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Internet: Webbing India’s future

Dec 12, 2006

A recent study paper of the TRAI (Telecom Regulatory Authority of India) on Internet usage in the country, paints a sorry picture. The report states that although the government has missed its target of total Internet subscribers in the country only by a whisker (targeted 6 m, achieved 5.5 m) for 2005, it has missed out on its broadband subscribers target by a mile (targeted 3m, achieved less than 0.2 m). Facts and figures
As per a TRAI report, the number of Internet users at the end of June 2006 was 7.7 m, including the broadband base of 1.5 m. If the authorities plan to meet the target for March 2007 of having 18 m Internet and 9 m broadband subscribers, the total base in the country will have to grow by 1.14 m and 0.8 m per month respectively.

Internet: Target Vs Actual
Internet subscribers (incl. broadband) (m)Broadband subscribers (m)
20056.0 5.5 3.0 0.2
200718.0  9.0  
201040.0  20.0  
Source: TRAI

So, what has caused the inability of the Internet market to grow in India in line with the growth rates achieved by the mobile telephony segment? Past data shows that there is a clear-cut relation between Internet penetration and economic development. Internet penetration has been the highest for nations that have a high GDP per capita (see table below). However, GDP is not the only factor in determining the level of Internet penetration. For instance, Korea's GDP per capita is way below that of Japan but the former still has a higher Internet penetration than the latter. There are other factors like local government (regulator) policies advocating a faster growth of the industry, higher share of the services (like IT and financial services) economy, and existence of companies that can provide robust Internet platforms for the growth of this segment. As far as the Indian economy is concerned, the fact that we are moving towards a higher growth trajectory makes it a very opportune time for the Internet era to usher in more rapidly and effectively.

Internet Penetration (2000)
penetration (%)
GDP per
Capita (US $)
Hong Kong49.9%23,520
Korea35.0% 8,490
India0.4% 450
Source: Asia Network Research

Although there has been some linkage between GDP levels and Internet penetration, the penetration of broadband (which has a minimum transmission speed of 256 kbps) into the country is not direct fallout of the GDP levels. Once again looking at the past data, we realise that Korea, which has the highest penetration levels of broadband, has got per capita GDP that is way below that of the advanced counties of the West. So, what caused the exponential rise there? It was the aggressive policies of the government, the highly competitive markets and loans to service providers to provide high-speed access networks. Contrast this with India. While we do have a broadband policy in place, not much has been done on the implementation front (the results are there to be seen).

As India increasingly moves into the digital space, the Internet is set to play an increasingly important role in the growth of the economy, by way of high-speed access to communication (data and voice). The strong growth in the size of e-commerce (business done through the Internet medium) market over the past few years is a reason compelling enough for the government to sit up and take serious note of this issue. As per the TRAI, the e-commerce market in India, which stood at a size of Rs 1.3 bn in 2002-03, is estimated to grow to Rs 23 bn by the end of 2006-07, representing a compounded annual growth of 105%. With further strong growth expected in this market in the future, there can be no denying that the current slow pace of Internet penetration in the country will act as a major roadblock for this growth.

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