2022-07-25-ADB-An_Empirical_Evidence_and_Proposal_on_the_Spillover_Effects_of_Information_and_Communication_Technology_Infrastructure_in_India_30页_755kb

Summary of ADBI Working Paper 1330: Spillover Effects of Information and Communication Technology Infrastructure in India

Core Content

This working paper examines the spillover effects of Information and Communication Technology (ICT) infrastructure, particularly mobile network coverage, on tax revenues in India. The study uses empirical evidence from 2005 to 2016 to quantify the impact of mobile network subscribers on state-level tax revenues, highlighting the importance of ICT infrastructure in economic development and public well-being.

Main Points

• ICT as a Growth Driver: ICT infrastructure, including mobile phones, internet, and broadband, is a critical component of the modern economy, enhancing resource allocation, reducing production costs, and boosting economic activities.
• Role of ICT During the Pandemic: The pandemic has underscored the vital role of ICT in enabling telework, e-commerce, and online educational services. These services have become more prevalent, even after the pandemic, due to increased digital adoption.
• Challenges in ICT Investment: The demand for ICT services is growing, but investment is lagging. The investment gap is expected to reach over $30 billion by 2040, mainly due to the inability of governments, especially in developing countries, to fully finance ICT projects.
• Public-Private Partnerships (PPPs): PPPs are increasingly used to fund infrastructure projects. However, they face challenges such as cost overruns, delayed completion, and mismatch between user expectations and investor returns.
• Spillover Effects on Tax Revenues: The study finds that an increase in mobile network subscribers leads to higher tax revenues. Using Fixed Effects (FE) and FE Two-Stage Least Squares (2SLS) estimations, it is shown that an increase in GSM subscribers per capita by 1 percentage point is expected to raise annual state tax revenues per capita by ₹134 (3% of the average in 2016).
• Proposed Policy Solution: To attract private investment in ICT infrastructure, the paper proposes sharing the increased tax revenues with investors. This approach can create a steady income stream for private investors without increasing user charges.

Key Information

• Data and Methodology: The study uses annual state-level data from 2005 to 2016. It applies both Fixed Effects (FE) and FE 2SLS estimations to quantify the spillover effects of mobile network coverage on tax revenues.
• Case Study: The Shared Mobile Infrastructure Scheme (SMIS) in India, launched in 2007, is used as a case study. Over 7,353 mobile towers were built across 500 districts in 27 states, significantly improving rural connectivity.
• Tax Structure in India: Taxes in India are divided between state and central governments. State tax revenues are mainly derived from taxes on commodities and services, while central taxes include a broader range of taxes such as corporation tax and income tax.
• Tax Revenue Trends: From 2005 to 2016, both real state and central tax revenues showed upward trends. In 2016, the average state tax revenue per capita was ₹4,610, while the average central tax revenue per capita was ₹2,800.
• Digital Divide: The study notes the persistent digital divide between urban and rural areas, with rural regions lagging in ICT infrastructure development due to economic, regulatory, and logistical challenges.
• Policy Implications: The findings support the need for increased national budget support for digital and physical infrastructure development in India. They also advocate for a more sustainable and continuous model of private investment through revenue sharing mechanisms.

Structure of the Paper

1. Introduction: Sets the context of ICT as a growth driver and discusses the importance of infrastructure investment in the face of growing demand.
2. Role of ICT During the Pandemic: Highlights the role of ICT in enabling telework, e-commerce, and online education during the pandemic.
3. Mobile Phone Coverage and SMIS in India: Describes the development of mobile infrastructure in India and the SMIS program as a response to rural coverage gaps.
4. Taxation in India: Provides an overview of the Indian tax system, including state and central taxes and their composition.
5. Literature Review: Reviews existing literature on the spillover effects of ICT infrastructure on economic growth and tax revenues.
6. Data and Methodology: Explains the data sources and estimation strategies used in the study.
7. Results and Discussion: Presents the findings of the FE and FE 2SLS estimations, showing the positive correlation between mobile network growth and tax revenues.
8. Proposal: Suggests a revenue-sharing mechanism to incentivize private investment in ICT infrastructure.
9. Conclusion and Policy Recommendations: Summarizes the key findings and recommends policy actions to support ICT development and private sector participation.

Appendices

• Appendix A: Data used in the study.
• Appendix B: Diagnostic test results to ensure the reliability of the estimations.
• Appendix C: Details on GSM subscribers and their distribution across states.

References

• Jorgenson, D. W., & Stiroh, K. J. (1999)
• Vu, H. (2011)
• Lee, K., et al. (2012)
• Grimes, S., et al. (2012)
• Pradhan, M., et al. (2015)
• Aseinov, A., et al. (2022)
• Yoshino, N., & Thi Hoa (2020)
• Yoshino, N., et al. (2021)
• Yoshino, N., & Abidhadjaev (2015)
• Yoshino, N., & Pontines (2015)
• Yoshino, N., & Abidhadjaev (2017)
• Ono, T., & Mori, K. (2021)
• UNCTAD (2021)
• Sonobe, T., et al. (2021)
• Azhgaliyeva, D., et al. (2021)
• A4AI and World Wide Web Foundation (2018)
• Gupta, R., et al. (2021)
• IBEF (2018)
• Reserve Bank of India (2021)

Keywords

• Infrastructure
• Spillover effect
• Information and Communication Technology
• Tax revenue
• Difference-in-Difference (DiD) method
• 2SLS estimation

JEL Classification

• H20: Taxation and public bias
• H54: National government expenditures and revenue
• O18: Urban, rural, and other developments; human capital; population growth; and emigration/emigration
• Q48: Public investment and public enterprise