Similarly the bulk of the new equity funds raised from the domestic primary market have been in software, telecom and media. The Indian primary market was virtually dead between 1995 and end 1998. Some life returned to the primary market in 1999, and that too in the form of a number of software companies raising money from the public for new projects.

There has been a major shakeout since, and investors are now focused on select software companies. The great software rush, where investors went after every company whose name ended or bagan with "soft", is over. This year, there seems to be greater investor interest in telecom and media-related stocks.

The larger point is that a lot of people's savings are going into the "New Economy", which is supposed to dramatically enhance productivity in industry. On the other hand, very little fresh savings are going into the manufacturing sector and this is reflected in the stock prices of these companies languishing closer to 52-week lows.

Also, about 90 per cent of the secondary market trading volumes on the stock market in recent times has been constituted by the New Economy shares. On the face of it, these trends may appear to be propelling India into the New Economy orbit, but they can be unhealthy from other angles. For instance, a Standard and Poor's report sometime ago clearly pointed out that India's IT sector is not helping enhance the productivity of its manufacturing sector. India's IT companies are exporting over 70 per cent of their software products to drive productivity of the brick and mortar companies in United States and Europe.

No doubt this earns India huge foreign exchange, but does not help the Indian Old Economy, which still suffers from huge inefficiencies of scale and low productivity. This is the paradox which needs to be resolved. Today the Indian manufacturing sector needs fresh fund infusion for building scale and to consolidate. That is not happening at all and most manufacturing companies are starved of cash. Building scale operations through consolidation is particularly needed in the context of competition in the global export markets from other emerging economies such as China.

Infact, a recent study by the NCAER clearly points out that there have been no substantial gains in productivity in the post-reforms period since 1991-92 , as compared with the previous decade of the eighties. And yet there is a mistaken notion among many that the New Economy will address India's productivity woes, as is happening in the United States.

The comparison is not apt at all. The US economy has reached a stage where scale efficiencies and productivity in the Old Economy have hit the critical peak from where technology has become the main driver of growth. Which is why energy consumption as a ratio of GDP has declined dramatically in the United States over the past decade. However, India is still at a stage where old economy productivity and efficiency is way below saturation point. Yet, the the bulk of the savings are getting channeled into the New Economy sectors.

Such is the lopsidedness of fund infusion in the software, media and convergence sectors that inefficiencies have crept into the New Economy as well. The bulk of the small software companies, and Internet start ups are far from showing any viability or productivity gains from a macro perspective. For instance, the dot com industry is crying for consolidation as a large number of B2B players have ended up spending on small projects of overlapping nature. Even the media sector is fairly fragmented and undergoing churning.

The New Economy, far from driving productivity, itself needs to become efficient. Of course, one reason why the Old Economy is not ready to be IT-enabled is that it needs to first become policy-enabled within the traditional framework. For instance, nine years into reforms India still does not have comprehensive insolvency laws which can enable easy and quick redeployment of capital, labour and land in more profitable ventures.

Only recently a Committee headed by a former Supreme Court judge recommended a comprehensive Insolvency Tribunal that enables exit of businesses within two years either through a change of ownership or winding up proceedings. Currently it takes upto 15 years in courts for a business to be formally liquidated.

There are other supply constraints like lack of infrastructure which prevent the Old Economy from building scale efficiencies.In short, the Indian manufacturing sector, unlike its US counterpart, is not ready to be IT-enabled in a manner that can truly drive technology-led productivity growth.

IT-led growth may be possible in a limited way in the service industry such as banking. But even there, the gains could be limited to smaller private sector banks rather than the public sector behemoths. Public sector banks will have to first build efficiencies within the traditional framework, such as getting rid of excess staff, and invest in basic technology, before going for high-end IT products.

But unfortunately, the capital market is shying away from most public sector banks who want to raise money to revamp their operations. Why the Indian capital market shunning the Old Economy is a question that needs to be examined more closely.The stock markets today reflect an undue bias in favour of the New Economy. The policymakers are also aware of this skew and have expressed some worry. Recently , while inaugurating a function at the Bombay Stock Exchange, Prime Minister Atal Behari Vajpayee had also hinted at this phenomenon when he said "we cannot ignore our industries built painstakingly over decades". Therefore the euphoria over India emerging as a great IT powerhouse must be tempered somewhat with emphasis on creating a more competitive manufacturing sector.While the New Economy has an important role to play in the new global economic paradigm, from the Indian perspective there is a need to strike a balance , especially at our current stage of development.

(By arrangement with inidabiz.com)