National ICT-Driven Development Policy Comparing Approaches in India and China

In: https://doi.org/10.7916/d8-nabs-mr28

Abstract

Prior to 1991, India was mired in economic stagnation related to a bloated public sector, opaque business regulations and an inefficient industrialization policy based on import substitution. To avert an incipient foreign exchange crisis, the government introduced a raft of liberal reforms including reduced import taxes, market deregulation, and incentives for foreign investment. These reforms have largely been responsible for the consistently high GDP growth India has experienced since 1991, driven by entry of foreign capital and advancements in the services sector. However, the wealthy have been the greatest beneficiaries of this growth, as earnings inequality between the top and bottom 10% of the population doubled between 1991 and 2013. ICT has been the largest enabler of this rapid growth by making India's comparative advantage in the service sector accessible to the global economy. India has grown into a giant in the global services outsourcing industry, and concurrent increases in digital talent have propelled India's information technology industry into becoming a major player both domestically and abroad. China experienced a similar trajectory, as economic opening and reform over the period from 1978 to 1989 was followed by ambitious government promotion of specific cities as global manufacturing hubs. Low labor costs and business-friendly policies within Special Economic Zones (SEZs) attracted initial foreign investments, snowballing as the region developed into a manufacturing hub. As skill in the manufacturing sector increased, particularly in the hardware and electronics industries, China has risen up the value chain to develop increasingly complex components indigenously. National economic planners now prioritize high-tech manufacturing, and the rise of China's gigantic tech companies has powered a simultaneous rise in the country's service industry. Incipient public investments are now targeting development and applications of Artificial Intelligence, which stands both to further elevate the manufacturing sector and place China at the center of future global economic developments. ICT, as a set of tools that can integrate users into the national economy while democratizing service delivery, provides an excellent toolkit to promote the inclusive growth that liberalization has not yet delivered in either economy. To do so, however, national policies to encourage ICT-led growth and development must be put in place. While China has largely made successful infrastructure investments to encourage digitization across the country, India continues to lag in certain key measures. In contrast, while India has introduced specific strategies to leverage AI as an engine of inclusive growth, China's AI development strategy prioritizes achieving a dominant position in the global market over using AI domestically as an engine of broad-based development. Moving forward, India should draw lessons from China's success in implementing strategic federal initiatives and developing local capacity to expand the public sector's capacity to support ICT-driven development. In addition, India should recognize the need to develop enhanced research capacity as ICT, especially AI, makes increasingly essential contributions to the economy. For its part, China should make targeted investments in ICT-driven development for sectors likely to lag behind. It should also clarify the tension between its competing priorities of maintaining stability and encouraging innovation.