Budget and the internet economy

With a user base of 120 million, internet currently contributes $30 billion to our economy. As more users get online, it can touch $100 billion by 2015

Dhanendra Kumar

The Union Budget comes with a number of challenges and opportunities for the year 2013-14: a high fiscal deficit and sagging economic growth, contrasted with the promise of a people-focused Budget and the need for boosting employment. It also underlines several messages for the politico-economy wall-post.

Growth in India is sluggish compared to the highs of recent years; based on preliminary data released by the CSO, growth estimates for the current financial year having been marked down to a decadal low of 5%, though there may be some debate on actual numbers. Economists have underlined the critical importance of bold and coordinated policy measures. The year preceding 2014 elections may however limit options.

What should a people-oriented growth-directed agenda look like? One of the most potent instruments of growth for a country like India is the internet. Its potential for injecting inclusiveness in growth, employment generation among youth, promoting entrepreneurship and innovation, delivering education and health services to remotest areas, direct cash subsidy transfer, making businesses more competitive, all cannot be overemphasised.

Which brings us to the focus of a recent McKinsey report: the internet as an economic force multiplier. The study, released with the Aspen Institute, reveals the enormous contribution of the internet to the Indian economy. With a user base of roughly 120 million, its $30 billion contribution to our economy shows its scope. As more users get online, this scope will grow massively, from $30 billion to $100 billion in 2015, taking the growth to a new trajectory. If McKinsey is right, and there are enough studies and anecdotal evidence to support this, the internet is one of the best investments available to India.

How can one sector have such a big impact? The internet is no longer only a medium of communication. It is also a place for people, governments and businesses to sell and to buy, to create and to be entertained, to teach and to learn, to expand the definition of what counts as a local market. It has sharply reduced transaction costs for small businesses, allowing them to reach more consumers, both within India and abroad. For advertisers, the internet allows them to reach consumers in myriad different ways, including listings, social media, specialised product comparison sites and general search platforms, with new informed choices and empowerment. And, for the women, numerous possibilities for teleworking, sitting at home. The possibilities are endless.

There are Indian companies such as Naukri, Flipkart, TutorVista, and RedBus that have developed business models based on helping consumers find services in a particular sector. Indian innovation has used mobile phone- and SMS-based services to battle the low broadband penetration and cash-on-delivery sales to overcome Indian consumers? wariness of online transactions. Applications like mKRISHI, developed by Tata Consultancy Services for rural areas, allows farmers to connect with agricultural experts. Additionally, geo-location services are used to provide weather and soil conditions and foodgrain prices. Health services can reach rural and remote areas by connecting to specialists.

Various ministries and agencies of the government have also engaged with technology to improve governance. Most recently, in a game-changing initiative called eBiz, launched by the ministry of commerce and industry, entrepreneurs will soon be able to apply for government approvals online. Currently, India ranks rather poorly on the World Bank Ease of Doing Business indicators. The online approval system will make the process smoother and faster, increasing the country?s competitive edge and investment attractiveness.

The success of the much awaited direct cash transfer scheme will also be better ensured through it in myriad different ways?the penetration of banking system in rural and remote areas as also the awareness of their eligibility and choices available for goods and services.

The central government?s initiative to distribute Aakash tablets to students is also a remarkable effort towards a more inclusionary ecosystem. With a growing user-base of energetic and enthusiastic young people, we can expect greater creativity and innovation online. It is also likely to spur greater demands for broadband penetration, especially in rural areas. The mostly urban internet that 10% of the population enjoys has already spurred new approaches to the oldest industry: agriculture. Imagine what will happen as it expands.

The policymakers as also the regulatory systems, then, have to recognise that the internet is an engine of growth because of all these qualities. It must remain innovative, inclusionary, user-driven and competitive. However, ensuring the dynamism of the online economy while avoiding over-regulation isn?t easy. In fact, the regulatory systems have also to bear in mind that they have to play a developmental role too. This is an industry whose very basis is perpetual innovation. How can we ensure that our regulations evolve at a pace where they can account for all the implications that any intervention is likely to have? We wouldn?t legislate cars with laws designed for horses and we shouldn?t legislate the internet with laws written at a time when the internet could scarcely be imagined.

Given the online market is barely 20 years old, increasing access and nurturing and growing the internet ecosystem must be a key policy goal. This can be suitably incorporated in the key messages in the Budget. But then, this is not a task that can?or should?be undertaken by the government alone. Instead, our regulatory systems must also play their role in tandem, create conditions and incentives for companies invested in the growth of the ecosystem. Like the internet, our regulatory systems should be open and constantly evolving. Our policies must be consistent, relevant and appropriate, constantly attuned to attain the evolving needs of economy.

This is also an issue policymakers, as also regulators around the world, especially in the developing world, are faced with. It would be relevant to keep in mind the entire emerging socio-economic ecosystem, the needs of the Indian economy right now, and anticipated, and similar interventions in the developing world. Unlike telecommunications, consumers can switch services easily?usually with just one click. And consumers benefit from a large and multiplying range of choices in how they discover online content and access internet services. The Brazilian ruling, for instance, in a case acknowledged their socio-economic needs that just because a company is big, it doesn?t mean that it is a monopoly, or its growth should be regulated. While some regulation is doubtless necessary, allowing internet technology to develop to a stage where it is more stable, mature and with a larger user base.

Our internet is also in an early stage, it is almost impossible to predict what it will look like when we have 20% or 40% of people online. So we should aim to make sure that the barriers to entry for entrepreneurs and access for businesses to the internet are as low as possible and keep on getting lower. As in sports, the best way to ensure the best competition is to create environment conducive to the growth of new young players and facilitate their entry into the arena, bringing out the best in each one of them through a healthy competition.

The author is former chairman, Competition Commission of India, and former executive director, World Bank