Can IT and ITES be an engine of growth for India: An empirical analysis

India emerged as one of the fastest growing economies of the world during the 1990s because of the spectacular dynamism shown by the services sector. India’s services sector has been burgeoning fast and one of the major driver’s of the growth of services sector is Information Technology (IT) and Information Technol ogy Enabled Services (ITES). It is well documented in literature that IT impacts growth by different channels. In this study we try to empirically verify the question: Can IT and ITES be an engine of growth? Using micro‐level data of 100 households of 20 IT and ITES firms along with secondary data we tried to estimate the extent of indirect employment generation at macro‐level and the share of IT and ITES in total employment and total value added. According to our study, one job for skilled professional employed in IT and ITES spins off jobs for 0.48 semi‐skilled, low skills or unskilled workers. As per our estimates, the 16 lakh workers who are expected to be directly employed in IT sector in the FY 2008 would generate secondary em ployment for 7,68,000 people which would constitute 0.16 per cent of total employment. However, the share of consumption expenditure of 16 lakh professionals would be 20 per cent of total value added. Assuming the consumption expenditure of the IT and ITES workers and total value added to be the same/constant when we tried to assess the contribution of consumption expenditure of 2.3 million workers (who are projected to be directly absorbed by IT sector by 2010, NASSCOM, 2005) to total value added it comes out to be 29 per cent of total value added. The study says that the proportion of IT‐ITES in total employment may be small but its contribution to total value added is still very high. Indeed IT and ITES can be an engine of growth in India’s economy by way of generating demand impulses in the economy as has been hypothesised and shown through the present study. Keeping in view the contributions of this sector and its huge untapped potential as evident from the present study and various other studies, there is a need for introduction and implementation of policy initiatives to address the challenges faced by this sector and to sustain the growth driven by the services sector.