FE Editorial : Broadening the band

Written by The Financial Express | Updated: Dec 21 2012, 07:03am hrs
The fact that India is currently home to the third-largest population of internet users and is set to become the second-largest by 2015 is more a factor of our sheer population size than any great effort to increase internet penetration in the country. The 120 million internet users in India constitute just 10% of our population, compared to the 250 million internet users in the US who make up 81% of that countrys population, and the 486 million users in China who form 36% of its population, according to a McKinsey report. By 2015, the report predicts, Indias internet users will number 330-370 million, and the internet will contribute 2.8-3.3% to Indias GDP, up from the 1.6% at present. The benefits of increased internet penetration have been analysed before, notably by Rajat Kathuria and Mansi Kedia Jaju in a paper that said that every 10% increase in internet penetration would add 1 percentage point to GDP, and another paper by Kathuria and Mahesh Uppal that said Indian states can increase their growth rates by 1.2 percentage points for every 10% increase in the mobile penetration rate. This is particularly of interest because, as the McKinsey report mentions, India is following a relatively unique path of leapfrogging past fixed-line broadband internet straight to mobile broadband. By 2015, the report says, users who access the internet only through mobiles or tablets will constitute around 75% of new users and 55% of the aggregate user base. So, if the focus on internet has to be anywhere, mobile internet is where it should be.

While internet penetration in rural areas is predicted to be a mere 9% by 2015, compared to 64% for urban India, this can be substantially rectified through greater mobile coverage. As the 3G network expands and 4G is rolled out, it is essential to include semi-urban and rural areas, the report says. But, for this, the government has to put in place enabling policiesbanning 3G spectrum sharing, for example, is not the way to go. Another area that needs work is the high cost of internetat $61 per Mbps in PPP terms, internet in India costs more than four times that in China and Brazil. This has to do with the governments policy on spectrum allocationif telcos have a small amount of spectrum to use, then they will keep prices high to dissuade over-use and overloading.

The gains from increased internet penetration are manifoldfrom farmers being able to check prices in real time, SMEs being able to reduce their operational costs, to students gaining access to a vast trove of information. This is without even taking into account the e-retail market, which is predicted to grow at 35% a year till 2015. Its time the government spurs this increased penetration instead of riding on its natural growth rate.