Information technology (IT) is arguably one of the more remarkable products of the advanced industrialized countries (AIC). Its development in the AICs and subsequent widespread use there indicates that IT tools are not only a consequence of economic growth and development, but is also the cause of further economic growth. Developing countries such as India are attempting to catch up and they are fortunate to have the use of IT at an earlier stage of their development than the currently developed countries had when they were developing.

I am pleased to note that the BJP believes in the use of technology for development. The BJP recognizes that IT enhances productivity and increases production. Their press release on the IT vision document is unequivocal and clearly lays out the components of the policy. It should be required reading for pundits and lay persons alike. Their policy declaration “IT for All” is bold, visionary, timel and ambitious. It is also fatally flawed and wrong-headed.

BJP’s pledge: IT for All

Shri LK Advani said, “A future NDA Government, if elected to office in the coming parliamentary elections, would give high priority to the realisation of this vision, which would help India overcome the current economic crisis; create productive employment opportunities on a large scale; accelerate human development through vastly improved and expanded education and healthcare services; check corruption; and make India’s national security more robust.”

Exciting though the vision and the specific proposals are, I have a few points that I would like to get a better understanding of. I am not a policy pundit. So my take on the matter is based mainly on simple arithmetic. (The text in blockquotes is from the press release of the IT policy linked above.)

• Multipurpose National Identity Card (MNIC) with unique Citizen Identification Number (CIN) for every Indian citizen in 3 years; to replace all other identification systems.

Perhaps MNIC is a great idea. I imagine that it will be used for a large number of transactions, although what they would be I cannot tell.

Given the context, it will not be a paper card. The US social security number is just a plain piece of paper. But I am guessing that in India it will be a smart card with an embedded chip carrying information about the citizen.

But let’s do the arithmetic. India has around 1,200,000,000 citizens. Assuming a conservative Rs 200 (around $4) per card, that works out to be Rs 240,000,000,000 or around Rs 24 thousand crores. That is the cost of the cards only.

The administrative mechanism and the manpower, the computer systems that would be required to handle the data, the process to authenticate the identity of the person before issuing the card, handling the security of the card and the transactions done with it, etc., will be extra. Let’s assume that these involve a one-time cost of Rs 1,000 per citizen and an annual cost of Rs 100.

Adding it up for those numbers, the first year cost of the program will be Rs 24 thousand crores (cards), Rs 120 thousand crores for the getting the system deployed and the fixed costs, and Rs 12 thousand crores for the first year’s operation. That is a sum of approximately Rs 156 thousand crores (or around $30 billion.)

Designing such a massive system and rolling it out will be a challenge. One assumes that the required human capital is readily available in India for such a task. I have no idea how many people and how many years this will take but I am sure that the BJP has worked it out already. The benefits of a Rs 156 thousand crore investment must have also been done by the BJP.

• 1.2 crore (12 million) new IT-enabled jobs in rural areas.

The goal is most impressive. I wonder if the government will provide the jobs because it is unlikely that the private sector will find much use for starting up business in rural areas considering the following facts: lack of trained people, lack of basic infrastructure (most importantly electrical power), lack of demand for IT-enabled services, etc.

• 1 crore (10 million) students to get laptop computers at Rs 10,000. Interest-free loan for anyone unable to afford it.

I assume that there are more than 10 million students in India who are unable to afford laptop computers. So they will have to be given a loan. I presume that the loan repayment will take a few years – time for the student to graduate and earn. So for at least 5 years, the total loan will be an expenditure for the government.

Cost of 10 million laptops (assuming that there are laptops available for Rs 10,000 – which is not so anyway) is Rs 10 thousand crores.

• National Digital Highway Development Project to create India’s Internet backbone, and Pradhan Mantri Digital Gram Sadak Yojana for last-mile access even in the remotest of villages.

There are 600,000 villages in India, some of them really remote. Assuming a conservative Rs 10 lakhs on average per village for providing last-mile access, the total cost is Rs 60 thousand crores.

• Broadband Internet (2 Mbps) in every town and village, at cable TV prices (less than Rs 200/month).

The prices of internet access currently in cities are over Rs 4,000 per month for 2 Mbps service. It is cheaper to provide access in cities, as compared to towns and villages (low density habitations.) Costs dictate prices and therefore to provide this service at Rs 200 per month, the subsidy will have to be around Rs 4,000 per month or around Rs 50,000 per year.

Assuming that there are 10 million internet-enabled households who will get the service, the annual subsidy will cost Rs 50 thousand crores.

• All schools and colleges to have Internet-enabled education.

There are around 1 million schools in India. Assuming making education “internet enabled” in each on average costs Rs 10 lakhs per year, that would cost Rs 100 thousand crores per year.

• 100% financial inclusion through bank accounts, with e-Banking facilities, for all Indian citizens. Direct transfer of welfare funds, preferably to the woman of the house.

Good goal. Assuming that this costs Rs 100 only per citizen per year, it would cost Rs 12 thousand crores per year.

• Every BPL family to be given a free smart mobile phone, which can be used by even illiterate users for accessing their bank accounts.

BPL families suffer malnutrition, are illiterate, don’t have access to clean drinking water, don’t have money to educate their children, cannot afford medical care, most live in slums in cities and in the most desperate conditions in rural areas. Their first priority is unlikely to be smart phones. The best thing that they can do with a free smart phone would be to sell it to someone who can use the phone and then use the money for food, etc.

But even then, let’s calculate the cost. A smart phone costs at least Rs 10,000. Assuming 20 million BPL families, the cost of this program is Rs 20 thousand crores.

Adding up the numbers so far

Just adding up the numbers so far, we have Rs 408 thousand crores, and we are just in the beginning of the wish-list. That is a large number even when I have actually taken lower-bound figures for the expenditure involved.

How large is that? Rs 4,080,000,000,000. That is 4 trillion rupees. That works out to be over $80 billion. (Just for ease of arithmetic, let’s use $ instead of crores of rupees.)

India’s population is around 1.2 billion. Of this, around 800 million survive on less than $2 per capita a day, and the remaining 400 million (I assume) on $ 5 per capita a day.

Governments don’t generate wealth. They transfer wealth from one segment of the population to another. The $80 billion for the government programs listed above will come from the top 400 million. Basic arithmetic alone shows that to transfer $10 to each of the 800 million (to get the $80 billion), it would require $20 per capita from the 400 million, or about $100 per family, in addition to the current taxes they pay.

This massive transfer would require a massive governmental administrative mechanism. The more money public servants handle, the more there are opportunities for corruption. This opens additional channels for corruption in a system already beset with massive corruption. If the goal is to reduce corruption as Mr Advani states, then increasing governmental interference and control of the economy is certainly not the way to go about it.

Conclusion

Reading the document so far is exhausting enough and so I will leave the rest of the press release for later. I have yet to muster up the courage to read the 40-page pdf of the IT vision.

IT is important and definitely holds a major promise of enabling India’s growth. But the items above are neither necessary nor sufficient to do so. And most importantly of all, there is not even the slightest indication of whether the massive spending will result in any benefits to the poor who need help.

One of the most important lessons one learns from the centuries of human development experience is that people do achieve economic growth provided they have economic freedom. Economic freedom coupled with even modest levels of human capital is sufficient for economic development and growth.

The currently developed countries did not have IT tools during their development. What they had was human capital (quite modest by today’s standards) and economic freedom. Human capital and economic freedom enabled them to develop the IT required for further increase in human capital and therefore economic development.

The lesson is that IT is not necessary and certainly not sufficient for economic growth

Technology – and more specifically information and communications technology – multiplies the capabilities of a system. If the system is itself dysfunctional, IT enlarges the dysfunction; if the system itself is good, IT enlarges the good. The key is therefore to make the system good before empowering it with IT.

Related posts:

On Technology and Development.

Formula for Milking the Digital Divide.