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IndIa

The ImpacT of InTerneT

abridged version

Kathuria, R and Kedia-Jaju, Mansi

Copyright 2011 iCrier all rights reserved Cover Photograph by digital empowerment Foundation except for use in a review, the reproduction or utilization of this work or part of it in any form or by electronics, or other means now known or hereafter invented, including Xerography, Photocopying, and recording, and in any information storage, transmission or retrieval system, including Cd-roM, online or via the internet, is forbidden without the written permission of the publishers.

india: The iMPaCT oF inTerneT

introduction
Internet and Broadband access are widely regarded as catalysts for economic and social development of a country. a number of research studies have demonstrated the positive impact that Internet and broadband penetration have on national income (Gdp) as well as its transformative impact on businesses and livelihoods. Internet (among other means of access such a fixed line or mobile) is increasingly viewed as an efficient mechanism for accessing information. Several case studies have highlighted the role that information can play in inspiring economic activity and good governance. In this sense, information can be viewed as a public good, access to which yield positive externalities. Internet allows better access to information and hence the existence of ubiquitous information infrastructure becomes a key input to the efficient functioning of markets and government. regrettably, in the real world we see too many imperfections that prevent markets from functioning properly. In the case of Internet it is mainly related to the absence of com-

petition (for example, through the existence of monopolies) which in turn exacerbates the problem of asymmetric information. The key to effective government intervention lies not in demonstrating the existence of market failures (and thereby establishing a rationale for government intervention) but also identifying situations where such market failures can be alleviated through targeted efforts, thus making the intervention worthwhile. one of our chief tasks in this report is to provide a compelling basis for government intervention in the internet market in general and broadband in particular.

scope of study
To the best of our knowledge this is the first study that systematically investigates the growth impact of Internet and broadband at a sub-national level.1 India is ideally placed for such an analysis because it has more diversity within its borders than any other country. over 1.2 billion people live and work in very different circumstances and geographies. Yet critical telecommunications policy is formulated at the national level and applicable across the coun-

try. The study would be incomplete if it failed to demonstrate the manner in which Internet and broadband create growth impacts. accordingly, we explore the channel through which these impacts manifest themselves by means of numerous case studies across businesses, governments, national and state, across the social sector, including education, health, and non government organizations (nGos). The case studies provide the micro foundations of the growth dividend story at the macro level by presenting evidence of the channels through which such impacts are created at the micro level.

Booz & company found that 10% higher broadband penetration in a specific year is correlated to 1.5% greater labour productivity growth over the following five years. The point of departure for this report is to measure the Internet-growth linkage within the national boundaries of India using the multivariate regression model. It is worth reiterating that this is the first study to quantify the impact of Internet on Gdp for India.

analyzing the growth impact of internet in india


Indias teledensity has shown extraordinary growth since private participation was introduced in the sector, rising from less than 1% in 1998 to 61% on 30th September 20105. Several research studies have found that the telecommunications infrastructure is one of the significant factors in economic growth, alongside others such as overall investment, education, energy and transportation networks.6 despite the rapid growth in mobile penetration rate an acknowledged driver of growth India lags behind other countries in Internet and broadband penetration. Based on data from TraI7, while there were 687.71 million mobile subscribers as on June 2010, the corresponding numbers for Internet and broadband were 17.9 million and 10.31 million respectively. net additions in broadband subscribers are merely 0.2 to 0.3 million per month compared to around 15-18 million mobile connections. The graph (figure 1) shows the growth in the number of subscribers for mobile, Internet and broadband over the last few years. If nothing else happens, the law of arithmetic will ensure the gap narrows over time as mobile telephony reaches saturation. however, as this report argues, the benefits and externalities associated with greater Internet and broadband penetration are far too significant to wait for the market to deliver these outcomes.8 Indias federal structure, with some states such as Uttar pradesh, maharashtra, and madhya pradesh larger in geographical area and population than most european countries, readily lends itself to such analysis.9 moreover, balanced regional development has always been an objective in Indias plans and therefore studying the impact of tele-

assessment of internet and broadband impacts international experiences


Two broad approaches have been used in the literature to measure the economic impacts of broadband and Internet; these are the input-output method and the multivariate regression analysis. The former technique relies on input output matrices to estimate the impact of broadband infrastructure deployment on output and employment generation within a country. The latter are largely international cross sectional studies that attempt to gauge the impact of broadband infrastructure on economic activity by establishing a causal link between broadband deployment and economic growth.2 an influential and widely cited study in this genre is the World Bank inquiry into the economic impacts of IcTs including broadband (Qiang et al 2009).3 It draws its intellectual inspiration from roller and Waverman [rW] (1996, 2001) who were the first to quantify the impact of telecoms on growth after controlling for the effect of rising Gdp on demand for telecoms. The research suggests that the contribution of broadband to economic growth is indeed substantial, and may be more profound than comparable narrowband or voice-based IcTs. The study finds that every ten percentage point increase in broadband penetration boosts Gdp growth by 1.38 % in developing countries4. many other studies support the growth dividend hypothesis for broadband. mcKinsey & company found that 10% increase in broadband household penetration delivers a boost to a countrys Gdp that ranges from .1 1.4%.

india: The iMPaCT oF inTerneT

figure 1: Growth of Mobile, Internet and Broadband subscribers


in millions

third question is addressed using bottom-up survey based and other information. network externalities in the IcT industry drive growth of other sectors in the economy along with growth in the sector itself. The positive correlation between per capita income and telecom density indicators is one expression of the existence of this externality. The matrix given below shows the correlations between per capita income (at current prices) and teledensity indicators over time.10 The econometric model used for this study is an adaption of the endogenous growth model of Barro (1991). Several studies before us have used this methodology, thus lending credibility to our model and the corresponding results.11 The model specification 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 industries excluding investment in telecom services across all states ln L is the natural log of education (students enrolled from class I XII) across all states ln Internet is the natural log of Internet subscribers across all states dit is the dummy variable for each state, the so called fixed effects approach which controls for unobservable characteristics that are specific to each state. our first major finding is the existence of a positive and significant coefficient on Internet. The result shows every 10% increase in Internet subscribers delivers on average, 1.08% increase in output. accordingly, Indian states with higher Internet penetration can be expected to grow faster, and by 1.08% points for every 10% increase in the number of Internet subscribers. If Bihar had half as many Internet subscribers as say punjab, it would have resulted in an increased growth of 7.02% in state per capita income. This estimate is likely to be a conservative lower bound since Internet penetra-

Source: TRAI

Correlation between ICT density indicators and Per Capita Income (2002-2010)
Source: TRAI, India Stat and RBI

PerCapita income Per Capita income internet Mobile broadband 1 0.981 0.998 0.973

internet

Mobile

broadband

1 0.981 0.983

1 0.998

coms liberalization across states will provide valuable insights for this policy aim. While the rapid spread of mobile telephony has been the most visible demonstration of the benefits of telecom sector liberalization, attention needs to shift to data and Internet. accordingly we attempt to answer three questions: What is the impact of Internet penetration on state growth rates; do less-developed states show a greater impact of Internet penetration; and What is the mechanism by which Internet affects growth; and what are the constraints, if any, which limit its impact. The first two questions are addressed by employing top-down econometric analysis using state level economic indicators in this chapter, while the

tion is far below the critical mass at the national level. In addition, we divide our sample into two categories of developing and developed states12. our results for the developed category states are consistent with the network effect hypothesis. The coefficient on Internet for the developed category13 is both positive and significant and implies that 10% increase in Internet subscribers delivers, on average 2.36% increase in output, a very high impact indeed14 We are however hesitant to conclude the existence of a specific magnitude for critical mass for Internet penetration, given its relatively low diffusion in India. We also estimate the impact of mobile telecommunication on growth in order to compare it with the growth impact of Internet; the model is the same as used in the 2009 study (IcrIer 2009) The coefficient for mobile penetration is both positive and significant and implies that a 10% increase in mobile penetration delivers, on average 1.5% increase in Gdp; this is a marginal increase from the earlier estimate of 1.2% in 2009. Given the low Internet penetration levels in India, it is not surprising to find a lower growth dividend for Internet than for mobile (1.08 versus 1.5).

These case studies are integral to the impact analysis and clearly illustrate how access to Internet and broadband enables users to benefit on several dimensions, economic and social.15 The schematic below is a representation of the diversity in the sample. The 17 case studies are classified according to their key result area (Kra) and span 5 different regions of the country16. While most of these initiatives are restricted to a single state, some of them operate across several states and thus have a national character. our second major finding is that in our sample Internet promotes efficiency on a scale and speed that was previously unimaginable and that the opportunity cost of absence or disruption of access

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

Source: Authors Compilation Source: Authors Compilation Note1: Case Studies Circled in Red are spread across India, while the ones in blue are restricted to a few states or a few regions Note2: MKrishi spreads across states outside North India; however, most of our research for this case study was conducted in Punjab

as stated earlier, we also trace the path ways of economic and social impacts of Internet at the micro level from a set of 17 case studies that were carefully and purposefully selected as a part of this study. The case studies cover a mix of sectors in different regions of India, with varying scales of operation and run by public and private players.

can be very high. Initiatives in the agriculture sector like mkrishi allow farmers to benefit from timely expert advice and similarly aaqua uses the Internet to connect with farmers to address a range of concerns related to production, input supply and prices. In doing so, the Internet offers a whole

india: The iMPaCT oF inTerneT

range of services, many more than those available on todays mobile phone, and therefore a prioi one would expect that the social and economic impacts of the former would be at least as high if not greater than for mobile phones. Both our case studies in agriculture, mkrishi and aaqua suggest that the impacts could indeed be higher. With wireless broadband set to kick off after 3G services start, the difference between the two impacts will naturally narrow over time as users increasingly access Internet on mobiles, smart phones and Ipads. Globally, the success of devices known as dongles, which connect laptops to mobile networks, has seen data traffic grow by a massive 158% between 2009 and 2010. That the new Internet users in India will log on mostly via their mobile phones is almost certain. of the 723.28 million access lines, more than 95 per cent are mobile, while fixed access is, in fact, declining. mobile Internet will also be cheaper and more convenient than any other option. disintermediation, enabled by the Internet, especially in using government services is also beginning to show initial results. corruption is a big casualty in the e-governance case studies across the country and there are compelling reasons to expand the coverage and scope of such services. Initiatives like aarogyasri in the health care sector are state-wide projects delivering end-to-end cashless medical treatment for end users. alleviating the shortage of trained medical professionals is a proximate benefit, while allowing cheaper access is a positive externality. projects like Barefoot college, chanderiyaan and airJaldi are integrated community based applications that have far-reaching spillover effects on the local population. airJaldi started as a non-profit enterprise in 2005 now provides viable and sustainable broadband for rural communities. case studies like BabaJobs and

harVa show a direct impact of Internet on increased income and improved livelihood. harVa is a greenfield project that takes advantage of the wage-price arbitrage to generate business and employment in rural areas. harVa serves as an outstanding example to demonstrate the causal impact of Internet on income, reinforcing the econometric result. Internet and broadband are expected to make significant contribution to economic and social development in India over the next 5 years. Unlike for mobile telephony, policy has to be much more nuanced for Internet and Broadband. Simply creating enabling conditions on the supply side worked well for mobile telephony. Vigorous competition among the many service providers in each service area led to aggressive pricing that made it affordable for lower income classes to own and use a mobile phone. In addition, in some cases, it was easy to demonstrate that the mobile paid for itself. Thus for the self employed and many others mobile was not only the only form of connectivity but also an instrument for cost savings and revenue enhancement. demonstration of such benefits is a lot more challenging for Internet and hence the advocacy role for government and the need to promote common access points to overcome the affordability constraint for large chunks of the population. of the 17 case studies, we summarise the results for three below to highlight the benefits of access which include improving productivity and efficiency of business processes, reducing transactions costs, creating opportunities for new services and opening up new markets17. naturally growth of some projects is limited; scaling up presents challenges such as lack of connectivity, lack of skill and trained personnel, etc. We focus on possible ways to address these challenges in the policy recommendations.

edyounet Technologies
The course attendees have signicant economic and social benets. it provides better professional growth prospects and creation of job opportunities. select courses like CrM are oered with a guaranteed job, including 3 months on-the-job training with the to-be-employer. There are other direct benets like increased salary for working employees; e.g. upon clearing the banking course, these employees get a 10% raise in salary and select MF houses have oered to even waive the entire course fee of inr 19K. The students also benet from reduced cost of travel (20 30% savings) as they dont have to travel to distant locations (ernakulam) for attending specialized courses. it is dicult to aggregate the benets from this program and arrive at a quantiable 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.

harnessing Value of rural India (harVa: rural Xpo)


harvas 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 positive. The revenue divided by cost ratio for this project is approximately 1*, essentially meaning that the project is self-sustainable. however, this estimate is a lower bound given that projections show that will only increase over a period of time. besides, this ratio does not include the spill over eects to the rest of the village community (e.g. rising income of households as women nd employment at these XPo centres). in addition, impacts are being felt on several other dimensions such as boosting condence 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 infrastructure, salaries, and everyday operations are performed at much lower rates in the village when benchmarked against urban costs. For example, harvas rst oce cost rs 3,000 per month as rent. This would be unimaginable in a big city today. The rate of attrition is also low in villages. harva employs trainers from the city to make employees digitally literate. 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 month and cost per month. The cost includes the running cost of 4.5 lakhs per month and the fixed cost of 25 lakhs amortized over a period of 5 years, which results in an approximate addition of 41,000 every month.

public distribution System (pdS) in chhattisgarh


one estimate of benet in this e governance project is a cost saving of rs. 180 million as a result of disintermediation and minimising corrupt 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 itself. To this fair however one needs to add the attendant benets of improved monitoring, greater transparency, elimination of irregularities (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 Chattisgarh. 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-eective and ecient means of reducing malpractices. 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 the project per annum (180 million) by the fixed and recurring cost per annum (106.67). Capex has been depreciated using fixed line method over a period of three years

india: The iMPaCT oF inTerneT

Policy recommendations
our research demonstrates that for every 10 percent increase in Internet and broadband penetration, India could potentially add USd 17 billion in Gdp18. attaining the targets set by TraI in the national Broadband plan could generate an additional USd 87 billion in Gdp during the period 2012-201419. our case studies underline the value of literacy, relevant content and applications, besides availability, to drive impacts. accordingly, the policy canvas is wider for the government; merely pushing availability is just not going to be enough. Simultaneously, it needs to design various policies to promote development of content and applications as well as play an advocacy role. This implies that Internet and broadband need an ecosystem to thrive. Viewing broadband as an ecosystem helps define the likely roles that different actors, including the government will need to play to cash in on the inter-dependencies among the components of the broadband ecosystem (See figure)20. our policy recommendations flow from our finding that internet and broadband can add significantly to the Gdp; conversely delay could cost the nation millions of dollars in foregone income. broadband eCosysTeM

a top down strategy starting from cities and urban areas followed by the more remote parts where demand is likely to pick up later. In the first phase, all 6374 blocks in India should be linked to the nBn, albeit capacity could be tapered to reflect the lower demand in remote areas.21 calculations of the expected increase in data traffic reinforce that fibre upto the block level will suffice to begin with. Since network design is typically modular, it can be scaled up when required. Scaling up of infrastructure should be demand led. In addition, since the network will follow a ring topology to provide for redundancy, it reinforces the need to focus upto the block level initially. Insofar as linking the 250,000 Gram panchayats is concerned, these can be phased in over time. The time frame envisaged in TraIs recommendations is 3 years. This should be the upper limit for accomplishing the task; any overrun will add to the costs estimated in this report. If we try to cover all gram panchayats with fibre immediately, villages will have to wait for long before they are connected. core to the block level is entirely necessary for the estimated data that is likely to get generated (60 to 64 Tbps)22. Beyond this, connectivity could be provided through wireless initially. This reduces the order of magnitude of optical fibre network, at least initially. This is proposed as an interim solution, until the 250,000 Gram Panchayats are connected by optical fibre. In three years the core optical fibre network must reach the 250,000 Gram Panchayats. There is no justifiable reason to build the core network from scratch. apart from the fact that it is too expensive, unnecessary duplication of investment will fritter much needed resources. The existing optical fibre network of BSnL can be utilized and transferred to an independent and autonomous organization to manage23. any other public sector undertaking such as nTpc, GaIL and power Grid or any private sector entity that has excess capacity can voluntarily contribute to the network pool and receive equity in proportion to the contribution subject to specified conditions. An SPV can be created to manage and augment the core in a Public-Private partnership (PPP) mode24. The government

Source: World Bank 2009

a first step towards improving the ecosystem is to core network on the supply side. TraIs national Broadband network (nBn) aims to connect all areas with a population of 500 and above with an optical fibre network. This is desirable. naturally, it will be ill-advised to create this simultaneously in all areas. The prudent approach will be to follow

india: The iMPaCT oF inTerneT

has already taken some initiative in this direction by accepting the optimality of the SpV over other models in Indias context for the quick roll out of optical fibre infrastructure.25 for efficient functioning of the SpV, we recommend that it should function under the regulatory mandate of TraI and should be subject to the prevailing rules and regulations in respect of non-discriminatory provision of its facilities. It is also recommended that the SpV be treated as providing an essential facility26. The value of existing optical fibre chiefly lies in Right of Way (RoW) permission embedded in it. at present, about 6-9 months are required for obtaining permission for digging trenches, obtaining tower related clearances etc. moreover, taxation is high and not uniform across states. We recommend a single window system to expedite clearances and a rationalized tax structure across states to reinforce the commitment towards creation of additional fibre infrastructure. It is recommended that 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 public good. Unlike the maxim that became popular among classical economists, supply of broadband is not likely to create its own demand on any meaningful scale.27 We ought to, therefore consciously promote access and to achieve a level that helps drive network effects; there is thus an immediate need to push services, applications and usage. our case studies have demonstrated the encouraging impact of e-health, e-education and e-governance. We recommend that broadband networks be established to connect schools, government agencies (government as an anchor tenant to trigger network effects) and hospitals, especially rural telemedicine centers (cScs, phcs and chcs) to enable doctors to access patient data (Xray, ultrasound, etc) on real time basis. applications are function-specific software that uses the data stream to deliver content to users28. Indeed, applicationsoften called appsare crucial to driving the broadband ecosystem. e-gov-

ernment applications can be a huge driver to promote digital literacy among the population. In this regard the electronic Services delivery Bill, 2011 that is currently in draft stage and consultation paper on mobile Governance 2011, should be applauded. essentially the former seeks to provide delivery of Government services to all citizens by electronic means by phasing out of manual delivery of services, thereby improving transparency, speed and efficiency29. The latter will focus on governance services through mobile phones. This is recognition of the role of government as a major producer and user of digital content and applications and hence it needs to be implemented without delay.30 In addition to government being an early adopter, it also needs to promote creation of digital content, especially in regional languages. Users are the final, and at one level, the most important piece of the broadband eco system. It has however been established time and again that given the high levels of income inequality in the country, the Indian market is extremely price sensitive31. Affordability hence becomes the key issue for rapid diffusion. The experience of cable TV and mobile phones both demonstrate that a price point of around rs. 200 can trigger brisk demand side expansion of Internet services in India. although not sacrosanct, rs. 200 is also indicative of the amount majority of households would be willing to pay for Internet services. The total number of cable and satellite TV households in January 2011 was over 72 million from just 1.2 million in 1992, according to TraI. Surely a proposal to cap prices by the regulator at rs. 250 in 2010 is an important explanation32. Our report has dwelt at length on the benefits of Internet and broadband at the macro and the micro levels, viz for firms, government and consumers. The rationale to regulate broadband tariffs, according to us, is therefore more persuasive than capping cable TV rates.33 One method to introduce tariff regulation for broadband would be for TRAI to specify a standard tariff package which will be available to all consumers. The package could consist of basic internet 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 the scope of price regulation. This methodology of specifying tariffs includes the possibility of providing alternative tariffs subject to the standard package always being available to the customer. The service provider is left free to provide any alternative tariff package. While the standard tariff package provides a minimum guarantee to the customer, it allows service providers to customise packages to meet the requirement of heterogeneous consumers, some of who will be willing to pay higher for greater speed. for example service providers will inevitably offer unlimited download capacities for the higher end consumers at a price premium. We know that a one size fits all strategy will not wash and yet broadband is too important to be left solely to the market. The industry has dealt with the idea of standard tariff packages in the past; in fact it continues to be operational for rural fixed line. We believe, that roll out of a standard tariff package at a reasonable price will provide a boost to the existing demand for internet and broadband services. The idea of demand side subsidies have often been proposed as solutions to providing social protection. however, subsidies in India have often been criticized for not being well targeted and badly designed for practical implementation.34 The recently discussed direct cash subsidies may also result in a perverse incentive effect on the beneficiary, in turn not addressing the objective it was originally designed for. We therefore recommend conditional cash transfers (CCTs)35 to eligible households in the form of coupons either to be used for purchase of CPE (capital grants) or access to broadband services and Internet services (allowances) at cyber cafes36. policy also needs to provide for low-cost computers and other user devices, in sectors such as education and promote

digital literacy programmes. finally, India should, in the course of time, expand the definition of Universal Service to support individual access to broadband37. The current institutional mechanism for telecom often results in overlapping jurisdiction and conflict between institutions. Harmonisation is desirable to avoid conflict and to introduce predictability in the regulatory regime. It is imperative to clearly define the roles for each institution in regard to such conflicts. In case of fixed line and mobile telephony we find that TraI, TdSaT, and doT collectively (in addition to the industry agnostic competition commission) have managed an efficient mechanism with well defined roles leading to the growth of the sector. however, the scope of regulatory intervention in the case of internet and broadband services is not only going to be different, but much wider. The current institutional structure is plagued by multiplicity of regulators with no clear mandate of operation, which is inimical to growth. Internet and broadband are expected to make significant contribution to economic and social development in India over the next 5 years. This report has presented plenty of evidence of the impacts. We know that public resources in India should be applied to increasing levels of Internet usage and overcoming demand side obstacles, besides creating a core network of optical fibre throughout the country on an urgent basis. The study has estimated that missing the targets set by the National Broadband Plan in 200438 has cost India USD 100 billion (approx) in lost GDP in the interim39. further delay will add to such losses.

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Data problems lead us to be cautious in our interpretation of the estimates reported here. Nevertheless, the results show that the growth dividend of internet is substantial and policy makers will be well advised to harness its full potential 2 Katz 2009 3 Chapter 3 from Information and Communications for Development 2009 World Bank by Christine Zhen Wei Qiang and Carlo M Rossotto with Kaoru Kimura 4 What role should governments play in broadband development? Tim Kelly, Victor Mulas, Siddhartha Raja, Christine Zhen-Wei Qiang and Mark Williams, World Bank 5 TRAI, Performance Indicator Report, January 2011 6 Madden and Savage 1998, Datta and Agarwal 2004 7 TRAI, Performance Indicators Report, September, 2010 8 A key insight of the World Bank 2009 report is the hierarchy in estimated impacts with fixed recording the lowest and broadband the highest, with internet and mobile impacts sandwiched in between Data impacts are thus greater than voice and these impacts are larger for developing than developed countries. This is because telecom services help make markets more efficient, reduce transaction costs and increase productivityall 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 Bengal 10 Data used is for the period 2002-03 to 2009-10 11 Barro (1991) : Economic Growth in a Cross Section of Countries; Christine Zhen Wei Qiang, Carlo Rossotto and Kaoru Kimura (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) Accounting 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 top 10 based on internet penetration during the same period. We find that the states under category I are also the states which have lower average per capita GDPs while those under category II have higher per capita GDPs, with the exception of Himachal Pradesh which has relatively lower internet penetration in spite of a relatively high per capita GDP 13 The co-efficient on internet for the developing category of states is positive and significant, and implies that a 10% increase in internet subscribers delivers, on average 1.69% increase in output 14 TRAI Recommendations on a National Broadband Plan: In China, every 10% increase in broadband penetration is seen as contributing and additional 2.5% to GDP growth, China reported 120 million broadband connections as on June, 2010 15 We are grateful to Digital Empowerment Foundation and Analysys Mason for helping us with the case studies presented in this report 16 Classifying broadband services is not an exact science. We have tried to do that by their impact on development 17 For more detail please see India: The Impact of Internet (2011), Kathuria R and Mansi Kedia ICRIER, IAMAI and DIT 18 This is based on authors estimates; assuming Indias GDP in 2011 will be 1.6 trillion (IMF estimates) 19 This is based on authors estimates; assuming Indias GDP in 2012 will be 1.76 trillion (IMF estimates) 20 World Bank 2009 21 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 2014 23 Right of way (RoW) is a major constraint in India today. In practice, publicly funded goods and services must be accessible to all. 24 Various models in the Netherlands, Australia, Sweden and the UK discussed in the paper on Deployment of Fiber Optic Networks within the Framework of PPP Projects submitted for the ICT Public & Private Interplay Next Generations Communication in December 2008 underline the benefits PPP in deploying fibre optic network 25 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 1800s 28 World Bank 2009 29 Electronic Delivery of Services means the delivery of public services in the form of receipt of forms and applications, issue or grant of any license, permit, certificate, sanction or approval and the receipt or payment of money by electronic means. See http://mit.gov.in/sites/upload_files/dit/files/Draft%20EDS%20 Bill_08022011.pdf 30 However, DITs strategic plan for 5 years provides no cut off dates for this implementation. Ironically, most of the government offices are using pirated software and the current IT systems implemented by the Government are mostly ineffective and not user-friendly 31 Price Sensitivity of Mobile Use among low income households in six countries of Asia 32 Reference to TRAI Order At present, DTH operators are offering a number of entry level packages at retail level in the range of Rs.125 to Rs.160 per subscriber per month. Besides, addon packs and a few channels on a la carte basis are also available on optional subscription basis. Another example is BSNL/MTNLs triband plan, basic services for which were offered at Rs. 150 33 Regulating tariffs does not necessarily imply capping of prices it may imply forbearance in determination of tariffs
1

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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 subsidies. 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 effective than supply side subsidies 35 World Bank publication: Conditional Cas Transfers: Reducing Present and Future Poverty. CCT program is often provided as an entry point 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; Capital Grants as one-time subsidies and Allowances as ongoing subsidies. The main drawback of capital grant is the complex administration involved in implementing the subsidy while allowance may be an issue for developing countries like India where it becomes a problem for governments to sustain recurring subsidies. However, both forms of demand side subsidy help to phase out traditional supply side programs, 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 definitions and in some countries broadband access has become a legal right 38 TRAI National Broadband Plan projected 40 million internet subscribers by 2010, and the actual numbers are close to half of the target 39 Authors calculations
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