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IT sector has a huge multiplier effect on economy

Every one-rupee input results in a 100% return, says Nasscom-Crisil study

Written by Enseconomicbureau | New Delhi |
February 21, 2007 1:55:12 am

The rapid rise of the information technology sector with 27 per cent yearly growth over five years has gone far beyond merely making a direct contribution to the GDP.

A Crisil study done for Nasscom shows that the high growth has had a sizeable multiplier effect on employment and output in the larger economy — every Re 1 spent by the IT-ITeS sector translates into a total output of Rs 2 for the economy.

The study has analysed the expenditure on operating expenses, capital expenditure and consumption spending by professionals in the sector. “Apart from backward linkages with the sectors that feed into IT-ITeS, the study found that consumption spending by IT-ITeS employees who on an average earn relatively higher incomes at younger ages, has a strong multiplier effect on the economy,” said Dharmakirti Joshi, a principal economist at Crisil.

“This spending has given a boost to housing, transport, hospitality and entertainment and created employment there.” For every job created in the sector, four are created in the rest of the economy, it said. Several of these jobs are created among the less educated workforce. Nearly three-fourths of the people employed by service providers (catering, housekeeping, security and transport) have only high school education, and sometimes they with no formal education at all.

Commenting on the rising wage inflation, a serious cause of concern to the industry, the study says that operational levers like billing rates, employee utilisation and manpower pyramid offer significant scope for offseting margin pressures.

The study says that a 1 percentage point increase in billing rates translates into a 0.6 percentage point rise in net margins, whereas a one point hike in employee utilisation translates into 0.5 point increase in margins. Similarly, a 1 point rise in the share of employees (with income less than 5 lakhs per year) in total employees, translates into a 0.8 point increase in net margins.

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