(From left to right) Robert Damuth VP, Nathan Associates Ravi Venkatesan Chairman, Microsoft India Laura Sallstrom President, Sallstrom Consulting Kiran Karnik President, Nasscom R. Sridharan Deputy Editor, Business Today

To those among us who like to think of India as an information technology (it) powerhouse, here's some shocking news. India is one of the most under-invested countries in it. Chile has more personal computers per 1,000 people than India (119 vs seven), Ireland has 17 times more internet users per 1,000 people than India (271 vs 16), and the it capital share of total capital in India is a measly 3.5 per cent compared to 24 per cent of those economies invested in it capital. These are some of the findings of a new Nasscom report on "Information Technology in the Economy of India". Prepared by two us-based firms, Sallstrom Consulting and Nathan Associates, the report makes a case for increased investment in it to boost economic growth. To debate on some of the key issues raised by the report, BT brought together Nasscom's Kiran Karnik, Microsoft India's Ravi Venkatesan, Sallstrom Consulting's Laura Sallstrom and Nathan Associates' Robert Damuth. The panel was moderated by BT's Deputy Editor, R. Sridharan. Excerpts:

BT: Kiran, isn't it ironic that a country that likes to think of itself as an IT powerhouse is such a poor consumer of IT itself?

I don't think it's odd. It's just opportunistic. There was a huge opportunity abroad and we took it on. But I think the time's come when we look at what we need to and can do in the country. The possibilities are immense, the need is very large, and I think the industry at this time is at the right stage to contribute.

BT: Ravi, as somebody who works for a global software giant, what do you think is holding back IT usage in the country? Is it price, language barrier, or the absence of locally-relevant applications and content?

If you look very broadly, there are four or five levers that we need to pull to drive it adoption within the country. One of them is connectivity, which has largely been addressed but there could be dramatic improvements, especially in broadband connectivity over the next four or five years. The second big lever is affordability. That is affordability of hardware, software and connectivity. How we bring down the cost of the whole stack so that it can be driven deeper into the economic pyramid. The third thing is language. While 68 per cent of our population is literate, only about 5 per cent can read, write and converse in English. That means the other 32 per cent is illiterate and needs a different kind of computer interface. The fourth is a tough one. How do you create locally-relevant applications? Small businesses want low-cost, easy-to-use accounting packages. And if you are in rural India, what you want is weather information, crop information and healthcare information. Now, these tend to be written by small ISVs (independent software vendors), and unless we can curb piracy, which is one of the themes coming out of the study, it is very hard for the small ISV to bootstrap its way to success. The final lever is education. That is, giving people the basic it skills to extract information out of connected device of any sort.

"When IPR is not protected, there is no incentive to develop products for the local market" Laura Sallstrom President, Sallstrom Consulting

"Demand for IT will come when there is competition in and deregulation of the economy" Kiran Karnik President, Nasscom

BT: Robert, if you look at the Indian economy, it's the fourth largest already in terms of purchasing power parity. So, in your experience of comparable economies, what are the elements that need to come together to spur IT usage?

While India's GDP might be relatively large, its GDP per capita even in PPP (purchasing power parity) is extremely low and certainly lower than in the other economies I considered (for the report). When measured in international dollars (read: PPP), among all economies under-invested in it capital, GDP per capita is the lowest in India. Although there are other reasons that help explain India's under-investment, I think low per capita income is the leading reason.

For a greater uptake of it, the value has to be demonstrated. That is one of the initiatives that's going to be undertaken following this study. The industry has to work to demonstrate to businesses that there's value. And when there's value in the applications and hardware, the businesses will invest.

BT: Kiran, whose job is it to demonstrate this value? IT companies' or a body like Nasscom's?

The issue, in my opinion, is demand. Looking at India and elsewhere, it's clear that demand comes when there's competition and deregulation. Competition forces you to build competitive advantage, and a major competitive advantage is it. We've seen that happen in segments like banking and telecom. So, if we want to drive demand for it we need to change the policy framework beyond it to competition itself. This is all the more important in the rural sector, which currently is completely uncompetitive. We don't have one common market for agriculture. Having done all that, individual companies will have to go-like they do abroad-and demonstrate the value of their applications. You need to create demand. Otherwise, it's going be to very difficult.

BT: Laura, Ravi earlier raised the issue of IPR (intellectual property rights)... how its absence discourages small vendors from producing locally relevant applications. But when it comes to usage, shouldn't the opposite be true? If you are able to copy software freely, there should be more people using it.

It's an interesting theory (laughs), and it's a theory I've heard before, usually from countries that have high piracy rates. If we do an analysis of innovation economies, economies that are creators of knowledge, they have low piracy rates. It's a critical factor underpinning the problem in India. We were actually with a group of ISVs yesterday, and they all said 'we are not recouping cost here'. And every time I know I can export a product and make a profit, I am going to invest my resources in exporting the products. So, if I know that my product is going to be pirated here, I am not going to invest my time and resources in developing products for the market here. I think this is a vicious circle of IPR protection, where the innovation economy isn't working. When IPR protection is not there, qualified labour declines to be engaged in the development of local products, or declines to start a company focussed on developing products for the local market. The other part of the cycle that breaks down is capital access. Venture capitalists don't want to lend money when they know that they are not going to make money.

BT: Ravi, I am sure price plays a big role in encouraging piracy. Do you think companies like Microsoft have a responsibility to price products at levels the local market can afford?

Clearly, affordability is a factor. Therefore, we need to make sure that we are driving down the cost of everything... hardware, software, connectivity... the whole stack. To make sure that people are willing to pay and not forced to pirate because of economic issues. Microsoft is doing a number of things to address this. One is to make sure that you have different products with different features at different price points. Another good idea we've taken up is, because India is largely vernacular-language speaking, we are making sure that our vernacular versions are priced substantially lower than similar English versions.

"For greater uptake of IT, the industry has to demonstrate to businesses that there's value in it" Robert Damuth VP, Nathan Associates

"We need to drive down the cost of everything: hardware, software, connectivity..." Ravi Venkatesan Chairman, Microsoft India

Next idea the computer industry has to adopt comes from the telecom industry. What drove the adoption of cell phones in the country? Instead of an upfront payment, there were EMI (equated monthly instalment) plans. So, along with OEMs like HCL and telcos like Bharti, Reliance and bsnl, we are trying to come up with packages, so that for Rs 399 or Rs 599 you get a combination of hardware, software and so many hours of connectivity. There are some issues to be cracked like who owns the risk and how much, but the direction is fine.

BT: Robert, one of the basic premises of this report is that IT can help drive economic growth. Isn't that too simplistic? How exactly does it work?

Primarily by providing access to information. With information you are more competitive, and competition is what really drives development and growth. There's been some debate on the direct relationship between greater use of it and productivity. Greater use of it is not going to immediately improve productivity, but it can remove some of the barriers to greater productivity .

BT: Kiran, do you think there still are tariff barriers in the way of IT import?

Tariffs have come down over the years, and we are very pleased that as part of the ITA (Information Technology Agreement) that we have signed, tariffs have come down to zero. The other tariffs continue to be there. You know, as a customer I don't care if the tariff is in the form of octroi, sales tax, or excise. All I want to know is what is the tax component, and that is still high compared to other countries.

The second part, reiterating what you said earlier, price is a key element of it. India is a very price- sensitive market. But the price also relates to value. And if we can bring in value through different applications... the critical thing is the law of square. That is, the more people you connect, the greater the snowballing effect. In order to kickstart it, you got to build that minimum number that makes it worthwhile to add that value.

RAVI: Can I jump in here? I really want you to amplify the point Kiran made about value. When I came to the industry, there was this great myth about affordability. The answer to drive pc penetration was to drop the price. Then we took a look and found that among the rich people, who could afford almost anything, the pc penetration was 30 per cent. What does it tell you? That pc is not a compelling must-have device like, say, a cell phone. Even car drivers have cell phones these days. That means even people with extremely modest incomes are finding the money to spend on cell phones, motorcycles, TVs, even a DVD player. The compelling takeaway for us is value. What's going to make it a must-have device? Two things. One is broadband connectivity, and the second is applications. So fundamentally, price is not the issue. Value is.

BT: Robert, in this report there are countries much smaller than India that boast of higher IT penetration. So what has happened here? Have their governments consistently evolved IT-friendly policies or have the people perceived value and then gone ahead and invested in IT?

I think it has to do with businesses in those economies, and not so much households, understanding the value of using it. But it also has to do with governments. Chile, for example, clearly knows the value of competition. How it can help promote demand and help reduce prices. And in some sense, Argentina too. Argentina has a big agriculture sector like India, and that sector was keen on improving productivity using it.

BT: Finally, Laura, are there any ideal models of IT adoption that India could follow?

I don't think there is a single model that fits every country, because in every country there are barriers other than what we talked about earlier. But things like IPR protection and innovation are some factors common to all markets.

RAVI: Before we close, I just wanted to hit on one important point about the study. Our educational institutions are not producing either enough quantity or certainly not enough quality (of engineers) to sustain the growth of Indian it. Nasscom has estimated in a separate study a shortage of (250,000) computer professionals by 2008. If we really want to be successful as a nation, we have to very urgently address the education issue.