the other hand, even as the development of the ICT sector promises to generate new employment by creating a demand for fresh skills and new occupational categories that may not be readily available even in developed countries, the deployment of ICTs in existing industries creates challenges by transforming the organization of production. At one level, automating production can displace labour. But even if labour redundancy in numerical terms in not an issue, rationalizing production by deploying ICTs is likely to render existing skills redundant, profoundly altering patterns of labour demand.

These seemingly contradictory tendencies highlight the importance of a clear understanding of how the production and use of ICTs will affect labour markets. In contrast to the extent of interest in these issues in developed countries, the labour market impacts of ICTs have received little research attention in the context of developing economies even as they strive to simultaneously provide quality employment and to improve overall economic productivity and efficiency.

Research in developed countries, by organisational theorists and labour economists, clearly shows that there is no linear causal relationship between technological change and labour market outcomes because of the diversity of mediating factors. [1] To some researchers, output markets play an important role. [2] To others, labour unions and firm level governance mechanisms are key. [3] Limited evidence from developing countries confirms these observations and reveals that outcomes vary across regions, sectors and even firms within sectors. [4] Factors like the position that firms occupy in the global division of labour, industry-level specificities, organisational factors like ‘routines’ and ‘governance structures’, and labour institutions, such as labour laws and regulations, influence the nature of impact. External to organisations, social and cultural institutions, such as the perception of women's work, too influence this process.

[5] The impact therefore varies across sectors and organisational types within sectors, critically influenced by institutional factors that mediate between technical improvements and their use in organisations. Policy makers then are faced with pressing questions about how ICTs are likely to affect the quality of work and careers, skill enhancement, and autonomy at work. Questions are also raised as to whether ICTs foster equality or reinforce existing labour market segmentation, such as those based on gender, observed in traditional sectors.

[6] The proposed study will help answer such policy questions by examining the impact of ICTs on the Indian labour market in two different industries. One is the call-centre and transcription industry, a new (at least in India) ICT service industry that has emerged in the last five years. The other is the older automobile and automobile components manufacturing industry, which is deploying ICTs extensively to reap productivity benefits.

Project Justification: Lessons from the Indian experience with ICTs

Since the mid-1980s, and especially since 1991, Indian economic policy has become more liberal, with the easing of numerous regulatory constraints on industry. This has led to the emergence of new industries, including ICT industries. It has also led to restructuring of many existing industries along with the intensification of competition in them with the entry of new firms, both domestic and foreign. These changes have translated into higher economic growth: Indian GDP growth was 5.8per cent for 1980-90 and 5.9 per cent for 1990-97, in contrast to 3.2per cent for 1965-80. [7] But this acceleration in GDP growth has been accompanied by a deceleration in employment growth. Since the 1980s, there have been indications of job-less growth within the “formal” sector, where work conditions and welfare provisions have the legal backing of the Indian Factories Act, 1948, in contrast to the unregulated conditions of the “informal” sector. [8] In the 1990s too, employment in the formal sector has only grown at an annual average rate of 1.5 per cent between July 1987 and December 1997. [9] The slow growth in demand for labour is a source of concern when juxtaposed against the numbers seeking employment in the formal sector. [10] These tendencies have placed Indian policy makers in the dilemma discussed in the earlier section, and nowhere is it more acutely evident than in India’s ICT industries.

One feature of economic liberalization in India is the active promotion of ICT based industrialisation by policy makers. [11] In some respects, the policy efforts have been successful. For instance, between 1985 and 2000, India’s software exports grew from virtually nothing to US$ 4 billion, and at a compounded annual growth rate (CAGR) of 62.3per cent between 1995 and 2000. [12] Software has become one of India’s leading exports, [13] and India is the largest software exporting country outside the OECD. [14] Not surprisingly, India’s software industry has attracted much international attention and many developing countries want to emulate India in this regard. The attention paid to the success of the Indian software industry has, however, typically overlooked the dilemma posed by ICT based industrialization. This project will analyse critical aspects of the dilemma to offer important lessons to policy makers in India and to those in the many developing countries seeking to emulate India.

One aspect of the dilemma posed by software production in India is that it employed 410,000 in 2000. [15] Not only is this number small when compared to employment in other leading export industries such as textiles and clothing, [16] it is also miniscule given the demand for employment in the Indian economy. Further, the software industry typically employs only those with at least four years of university education in engineering or the natural sciences, [17] thus ruling it out as a source of employment for the majority in a country where only 1.4 per cent of the population receives tertiary education in these fields.

[18] Another aspect of the dilemma is the rising share of exports in the revenues generated from software produced. Between 1990 and 2000, the share grew from 50.72 per cent in 1989-90 [19] to 70 per cent in 1999-00. [20] In other words, while developed countries and their firms, including 185 Fortune 500 companies in various industries, have been increasingly buying Indian software to automate/rationalize their production, thereby raising the efficiency and flexibility of their operations, India has been unable to adequately utilize its ICT production abilities to transform its own economy. This is corroborated by India’s spending on ICT which, at 0.53 per cent of its GDP in 1999, was far lower than the Asia-Pacific average of 1.81 per cent.

[21] Policy makers have taken certain steps to address the dilemma posed by software production for exports. To widen the range of employment opportunities offered by ICTs, networking and telecommunications facilities are being improved in order to generate at least a million jobs by 2008 in the non-software ICT service sectors, especially internet supported call centres and transcription work. [22] These sectors do not require the kind of training and skills demanded in the software industry. Instead, they are likely to offer employment opportunities to anybody with even secondary school education, as long as they can be trained to communicate with customers. Further, these sectors are also likely to enhance employment opportunities for women, thereby reducing gender-based segmentation in the labour market. This dimension of employment in ICT based sectors is also in consonance with government policy of reducing gender disparities in employment. [23] There are, however, no studies assessing whether and to what extent such goals are being met.

The dilemma posed by low diffusion of ICTs in the economy is being addressed indirectly by the industrial restructuring that is forcing firms to respond to competitive demands by turning to ICTs for more efficient and flexible production. Thus, for instance, the domestic market for software grew at a CAGR of 42 per cent between 1994-95 and 1999-2000. [24] Among the fastest growing software segments in this period have been Enterprise Resource Planning (ERP) systems. [25] ERP systems have revolutionized global business practices in a wide range of industries, across different scales of operation, by facilitating information flows across various functions within firms, to reduce time-to-market and to promote decentralised decision-making. [26] This has transformed work organization and enabled firms to rationalize their use of labour. As ERP implementation in a firm is typically followed by e-business solutions to seamlessly integrate suppliers and customers, [27] tracking how ERP is used offers an excellent means of comprehending ICT diffusion in the wider economy and to shed light on changes in work patterns and employment as a result of ICT diffusion.

In India, since ERP implementation began around the mid-1990s the manufacturing sector has accounted for nearly 75 per cent of ERP system purchases, with the automobile and automobile component industry being one of the largest consumers. [28] Under India’s liberal policy regime since the mid-1980s, the automobile industry has been among the fastest growing manufacturing industries. [29] It has also witnessed intensified competition as firms such as Toyota, Ford and their suppliers, have established production facilities in India. The new entrants have installed the ERP systems used by their parent firms, while existing firms have had no option but to install their own systems to respond to the global standards of productivity and data-exchange enforced by the enhanced competition.

Despite the spread of ERP systems in manufacturing, and the likelihood that their use will continue to grow, given the relatively low levels of productivity and ICT spending in India, little is known about their impacts on employment and the labour market, such as skill requirements or labour redundancy, and the institutional factors mediating them. As a result, even less is known about whether the labour market impacts of efforts to promote economic efficiency will nullify or complement the efforts to promote employment in other industries such as ICT services. These issues deserve analytical scrutiny because of their considerable importance for the generation of appropriate strategies for labour market intervention in India and in other developing countries.

Project Objective: Research Questions and Hypotheses

1. Does evidence from the ICT service industry and the automobile and component industry in India suggest that the promotion of ICT based industrialization in developing countries leads to:

• skill polarisation i.e. skilled workers with better knowledge of use of ICTs have better career and work opportunities, leaving the rest of workforce in dead-end, low-paying jobs.
• deskilling i.e. ICTs render traditional skills redundant and therefore tend to deskill the workforce. · disintermediation i.e. ICTs reduce transactions costs involved in information flows within an organization and therefore undermine the need for middle management.
• gender neutrality i.e. ICTs reduce the need for physical labour and create white-collar jobs. Women, therefore, would find better employment prospects due to diffusion of ICTs.
• flexibility i.e. ICTs reduce coordination costs, allowing firms to rely on external labour markets and, therefore, promote greater labour market flexibility.
• autonomy at work i.e. ICTs ensure greater access to information among employees, therefore helping decentralized decision-making and giving employees greater autonomy at work.

2. How does the impact of ICT based industrialization on labour markets in India compare with changes observed elsewhere (developing and developed countries)?

3. What are the implications of the results of hypothesis testing and the comparison with other countries for: Policy intervention in labour markets in developing countries
The relationship between technological change and labour market outcomes

Project Beneficiaries

The results of the study will benefit various agents seeking to ensure work and employment standards in developing countries, such as policy makers and labour representatives, especially those representing women workers. This is because the study will shed light on changes in skill requirements, work content, working conditions and terms of employment across different segments of the labour force in a developing economy, brought about by a rapid diffusion of ICTs and accompanying organizational restructuring. Critical insights will be obtained on the nature of policy intervention required to ensure that the norms of ‘decent work’, viz., quality work and employment, rights at work, security and representation, are ensured for various segments of the workforce while simultaneously building up competitiveness in global markets. Further, given a paucity of studies in this area, this work will enrich industrial organisation theorists’ and labour economists’ understanding of the impacts of ICT diffusion in developing economies.

Project Methodology

In the absence of reliable secondary information, testing the six main hypotheses of the research will rely on data gathered from primary fieldwork. Prior to starting fieldwork, however, the project will seek out secondary sources for policies governing the two industries chosen for study and relevant aggregate data. Data (including published/unpublished archival data and interviews) on the two industries will be obtained from the two leading trade associations, the National Association of Software and Services Companies (NASSCOM) for the ICT service industry and the Automotive Component Manufacturers Association of India (ACMA) for the automobile and automobile component industry. The data will be supplemented by data from the Government of India’s databases (such as the Annual Survey of Industries) and reports (especially those of the Ministries of Information Technology, Industry and Labour), the Confederation of Indian Industry (CII), the main industry association in the country, and the Centre for Monitoring Indian Economy (CMIE), which provides the most comprehensive source of corporate data in India.

Primary fieldwork will then be carried out by surveying a sample of thirty firms in the two industries, chosen from the membership lists of NASSCOM and ACMA. The ACMA list will also be supplemented with data from leading ERP vendors on their clients in the automobile industry. Firms from the relatively new ICT service industry will be randomly chosen from the main centre of the industry, Bangalore. Firms from the automobile industry will be more purposively chosen to understand the transformation that the industry is undergoing. Two-thirds of the firms will be from Chennai, which has long been a major centre for the Indian automobile industry. Although the firms in Chennai date back to the 1950s, they have transformed their production significantly to become globally competitive. [30] The other firms will be chosen from Bangalore, where an automobile industry has grown to support the production facilities established by Toyota and Volvo in the 1990s.

At each sample firm, in each industry, relevant firm-level data will first be obtained from annual reports, websites, and from production and human resource departments. This will be followed by hour-long interviews using structured but open-ended questionnaires with five employees from each sample firm (total of 300 interviews) to capture the various dimensions of ICT use and labour market change. Within a firm, purposive sampling will be adopted to ensure that job types and gender divisions are captured. Initially, a pilot questionnaire will be developed and employees from two firms in each sector will be interviewed. The pilot questionnaire will then be refined before interviewing employees in all the sample firms.

Proposed Timeline

· 1 April 2002 - 30 April 2002: Secondary literature survey and analyses of existing data sources; choosing sample firms for detailed study
1 May 2002 - 15 May 2002: Pilot survey and questionnaire refinement
16 May 2002 - 30 June: Fieldwork Phase I: Survey/Interviews of ICT service industry
1 July 2002 - 31 August 2002: Transcription of interviews and data entry from Fieldwork Phase I. Includes identifying and filling data gaps.
1 September - 31 October 2002: Fieldwork Phase II: Survey/Interviews of Automobile and Components sector – a month each in Chennai and Bangalore. (Note: Although the number of surveys/interviews planned for this industry is identical to those for the ICT services industry, additional time has been allotted for Phase II since September and October have a number of holidays for Hindu festivals such as Dussera).
1 November 2002 - 31 December 2002: Transcription of interviews and data entry from Fieldwork Phase II. Includes identifying and filling data gaps.
1 January 2003 - 31 March 2003: Data analysis and final report writing

Project Outputs

The primary output of the project will be an analytical report, of at least 100 pages, on labour market impact of ICTs in India and their significance for other developing countries. Since ICTs encompass a wide variety of technologies and applications, by focussing on its impact on two industries, one a new ICT based service industry and the other an older manufacturing industry, the report will capture differences in impact of ICTs on labour markets across different segments of the labour force, across industries and across job types within an industry. It will also capture the impacts of ICTs on skill requirements and quality of work, sources of skill formation and on labour institutions like employment contracts, collective bargaining and labour unions. The report will thus inform policy makers, labour market activists and employees about issues such as recruitment patterns, employment tenure, career paths, skill and wage levels, and prospects for work autonomy.

The report will be made available on the website of IIIT-B for any one to download for free. A limited number of hard copies (at least 50) will also be available for free distribution for those who request them. In addition to final report, the project will also generate at least 300 hours of interviews on the effects of ICT based industrialization. The interviews will be archived and preserved by IIIT-B and made available freely to other researchers.

Project Monitoring

In addition to the final report, three intermediate reports will also be posted on the IIIT-B website and made available to research monitors at the agencies and institutions sponsoring and administering the research, including the International Development Research Centre of Canada, the United Nations Development Program and the Asian Media and Information Communication Centre. Apart from providing information on the financial status of the project, the intermediate reports will be made available on the following dates containing:

31 May 2002 – the results of the secondary literature survey, selected list of sample firms and the final interview questionnaire.
15 September 2002 – preliminary findings from Phase I of fieldwork
15 January 2003 – preliminary findings from Phase II of fieldwork The administering agencies and sponsoring institutions are also welcome to conduct any other evaluation or monitoring as they see fit at any point during the project duration.

Endnotes

[1] See for instance the works of Bell, Daniel.1973. The Coming of Post-Industrial Society. New York: Basic Books; Piore, Michael and Sabel, Charles. 1984. The Second Industrial Divide: Possibilities for Prosperity. NewYork: Basic Books; Zuboff, S. 1984. In the Age of the Smart Machine. Basic Books, New York; Storper, Michael and Scott, Allen J. 1990. Work organisation and local labour markets in an era of flexible production. International Labour Review. 129(5):573-91; Peck, J. 1992. Labor and agglomeration: Control and flexibility in local labor markets. Economic Geography. 68(4):325-47; Carnoy, M.; Pollack, S. and Wong P.L. 1993. Labour Institutions and Technological Change: A Framework for Analysis and a Review of the Literature. International Institute for Labour Studies' Labour Institutions and Economic Development Programme. Geneva: ILO;

[2] For instance, Piore and Sabel (1984).

[3] For instance, Peck (1992).

[4] International Labour Office (ILO). 2001. World Employment Report 2001: Life at Work in the Information Economy. Geneva: ILO.

[5] Hafkin, Nancy and Nancy Taggart. 2001. Gender, Information Technology, and Developing Countries. Washington DC: USAID.

[6] Webster, J. 1985. Office Automation: The Labour Process and Women's Work in Britain. London: Wheatsheaf; Mitter, S. and Rowbotham, S. (eds.). 1995. Women Encounter Technology: Changing Patterns of Employment in the Third World. London and New York: Routledge; Hafkin and Taggart (2001).

[7] World Development Indicators, 1992 and 1998.

[8] Nagaraj, R. 1994. Employment and Wages in Manufacturing Industries: Trends, Hypotheses and Evidence. Economic and Political Weekly. 29(4):177-186; Goldar, B. 2000. Employment Growth in Organised Manufacturing in India. Economic and Political Weekly, 35(14):1191-1195.

[9] Calculated from Table 2 in Gupta S.P. 1999. Trickle Down Theory Revisited: The Role of Employment and Poverty. V.B Singh Memorial Lecture, 41st Annual Conference, Indian Journal of Labour Economics, November 18-20.

[10] According to the ILO (2001:36), “In the organized sector, while public sector employment has declined in recent years, there has been some positive growth in the private sector in the post-reform period. However, employment elasticity in respect to output in this sector still remains very low.”

[11] For details of India’s policy evolution in the ICT sector, see Parthasarathy, Balaji. 2000. Globalization and Agglomeration in Newly Industrializing Countries: The State and the Information Technology Industry in Bangalore, India. Unpublished Ph.D. Dissertation, University of California, Berkeley; Heeks, Richard. 1996. India’s Software Industry: State Policy, Liberalization and Industrial Development. New Delhi: Sage Publications); http://it-taskforce.nic.in/vsit-taskforce/actplan3/chap3.htm

[12] http://www.nasscom.org. CAGR is in nominal rupee terms.

[13] Software’s share in Indian exports have risen from a negligible percentage in 1990 to 7.89 per cent in 2000-01. Nagesh Kumar. 2001. Indian Software Industry Development: International and National Perspective. Economic and Political Weekly. 36(45):4278-4290, Table 12.

[14] OECD. 2000. Information Technology Outlook. Paris: OECD.

[15] http://www.nasscom.org

[16] In 1998, textiles and clothing in the formal sector employed 1.6 million. ILO. 2000. Labour Practices in the Footwear, Leather, Textiles and Clothing Industries: Report for discussion at the Tripartite Meeting on Labour Practices in the Footwear, Leather, Textiles and Clothing Industries. Geneva: ILO.

[17] Parthasarathy (2000).

[18] Strictly speaking, the figures refer to the percentage of population in 20-24 age group, in the period 1990-95. The World Bank. 1999. World Development Report: Knowledge for Development. New York: Oxford University Press.

[19] National Association of Software and Service Companies (NASSCOM). 1995a. The Software Industry in India, 1995: A Strategic Review. New Delhi: NASSCOM.

[20] http://www.nasscom.org

[21] http://www.crito.uci.edu/git/publications/pdf/taiwanGEC.pdf

[22] NASSCOM. 1999. The Indian I.T. Strategy. New Delhi: NASSCOM, p.4.14.

[23] According to Bannerjee, N. 1995. Something Old, Something New, Something borrowed…. The Electronics Industry in Calcutta. In Mitter, S. and Rowbotham, S. (eds)..,"The period since the 1960s has also seen the government beginning to emphasize the minimization of employment discrimination against women, at least in the public sector. Since most of the growth industries mentioned above were under public management, women's employment in those industries grew faster than in other sections of the economy. It has therefore been easy to conclude that, as in most other countries, the deployment of electronic technology has on the whole been 'gender friendly".

[24] http://www.nasscom.org

[25] Kapil Dhall. 1999. Indian ERP Market Scenario, 1998-99. International Data Corporation.

[26] Sadagopan, S. (ed.). 1999. ERP: A Managerial Perspective. New Delhi: Tata McGraw Hill.

[27] Using Supply Chain Management and Customer Resource Management solutions respectively, which are also referred to as ERPII systems.

[28] Based on information provided by leading ERP vendors including SAP, Oracle, JD Edwards, Ramco and Baan.

[29] Thus, the contribution of the automotive industry to GDP has risen from 2.77per cent in 1992-93 to 4.0per cent in 1998-99. http://www.directories-today.com/i_automobile.htm

[30] For instance, Sundaram Brake Linings and Sundaram Clayton, two of only five firms worldwide ever to win Japan’s prestigious Deming Application Prize for Total Quality Management, are both Chennai-based.