App-roaching India’s digital transformation

By: and |
July 28, 2015 12:25 AM

India’s unique characteristics and huge service deficits make apps an odds-on favourite

The announcements of the Digital India and Skill India missions are the prime minister’s twin promises to the youth of India for a better future. The announcements of the Digital India and Skill India missions are the prime minister’s twin promises to the youth of India for a better future.

The announcements of the Digital India and Skill India missions are the prime minister’s twin promises to the youth of India for a better future. Both recognise the role technology must play—the Skill India initiative, that targets to skill over 400 million youth by 2022, gives a computer-screen the pride of place in its logo. Technology is permeating our lives and changing how we live and work. An outstanding example of this is the mobile phone (in all its varied sophistication levels and incarnations). As mobile operators vie to acquire the billionth subscriber in India, telephone connections are no longer the privilege of a select few, but a nearly-ubiquitous accessory that in numerous cases pays for itself. The JAM (Jan Dhan, Aadhaar and Mobile technology) trinity described expressively in this year’s Economic Survey is also built on the foundation of a fully-digitised economy, the ramp up to which will not be easy. Policy challenges such as the hotly contested debate on the disruption of legacy communications services by over the top (OTT) applications and ambitions of net neutrality demand attention but elude instant resolution, and require nuanced and contextual thinking. But even as policy makers wrestle with such conundrums, they must not lose sight of the numerous other opportunities for development that may be forged with technology. Apps—the innovative bite-sized applications that are resident on smartphones—are one.

Palpably richer in content than the traditional “value-added services” of old (SMS, MMS, call related services, etc), apps are a whole new breed as they augment devices and revolutionise what phones can do, including (but by no means limited to) gaming, social networking, navigation, shopping, utilities, health and even education. As long as they are armed with a data connection and a smartphone to run on, the functions that apps can perform are growing every day—their variety seemingly limited only by imagination and skill. Given the app revolution gripping India and indeed the rest of the smartphone world, we at ICRIER decided that, in collaboration with IAMAI, to inquire into the “Impact of India’s App Economy”.  The results are heartening and encouraging. We estimate that app developer jobs will  double by 2016 from the current level of 75,000.

As one would expect, the impacts go beyond merely jobs for coders—developing an app requires skills beyond IT, involving sales and marketing, customer relationship management and finance and accounts. Jobs for people that can fulfil those requirements thus contribute to indirect employment in the industry. In addition, the increased income of those directly or indirectly engaged in the app economy can then result in demand spilling over outside the industry, creating opportunities for induced employment. The inquiry therefore also estimates the indirect and induced employment multipliers under different business and regulatory conditions. In the most optimistic scenario, total employment could increase up to eight times. If direct employment increases at a faster rate, the multiplier effects will result in massive benefits to overall employment in the economy.

There is no doubt that apps are fundamental to the paradigm shift in adoption of technology in India. The innovation in app development now enables a mobile device to function as a navigator, a health monitor, a remote control and even a gaming console. Apps can get smartphone components such as accelerometers, gyroscopes and numerous other sensors to innovatively act in concert and allow for functionality previously absent in the same device. With over 200 million mobile internet users in India, app purchases are not only increasing in number but also in sophistication. A study on digitisiation and mobility by ASSOCHAM and Deloitte estimated app downloads in India to touch 9 billion by 2015 with entertainment and social networking dominating use over utility, health or education apps. Unfortunately, the number of apps originating in India is only a tiny fraction of the total demand as even those built to be locally-relevant are often developed abroad. The lethargic uptake of app development in India can be attributed to the absence of several elements in the ecosystem, of which one is inadequate skilling.

The app economy exists as part of the internet ecosystem, which consists of network infrastructure, devices, content and users. In a pyramidal framework, the core activities of the app ecosystem are identified as development, distribution and demand. At the turn of the century, Indian software developers acquired a formidable global reputation that has only enhanced since as Indians today constitute the second most prominent group of app developers in the world, exceeded only by the Americans. But while Indians comprise the second-largest community of app developers, almost half of them are based outside India. Of those who operate within India, it is unclear how many create apps that are ‘local’ (in terms of language and target markets). The local market for apps thus becomes subject to a somewhat vicious cycle as inadequate local content leads domestic users to consume international apps, which in turn discourages Indian developers to create and market local content. International app stores continue to dominate app distribution in India as a consequence.

In the early days of app development, telecom operators controlled distribution and strong-armed developers into accepting less than favourable terms. Operators pocketed over 70% of app-generated revenue while developers needing access to markets did so at the mercy of operators within their “walled gardens”. These skewed initial arrangements thus deterred local app development. Competition since has eroded the market power that operators wielded and technological advancements such as the development of WiFI-enabled smartphones allow consumers to bypass operators’ networks and directly access apps from the internet. But where apps are to permeate to peri-urban and rural users, operators will remain important if not key to unlocking the local potential of the app economy. Their unmatched reach makes them ideal for distribution and their established and familiar payment channels make monetisation easier to achieve.

India is a promising marketplace for apps. The rapidly expanding middle-class and increasing affordability of devices and data will create massive demand. In addition, quality of service and relevant content will matter and will be determined by operator investments in spectrum and physical infrastructure. Network congestion is a worry, especially in spectrum-starved urban markets. On the supply side, the final wedge is a staring skill gap. Generations of computer and software engineers are a readymade base for the app industry. The quality of developers must be improved along with increase in quantity. Training in product development and creative designing will enhance the growth of this industry in India.

The new government has enthusiastically endorsed the idea of apps for India. Social networks were a vibrant platform for user-generated content especially by young Indian voters in the 16th Lok Sabha elections held last year. The PMO App Contest and the eGov App store also signal government intention to leverage technology to enhance efficiency, transparency and effectiveness of public services. Some state governments have already embraced m-governance to improve public service delivery.

Prediction is very difficult, especially if it is about the future—Niels Bohr’s wisdom rings true most times
one looks back. It is also likely to be embarrassingly true for some of our numerical estimates related to the
app economy. But our confidence in the app economy’s potential—to generate jobs, to deliver benefits and to create new business models—remains steadfast. By making phones more powerful, apps, aided by high-speed networks and innovation can have important productivity enhancing impacts. India’s unique characteristics and huge service deficits make apps an odds-on favourite. Any takers for this bet?

Kathuria is director and chief executive, and Kedia is research associate, ICRIER. Views are personal

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