India - Impact of Internet Report 2011_57.pdf

IndIaThe ImpacT of InTerneT

Kathuria, R and Kedia-Jaju, Mansiabridged version

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introduction Internet and Broadband access are widely re-garded as catalysts for economic and social devel-opment of a country. a number of research studieshave demonstrated the positive impact that Inter-net and broadband penetration have on nationalincome (Gdp) as well as its transformative impacton businesses and livelihoods. Internet (amongother means of access such a fixed line or mobile)is increasingly viewed as an efficient mechanismfor accessing information.

Several case studies have highlighted the role thatinformation can play in inspiring economic activ-ity and good governance. In this sense, informa-tion can be viewed as a public good, access towhich yield positive externalities. Internet allowsbetter access to information and hence the exis-tence of ubiquitous information infrastructure be-comes a key input to the efficient functioning ofmarkets and government. regrettably, in the realworld we see too many imperfections that preventmarkets from functioning properly. In the case ofInternet it is mainly related to the absence of com-

petition (for example, through the existence of mo-nopolies) which in turn exacerbates the problem ofasymmetric information. The key to effective gov-ernment intervention lies not in demonstrating theexistence of market failures (and thereby establish-ing a rationale for government intervention) butalso identifying situations where such market fail-ures can be alleviated through targeted efforts,thus making the intervention worthwhile. one ofour chief tasks in this report is to provide a com-pelling basis for government intervention in the in-ternet market in general and broadband inparticular.

scope of studyTo the best of our knowledge this is the first study thatsystematically investigates the growth impact of Inter-net and broadband at a sub-national level.1 India isideally placed for such an analysis because it hasmore diversity within its borders than any othercountry. over 1.2 billion people live and work invery different circumstances and geographies. Yetcritical telecommunications policy is formulated atthe national level and applicable across the coun-

try. The study would be incomplete if it failed todemonstrate the manner in which Internet andbroadband create growth impacts. accordingly,we explore the channel through which these im-pacts manifest themselves by means of numerouscase studies across businesses, governments, na-tional and state, across the social sector, includingeducation, health, and non government organiza-tions (nGos). The case studies provide the microfoundations of the growth dividend story at themacro level by presenting evidence of the channelsthrough which such impacts are created at the

micro level.

assessment of internet and broadband

impacts – international experiencesTwo broad approaches have been used in the lit-erature to measure the economic impacts of broad-band and Internet; these are the input-outputmethod and the multivariate regression analysis.The former technique relies on input output ma-trices to estimate the impact of broadband infra-structure deployment on output and employmentgeneration within a country. The latter are largelyinternational cross sectional studies that attemptto gauge the impact of broadband infrastructureon economic activity by establishing a causal linkbetween broadband deployment and economicgrowth.2 an influential and widely cited study inthis genre is the World Bank inquiry into the eco-nomic impacts of IcTs including broadband(Qiang et al 2009).3 It draws its intellectual inspi-ration from roller and Waverman [rW] (1996,2001) who were the first to quantify the impact oftelecoms on growth after controlling for the effectof rising Gdp on demand for telecoms. The re-search suggests that the contribution of broadbandto economic growth is indeed substantial, and maybe more profound than comparable narrowbandor voice-based IcTs. The study finds that everyten percentage point increase in broadband pene-tration boosts Gdp growth by 1.38 % in develop-ing countries4. many other studies support thegrowth dividend hypothesis for broadband. mcK-insey & company found that 10% increase inbroadband household penetration delivers a boostto a country’s Gdp that ranges from .1 – 1.4%.

Booz & company found that 10% higher broad-band penetration in a specific year is correlated to1.5% greater labour productivity growth over thefollowing five years. The point of departure forthis report is to measure the Internet-growth link-age within the national boundaries of India usingthe multivariate regression model. It is worth reit-erating that this is the first study to quantify theimpact of Internet on Gdp for India.

analyzing the growth impact

of internet in indiaIndia’s teledensity has shown extraordinarygrowth since private participation was introducedin the sector, rising from less than 1% in 1998 to61% on 30th September 20105. Several researchstudies have found that the telecommunicationsinfrastructure is one of the significant factors ineconomic growth, alongside others such as overallinvestment, education, energy and transportationnetworks.6 despite the rapid growth in mobilepenetration rate – an acknowledged driver ofgrowth – India lags behind other countries in In-ternet and broadband penetration. Based on datafrom TraI7, while there were 687.71 million mo-bile subscribers as on June 2010, the correspondingnumbers for Internet and broadband were 17.9million and 10.31 million respectively. net addi-tions in broadband subscribers are merely 0.2 to0.3 million per month compared to around 15-18million mobile connections. The graph (figure 1)shows the growth in the number of subscribers formobile, Internet and broadband over the last fewyears. If nothing else happens, the law of arith-metic will ensure the gap narrows over time asmobile telephony reaches saturation.

however, as this report argues, the benefits andexternalities associated with greater Internet andbroadband penetration are far too significant towait for the market to deliver these outcomes.8

India’s federal structure, with some states such asUttar pradesh, maharashtra, and madhya pradeshlarger in geographical area and population thanmost european countries, readily lends itself tosuch analysis.9 moreover, balanced regional devel-opment has always been an objective in India’splans and therefore studying the impact of tele-

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coms liberalization across states will provide valu-able insights for this policy aim. While the rapidspread of mobile telephony has been the most vis-ible demonstration of the benefits of telecom sectorliberalization, attention needs to shift to data andInternet. accordingly we attempt to answer threequestions:

• What is the impact of Internet penetration onstate growth rates;

• do less-developed states show a greater impactof Internet penetration; and

• What is the mechanism by which Internet af-fects growth; and what are the constraints, ifany, which limit its impact.

The first two questions are addressed by employ-ing ‘top-down’ econometric analysis using statelevel economic indicators in this chapter, while the

third question is addressed using ‘bottom-up’ sur-vey based and other information. network exter-nalities in the IcT industry drive growth of othersectors in the economy along with growth in thesector itself. The positive correlation between percapita income and telecom density indicators isone expression of the existence of this externality.The matrix given below shows the correlations be-tween per capita income (at current prices) andteledensity indicators over time.10

The econometric model used for this study is anadaption of the endogenous growth model ofBarro (1991). Several studies before us have usedthis methodology, thus lending credibility to ourmodel and the corresponding results.11 The modelspecification is as below:

i = each of the 19 States, t = year from 2001 to 2010

where,• ln PCY is the natural log of state wise per capita

income• ln Invt is the natural log of investments in all in-

dustries excluding investment in telecom serv-ices across all states

• ln L is the natural log of education (students en-rolled from class I – XII) across all states

• ln Internet is the natural log of Internet sub-scribers across all states

• dit is the dummy variable for each state, the socalled fixed effects approach which controls forunobservable characteristics that are specific toeach state.

our first major finding is the existence of a positiveand significant coefficient on Internet. The resultshows every 10% increase in Internet subscribersdelivers on average, 1.08% increase in output. ac-cordingly, Indian states with higher Internet pen-etration can be expected to grow faster, and by1.08% points for every 10% increase in the numberof Internet subscribers. If Bihar had half as manyInternet subscribers as say punjab, it would haveresulted in an increased growth of 7.02% in stateper capita income. This estimate is likely to be aconservative lower bound since Internet penetra-

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figure 1: Growth of Mobile, Internet and Broadband subscribers

in millions

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Correlation between ICT density indicators and PerCapita Income (2002-2010)

PerCapita

income internet Mobile broadband

Per Capita

income 1

internet 0.981 1

Mobile 0.998 0.981 1

broadband 0.973 0.983 0.998 1

tion is far below the critical mass at the nationallevel.

In addition, we divide our sample into two cate-gories of developing and developed states12. ourresults for the developed category states are con-sistent with the ‘network effect’ hypothesis. Thecoefficient on Internet for the developed category13

is both positive and significant and implies that10% increase in Internet subscribers delivers, onaverage 2.36% increase in output, a very high im-pact indeed14 We are however hesitant to concludethe existence of a specific magnitude for criticalmass for Internet penetration, given its relativelylow diffusion in India.

We also estimate the im-pact of mobile telecommu-nication on growth inorder to compare it withthe growth impact of Inter-net; the model is the sameas used in the 2009 study(IcrIer 2009) The coeffi-cient for mobile penetra-tion is both positive andsignificant and implies thata 10% increase in mobilepenetration delivers, on av-erage 1.5% increase inGdp; this is a marginal in-crease from the earlier esti-mate of 1.2% in 2009. Giventhe low Internet penetra-tion levels in India, it is notsurprising to find a lowergrowth dividend for Inter-net than for mobile (1.08versus 1.5).

as stated earlier, we alsotrace the path ways of eco-nomic and social impacts of Internet at the microlevel from a set of 17 case studies that were care-fully and purposefully selected as a part of thisstudy. The case studies cover a mix of sectors indifferent regions of India, with varying scales ofoperation and run by public and private players.

These case studies are integral to the impact analy-sis and clearly illustrate how access to Internet andbroadband enables users to benefit on several di-mensions, economic and social.15 The schematicbelow is a representation of the diversity in thesample. The 17 case studies are classified accord-ing to their ‘key result area’ (Kra) and span 5 dif-ferent regions of the country16. While most of theseinitiatives are restricted to a single state, some ofthem operate across several states and thus have anational character.

our second major finding is that in our sample In-ternet promotes efficiency on a scale and speedthat was previously unimaginable and that the op-portunity cost of absence or disruption of access

can be very high. Initiatives in the agriculture sec-tor like mkrishi allow farmers to benefit fromtimely expert advice and similarly aaqua uses theInternet to connect with farmers to address a rangeof concerns related to production, input supplyand prices. In doing so, the Internet offers a whole

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Schematic representation of regions and key result areas for the case study analysis

Source: Author’s CompilationNote1: Case Studies Circled in Red are spread across India, while the ones in blue are restricted to a few states or afew regionsNote2: MKrishi spreads across states outside North India; however, most of our research for this case study wasconducted in Punjab

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range of services, many more than those availableon today’s mobile phone, and therefore a prioi onewould expect that the social and economic impactsof the former would be at least as high if notgreater than for mobile phones. Both our casestudies in agriculture, mkrishi and aaqua suggestthat the impacts could indeed be higher. Withwireless broadband set to kick off after 3G servicesstart, the difference between the two impacts willnaturally narrow over time as users increasinglyaccess Internet on mobiles, smart phones andIpads. Globally, the success of devices known as“dongles”, which connect laptops to mobile net-works, has seen data traffic grow by a massive158% between 2009 and 2010. That the new Inter-net users in India will log on mostly via their mo-bile phones is almost certain. of the 723.28 millionaccess lines, more than 95 per cent are mobile,while fixed access is, in fact, declining. mobile In-ternet will also be cheaper and more convenientthan any other option.

disintermediation, enabled by the Internet, espe-cially in using government services is also begin-ning to show initial results. corruption is a bigcasualty in the e-governance case studies acrossthe country and there are compelling reasons to ex-pand the coverage and scope of such services. Ini-tiatives like aarogyasri in the health care sector arestate-wide projects delivering end-to-end cashlessmedical treatment for end users. alleviating theshortage of trained medical professionals is a prox-imate benefit, while allowing cheaper access is apositive externality. projects like Barefoot college,chanderiyaan and airJaldi are integrated commu-nity based applications that have far-reachingspillover effects on the local population. airJaldistarted as a non-profit enterprise in 2005 now pro-vides viable and sustainable broadband for ruralcommunities. case studies like BabaJobs and

harVa show a direct impact of Internet on in-creased income and improved livelihood. harVais a greenfield project that takes advantage of thewage-price arbitrage to generate business and em-ployment in rural areas. harVa serves as an out-standing example to demonstrate the causalimpact of Internet on income, reinforcing theeconometric result.

Internet and broadband are expected to make sig-nificant contribution to economic and social devel-opment in India over the next 5 years. Unlike formobile telephony, policy has to be much more nu-anced for Internet and Broadband. Simply creatingenabling conditions on the supply side workedwell for mobile telephony. Vigorous competitionamong the many service providers in each servicearea led to aggressive pricing that made it afford-able for lower income classes to own and use a mo-bile phone. In addition, in some cases, it was easyto demonstrate that the mobile paid for itself. Thusfor the self employed and many others mobile wasnot only the only form of connectivity but also aninstrument for cost savings and revenue enhance-ment. demonstration of such benefits is a lot morechallenging for Internet and hence the advocacyrole for government and the need to promote com-mon access points to overcome the affordabilityconstraint for large chunks of the population. ofthe 17 case studies, we summarise the results forthree below to highlight the benefits of access which in-clude improving productivity and efficiency of businessprocesses, reducing transactions costs, creating oppor-tunities for new services and opening up new markets17.naturally growth of some projects is limited; scal-ing up presents challenges such as lack of connec-tivity, lack of skill and trained personnel, etc. Wefocus on possible ways to address these challengesin the policy recommendations.

The course attendees have significant economic and social benefits. it

provides better professional growth prospects and creation of job op-

portunities. select courses like CrM are offered with a guaranteed

job, including 3 months on-the-job training with the to-be-employer.

There are other direct benefits like increased salary for working em-

ployees; e.g. upon clearing the banking course, these employees get

a 10% raise in salary and select MF houses have offered to even

waive the entire course fee of inr 19K. The students also benefit

from reduced cost of travel (20 – 30% savings) as they don’t have to

travel to distant locations (ernakulam) for attending specialized

courses.

it is difficult to aggregate the benefits from this program and arrive at

a quantifiable magnitude, but the impacts are very clear. not only is

edyounet taking skill development to remote areas, it is providing

employment opportunities at increased income levels.

edyounet Technologies

one estimate of benefit in this e governance project is a cost saving

of rs. 180 million as a result of disintermediation and minimising cor-

rupt practices. With a recurring cost of rs. 90 million per annum and

a set up capex of rs. 50 million depreciated over a 3 year period, the

direct economic impact could be said to be of the order of 1.69*

times the investment implying the project has more than paid for it-

self. To this fair however one needs to add the attendant benefits of

improved monitoring, greater transparency, elimination of irregulari-

ties (100,000 duplicated ration cards have been tracked and deleted),

to arrive at an an accurate estimate of the spillover created by the

new ecosystem around paddy procurement for the Pds in Chattis-

garh. Moreover, the use of the sMs alert system and citizen interface

website has encouraged citizen participation in the monitoring of the

Pds, which is a cost-effective and efficient means of reducing mal-

practices. For example, the call centre has had many successes in

controlling diversion as a result of receiving complaints. in addition,

assigning allotments to Fair Price shops (FPs), and communicating

the details to the shops and distribution centres, has been reduced

from 7-15 days to just 2 hours.

*This ratio has been calculated by dividing the total savings from theproject per annum (180 million) by the fixed and recurring cost perannum (106.67). Capex has been depreciated using fixed line methodover a period of three years

public distribution System (pdS) in chhattisgarh

harva’s Teekli centre is the main hub that

houses 30 employees and 4 trainers. The

Teekli centre required rs 25 lakh to set up. it

has a running cost of rs 4.5 lakh a month, as is

earning about rs 5 lakh in revenue per month.

The internet cost (using data cards) is between

rs 10,000- rs 20,000 depending on usage. The

revenue numbers are likely to go up with time

but even at this early stage the impact is posi-

tive. The revenue divided by cost ratio for this

project is approximately 1*, essentially mean-

ing that the project is self-sustainable. how-

ever, this estimate is a lower bound given that

projections show that will only increase over a

period of time. besides, this ratio does not in-

clude the spill over effects to the rest of the vil-

lage community (e.g. rising income of

households as women find employment at

these XPo centres). in addition, impacts are

being felt on several other dimensions such as

boosting confidence among women, while at

the same time promoting computer literacy

and empowerment.

harva cites 40% cost savings to client, a direct

result of transferring iCT infrastructure and

skills to a rural area. This occurs because infra-

structure, salaries, and everyday operations

are performed at much lower rates in the vil-

lage when benchmarked against urban costs.

For example, harva’s first office cost rs 3,000

per month as rent. This would be unimagin-

able in a big city today. The rate of attrition is

also low in villages. harva employs trainers

from the city to make employees digitally liter-

ate. as a result, skills are transferred to areas

where none existed. depending on how many

hours they work, the women at these centres

earn between rs 2500 to rs 7800 a month.

*This is the ratio between revenue per monthand cost per month. The cost includes the run-ning cost of 4.5 lakhs per month and the fixedcost of 25 lakhs amortized over a period of 5years, which results in an approximate addi-tion of 41,000 every month.

harnessing Value of ruralIndia (harVa: rural Xpo)

Policy recommendationsour research demonstrates that for every 10 per-cent increase in Internet and broadband penetra-tion, India could potentially add USd 17 billion inGdp18. attaining the targets set by TraI in the na-tional Broadband plan could generate an addi-tional USd 87 billion in Gdp during the period2012-201419. our case studies underline the valueof literacy, relevant content and applications, be-sides availability, to drive impacts. accordingly,the policy canvas is wider for the government;merely pushing availability is just not going to beenough. Simultaneously, it needs to design vari-ous policies to promote development of contentand applications as well as play an advocacy role.This implies that Internet and broadband need anecosystem to thrive.

Viewing broadband as an ecosystem helps definethe likely roles that different actors, including thegovernment will need to play to cash in on theinter-dependencies among the components of thebroadband ecosystem (See figure)20. our policyrecommendations flow from our finding that in-ternet and broadband can add significantly to theGdp; conversely delay could cost the nation mil-lions of dollars in foregone income.

a first step towards improving the ecosystem is tocore network on the supply side. TraI’s nationalBroadband network (nBn) aims to connect allareas with a population of 500 and above with anoptical fibre network. This is desirable. naturally,it will be ill-advised to create this simultaneouslyin all areas. The prudent approach will be to follow

a ‘top down’ strategy starting from cities andurban areas followed by the more remote partswhere demand is likely to pick up later. In the firstphase, all 6374 blocks in India should be linked tothe nBn, albeit capacity could be tapered to reflectthe lower demand in remote areas.21 calculationsof the expected increase in data traffic reinforcethat fibre upto the block level will suffice to beginwith. Since network design is typically modular, itcan be scaled up when required. Scaling up of in-frastructure should be demand led. In addition,since the network will follow a ring topology toprovide for redundancy, it reinforces the need tofocus upto the block level initially.

Insofar as linking the 250,000 Gram panchayats isconcerned, these can be phased in over time. Thetime frame envisaged in TraI’s recommendationsis 3 years. This should be the upper limit for ac-complishing the task; any overrun will add to thecosts estimated in this report. If we try to cover allgram panchayats with fibre immediately, villageswill have to wait for long before they are con-nected. core to the block level is entirely necessaryfor the estimated data that is likely to get generated(60 to 64 Tbps)22. Beyond this, connectivity couldbe provided through wireless initially. This re-duces the order of magnitude of optical fibre net-work, at least initially. This is proposed as aninterim solution, until the 250,000 Gram Panchay-ats are connected by optical fibre. In three yearsthe core optical fibre network must reach the250,000 Gram Panchayats.

There is no justifiable reason to build the core net-work from scratch. apart from the fact that it is tooexpensive, unnecessary duplication of investmentwill fritter much needed resources. The existing op-tical fibre network of BSnL can be utilized andtransferred to an independent and autonomous or-ganization to manage23. any other public sector un-dertaking such as nTpc, GaIL and power Grid orany private sector entity that has excess capacity canvoluntarily contribute to the network pool and re-ceive equity in proportion to the contribution sub-ject to specified conditions. An SPV can be createdto manage and augment the core in a Public-Pri-vate partnership (PPP) mode24. The government

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broadband eCosysTeM

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has already taken some initiative in this directionby accepting the optimality of the SpV over othermodels in India’s context for the quick roll out ofoptical fibre infrastructure.25 for efficient function-ing of the SpV, we recommend that it should func-tion under the regulatory mandate of TraI andshould be subject to the prevailing rules and regu-lations in respect of non-discriminatory provisionof its facilities. It is also recommended that the SpVbe treated as providing an essential facility26.

The value of existing optical fibre chiefly lies inRight of Way (RoW) permission embedded in it.at present, about 6-9 months are required for ob-taining permission for digging trenches, obtainingtower related clearances etc. moreover, taxation ishigh and not uniform across states. We recom-mend a single window system to expedite clear-ances and a rationalized tax structure across statesto reinforce the commitment towards creation ofadditional fibre infrastructure. It is recommendedthat the USo fund be utilized for this purpose.This may also be utilized for providing wireline(fTTK) last mile access for specific institutions(hospitals/schools) serving the greater publicgood.Unlike the maxim that became popular amongclassical economists, supply of broadband is notlikely to create its own demand on any meaning-ful scale.27 We ought to, therefore consciously pro-mote access and to achieve a level that helps drivenetwork effects; there is thus an immediate needto push services, applications and usage.

our case studies have demonstrated the encourag-ing impact of e-health, e-education and e-gover-nance. We recommend that broadband networksbe established to connect schools, governmentagencies (government as an anchor tenant to trig-ger network effects) and hospitals, especiallyrural telemedicine centers (cScs, phcs andchcs) to enable doctors to access patient data (X-ray, ultrasound, etc) on real time basis.

applications are function-specific software thatuses the data stream to deliver content to users28.Indeed, applications—often called apps—are cru-cial to driving the broadband ecosystem. e-gov-

ernment applications can be a huge driver to pro-mote digital literacy among the population. In thisregard the electronic Services delivery Bill, 2011that is currently in draft stage and consultationpaper on mobile Governance 2011, should be ap-plauded. essentially the former seeks to providedelivery of Government services to all citizens byelectronic means by phasing out of manual deliv-ery of services, thereby improving transparency,speed and efficiency29. The latter will focus on gov-ernance services through mobile phones. This isrecognition of the role of government as a majorproducer and user of digital content and applica-tions and hence it needs to be implemented with-out delay.30 In addition to government being anearly adopter, it also needs to promote creationof digital content, especially in regional lan-guages.

Users are the final, and at one level, the most im-portant piece of the broadband eco system. It hashowever been established time and again thatgiven the high levels of income inequality in thecountry, the Indian market is extremely price sen-sitive31. Affordability hence becomes the key issue forrapid diffusion. The experience of cable TV and mo-bile phones both demonstrate that a price point ofaround rs. 200 can trigger brisk demand side ex-pansion of Internet services in India. although notsacrosanct, rs. 200 is also indicative of the amountmajority of households would be willing to pay forInternet services. The total number of cable andsatellite TV households in January 2011 was over72 million from just 1.2 million in 1992, accordingto TraI. Surely a proposal to cap prices by the reg-ulator at rs. 250 in 2010 is an important explana-tion32. Our report has dwelt at length on thebenefits of Internet and broadband at the macroand the micro levels, viz for firms, governmentand consumers. The rationale to regulate broad-band tariffs, according to us, is therefore morepersuasive than capping cable TV rates.33 Onemethod to introduce tariff regulation for broad-band would be for TRAI to specify a standardtariff package which will be available to all con-sumers. The package could consist of basic inter-net of 256 kbps at a monthly charge of Rs. 200.The standard tariff package is an approach used,extensively and successfully by TRAI when mo-

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bile tariff, among others, was brought under thescope of price regulation. This methodology ofspecifying tariffs includes the possibility of provid-ing alternative tariffs subject to the standard pack-age always being available to the customer. Theservice provider is left free to provide any “alter-native tariff package.” While the standard tariffpackage provides a minimum guarantee to thecustomer, it allows service providers to customisepackages to meet the requirement of heteroge-neous consumers, some of who will be willing topay higher for greater speed. for example serviceproviders will inevitably offer unlimited down-load capacities for the higher end consumers at aprice premium. We know that a one size fits allstrategy will not wash and yet broadband is tooimportant to be left solely to the market. The in-dustry has dealt with the idea of standard tariffpackages in the past; in fact it continues to be op-erational for rural fixed line. We believe, that rollout of a standard tariff package at a reasonableprice will provide a boost to the existing demandfor internet and broadband services.The idea of demand side subsidies have often beenproposed as solutions to providing social protec-tion. however, subsidies in India have often beencriticized for not being well targeted and badly de-signed for practical implementation.34 The recentlydiscussed direct cash subsidies may also result ina perverse incentive effect on the beneficiary, inturn not addressing the objective it was originallydesigned for. We therefore recommend condi-tional cash transfers (CCTs)35 to eligible house-holds in the form of coupons either to be used forpurchase of CPE (capital grants) or access tobroadband services and Internet services (al-lowances) at cyber cafes36. policy also needs toprovide for low-cost computers and other user de-vices, in sectors such as education and promote

digital literacy programmes. finally, India should,in the course of time, expand the definition ofUniversal Service to support individual access tobroadband37.

The current institutional mechanism for telecomoften results in overlapping jurisdiction and con-flict between institutions. Harmonisation is desir-able to avoid conflict and to introducepredictability in the regulatory regime. It is imper-ative to clearly define the roles for each institutionin regard to such conflicts. In case of fixed line andmobile telephony we find that TraI, TdSaT, anddoT collectively (in addition to the industry agnos-tic competition commission) have managed an ef-ficient mechanism with well defined roles leadingto the growth of the sector. however, the scope ofregulatory intervention in the case of internet andbroadband services is not only going to be differ-ent, but much wider. The current institutionalstructure is plagued by multiplicity of regulatorswith no clear mandate of operation, which is inim-ical to growth.

Internet and broadband are expected to make sig-nificant contribution to economic and social devel-opment in India over the next 5 years. This reporthas presented plenty of evidence of the impacts.We know that public resources in India should beapplied to increasing levels of Internet usage andovercoming demand side obstacles, besides creat-ing a core network of optical fibre throughout thecountry on an urgent basis. The study has esti-mated that missing the targets set by the National Broadband Plan in 200438 hascost India USD 100 billion (approx) in lost GDPin the interim39. further delay will add to suchlosses.

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1 Data problems lead us to be cautious in our interpretation of the estimates reported here. Nevertheless, the results show that thegrowth dividend of internet is substantial and policy makers will be well advised to harness its full potential2 Katz 20093 Chapter 3 from Information and Communications for Development 2009 – World Bank by Christine Zhen Wei Qiang and CarloM Rossotto with Kaoru Kimura4 What role should governments play in broadband development? Tim Kelly, Victor Mulas, Siddhartha Raja, Christine Zhen-WeiQiang and Mark Williams, World Bank5 TRAI, Performance Indicator Report, January 20116 Madden and Savage 1998, Datta and Agarwal 20047 TRAI, Performance Indicators Report, September, 20108 A key insight of the World Bank 2009 report is the hierarchy in estimated impacts with fixed recording the lowest and broadbandthe highest, with internet and mobile impacts sandwiched in between Data impacts are thus greater than voice and these impactsare larger for developing than developed countries. This is because telecom services help make markets more efficient, reduce trans-action costs and increase productivity—all areas in which developing countries have further to go than developed ones.9 The Federal structure is made up of 28 states and 7 union territories*; Andaman and Nicobar Islands*, Andhra Pradesh,Arunachal Pradesh, Assam, Bihar, Chandigarh*, Chhattisgarh, Dadra and Nagar Haveli*, Daman and Diu*, Delhi*, Goa, Gujarat,Haryana, Himachal Pradesh, Jammu and Kashmir, Jharkhand, Karnataka, Kerala, Lakshadweep*, Madhya Pradesh, Maharashtra,Manipur, Meghalaya, Mizoram, Nagaland, Orissa, Puducherry*, Punjab, Rajasthan, Sikkim, Tamil Nadu, Tripura, Uttar Pradesh,Uttarakhand, West Bengal10 Data used is for the period 2002-03 to 2009-1011 Barro (1991) : “Economic Growth in a Cross Section of Countries”; Christine Zhen Wei Qiang, Carlo Rossotto and KaoruKimura (World Bank 2009), “Economic impact of broadband”; Mihaisonirina Andrianaivo and Kangni Kpodar (IMF 2011) “ICT,Financial Inclusion and Growth: Evidence from African Countries”; Theo Dunnewijk, Huub Meijers and Adrian Zon (2007) “Ac-counting for the Impact of ICT on Total Factor Productivity- Towards an Endogenous Growth Approach”12 The first set of 9 states are the bottom 9 based on internet penetration during this period and the remaining 10 states are the top10 based on internet penetration during the same period. We find that the states under category I are also the states which havelower average per capita GDPs while those under category II have higher per capita GDPs, with the exception of Himachal Pradeshwhich has relatively lower internet penetration in spite of a relatively high per capita GDP13 The co-efficient on internet for the developing category of states is positive and significant, and implies that a 10% increase ininternet subscribers delivers, on average 1.69% increase in output14 TRAI Recommendations on a National Broadband Plan: In China, every 10% increase in broadband penetration is seen as con-tributing and additional 2.5% to GDP growth, China reported 120 million broadband connections as on June, 201015 We are grateful to Digital Empowerment Foundation and Analysys Mason for helping us with the case studies presented in thisreport16 Classifying broadband services is not an exact science. We have tried to do that by their impact on development17 For more detail please see India: The Impact of Internet (2011), Kathuria R and Mansi Kedia ICRIER, IAMAI and DIT18 This is based on author’s estimates; assuming India’s GDP in 2011 will be 1.6 trillion (IMF estimates)19 This is based on author’s estimates; assuming India’s GDP in 2012 will be 1.76 trillion (IMF estimates)20 World Bank 200921 There are 6374 blocks and 610 District head quarters in India as per the last census.22 Estimated using subscriber numbers as 160 million, broadband speed at 2.048 Mbps and 20% contention ration in 201423 Right of way (RoW) is a major constraint in India today. In practice, publicly funded goods and services must be accessible to all.24Various models in the Netherlands, Australia, Sweden and the UK discussed in the paper on Deployment of Fiber Optic Networkswithin the Framework of PPP Projects submitted for the ICT Public & Private Interplay Next Generations Communication in December2008 underline the benefits PPP in deploying fibre optic network25 Refer Telecom Live, March 2011 “Fibre to the Gram Panchayats - Government to form SPV”26 The essential facility doctrine is well established in public utilities provision. 27 This is referred to as Says Law after the French economist John Baptiste Say Circa 1800s28 World Bank 200929 Electronic Delivery of Services” means the delivery of public services in the form of receipt of forms and applications, issue or grant ofany license, permit, certificate, sanction or approval and the receipt or payment of money by electronic means. Seehttp://mit.gov.in/sites/upload_files/dit/files/Draft%20EDS%20 Bill_08022011.pdf30 However, DIT’s strategic plan for 5 years provides no cut off dates for this implementation. Ironically, most of the government offices areusing pirated software and the current IT systems implemented by the Government are mostly ineffective and not user-friendly31 Price Sensitivity of Mobile Use among low income households in six countries of Asia32 Reference to TRAI Order At present, DTH operators are offering a number of entry level packages at retail level in the range of Rs.125to Rs.160 per subscriber per month. Besides, addon packs and a few channels on a la carte basis are also available on optional subscriptionbasis. Another example is BSNL/MTNL’s triband plan, basic services for which were offered at Rs. 15033 Regulating tariffs does not necessarily imply capping of prices it may imply forbearance in determination of tariffs

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34 Subsidies in India are estimated to be about 2 per cent of GDP in 2011, which includes food, fuel, input and various other kinds of subsi-dies. However, the subsidy is plagued with inefficiencies. Example, two-fifths of state paraffin subsidies are stolen, earning a “fuel mafia” of$2 billion a year. In UP reportedly over $40 billion of food and other subsidies have been bilked over five years. Cited in the Economist,March 2011. Given an environment of poor governance and high leakage direct cash subsidies to the consumers are likely to be more effec-tive than supply side subsidies35 World Bank publication: Conditional Cas Transfers: Reducing Present and Future Poverty. CCT program is often provided as an entrypoint to reforming badly targeted subsidies and upgrading the quality of safety nets. 36 World Bank paper on Ensuiring Access to Essential Services: Demand side housing subsidies proposes two different programs; CapitalGrants as one-time subsidies and Allowances as ongoing subsidies. The main drawback of capital grant is the complex administration in-volved in implementing the subsidy while allowance may be an issue for developing countries like India where it becomes a problem forgovernments to sustain recurring subsidies. However, both forms of demand side subsidy help to phase out traditional supply side pro-grams, reduce the involvement of government in production and encourage more competition among producers 37 International Telecommunication Union - Over 40 countries now include broadband in their universal service/ universal access defini-tions and in some countries broadband access has become a legal right38 TRAI National Broadband Plan projected 40 million internet subscribers by 2010, and the actual numbers are close to half of the target39 Authors calculations

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