Over the past few years, India has been witnessing a transformation in its digital profile and footprint with the growing digitalisation of services. The telecom sector is at the forefront of driving this change. At present, the country has over 1 billion mobile phone users and digital identities.
As telecom has started converging with digital services, industry stakeholders are taking up bigger roles and moving beyond traditional services. The advent of new and emerging technologies such as 5G, artificial intelligence and internet of things has further propelled the sector on a digital trajectory.
Factors driving digital growth
The four key factors driving digital growth in the country are rising internet penetration, favourable demographics, the evolving start-up ecosystem and increasing government focus. India had about 500 million internet subscribers as of March 2018. The proliferation of 4G services is driving mobile internet usage among these subscribers. Further, more than half of the country’s population is in the tech-savvy age group of 15-45. Thus, online and digital services are in high demand. Moreover, the evolution of the Indian start-up ecosystem, which has garnered an investment of $33.62 billion since 2014, seems to augur well for the country’s digitalisation process. Around half of this amount was invested in 2017 ($13.7 billion) and the quarter ended June 2018 ($2.26 billion). In addition, the government’s Digital India programme focusing on digital infrastructure, e-governance and citizen empowerment has played an essential role in the growth of the digital ecosystem. The programme has digitally empowered people by ensuring access to essential healthcare and education, generating employment opportunities, promoting entrepreneurship, and enhancing citizens’ overall quality of life.
Digital infrastructure and its vital elements
The most critical element of a robust digital ecosystem is the underlying infrastructure. Digital infrastructure comprises foundational products, services and applications for both consumer and enterprise markets, which develop the IT capabilities of a country, region, city or organisation. Although India’s mobile broadband penetration has witnessed an impressive growth during the past few years, it is significantly lower than in many developing markets. Therefore, there is an urgent need to develop a ubiquitous digital infrastructure in the country. Given India’s highly diverse geographies with many remote and inaccessible regions, ubiquity demands a holistic approach and a long-term vision. The availability of multiple types of digital infrastructure helps reduce the dependency on one system and makes switching traffic between them easier in case of emergencies or disasters.
The five vital elements of digital infrastructure are optical fibre, telecom towers, E and V bands, satellite communications (satcom) and public Wi-Fi. The creation of digital infrastructure entails the creation and establishment of all the above elements in a balanced manner. While telecom towers remain a major element of digital infrastructure, the role of optical fibre is expected to be enhanced to an all-pervasive, essential status in the future. Further, public Wi-Fi hotspots, E and V band wireless fibre and satcom have also started gaining importance. For transforming India into a digitally empowered society and knowledge economy, large investments in all types of digital infrastructure are required. According to industry reports, an investment of $100 billion will be required to expand the digital infrastructure threefold in the next five years.
At present, optical fibre is witnessing significant traction. The recently released National Digital Communications Policy (NDCP), 2018 recognises that the digital era cannot begin without the adoption of the Fibre First initiative, which constitutes setting up a system of optical fibre links throughout the country. This would comprise laying optical fibre cable for providing broadband connectivity to gram panchayats under the BharatNet project, increasing the level of tower fiberisation and enhancing fibre-to-the-home connectivity. However, considering the low level of fiberisation at present, this seems like a formidable task. Further, fibre may not be able to reach all places.
In this scenario, alternative and cost-effective technologies are needed to build an inclusive digital ecosystem. E and V band technologies, which are being rolled out across the world to build high capacity broadband networks in both urban and rural areas, are a good alternative. However, the use of E and V bands is currently at the discussion stage in India. In order to use next-generation access technologies for establishing adequate digital infrastructure, the government should recognise the need for opening up unrestricted, delicensed access to the E and V bands, which are more cost efficient than fibre.
Public Wi-Fi is another alternative technology. Developed markets such as the US, the UK and France have 30 per cent of their total public data offloaded to public Wi-Fi networks. Although the Indian government has recently launched an operator-led initiative, which aims to install 1 million Wi-Fi hotspots across the country by December 2019, the country is still far behind in the deployment of public Wi-Fi hotspots. With approximately 2.68 hotspots for every 100,000 people, India fares poorly in comparison to other countries such as Nigeria (7.25), South Africa (27.17) and the US (51.86). Further, to reach the current global average of 1 hotspot for 150 persons, India would need another 8 million Wi-Fi hotspots. Therefore, India needs a policy that liberalises the use of public Wi-Fi. Moreover, a positive and pragmatic regulatory framework for the Wi-Fi industry is a must as it would adequately empower the demand and supply ecosystems, remove undue restrictions to innovation and encourage investments and partnerships in the Wi-Fi space.
Another area with an underexploited potential for digital inclusion in India is satellite communications. While the country has started using satcom technology, the adoption is still at a nascent stage. About 10 Gbps of data bandwidth from satellites is being wasted across the country, while rural India remains starved of sufficient data connectivity. Satcom can be used to enhance connectivity in rural areas as it is quick and economical to deploy as compared to terrestrial technologies. However, there is immense scope for improvement in this area. Satcom can become more affordable through the adoption of optimised policies, appropriate regulations and modern technologies. To this end, the NDCP has proposed to review the regulatory regime and conditions that limit the use of satcom.
Making digital PPPs work
The country needs to make significant strides to deploy all the vital elements of digital infrastructure, and speed up the implementation process. This calls for greater public and private participation, and successful public-private partnerships (PPPs) in the digital arena. The government needs to adopt measures to make the digital PPPs work in India. Funds should be allocated to incentivise PPPs in India. Private players need to set up local points of contact to establish the business case and convince the public sector partners, enabling gradual adjustment. The government should lay down comprehensive specifications for PPP contracts. Commission-independent specialised agencies should be set up to review and improve projects in order to minimise the terms of renegotiation; and practical and appropriate service standards should be designed and implemented for PPP contracts. The government should look at public tendering of individual component parts to break/control private monopoly power. Further, it should guarantee that contract values do not change upon renegotiation. Moreover, better accounting standards with respect to future capital costs and demand guarantees need to be set up.
Spillover effects of digital infrastructure
A robust digital infrastructure can have positive spillover effects. It will create huge opportunities for the digital economy. The three major benefits will be:
- Impact of digital infrastructure on GDP: Improving the digital infrastructure will help achieve the goal of trebling the GDP to $7.5 trillion over the next five years through increased use of the internet. Further, it would lead to increased revenues from goods and services tax, licence fee, spectrum usage charges, spectrum auctions, corporate tax and property taxes.
- Impact of broadband penetration on GDP: Of all information and communication technologies, broadband has the biggest economic impact on GDP. Each new broadband use case generates 2.5 to 4 additional jobs, and GDP per capita grows by 2.7-2.9 per cent. Moreover, doubling broadband speeds adds 0.3 per cent to GDP growth.
- Impact of apps on GDP: Data-based services or apps add far more value than just access to the internet. Each user of applications in India receives on average $249 of consumer surplus annually. Applied to the total population, this number stands at $74 per capita. Apps contributed $20.4 billion to India’s GDP in 2015-16. This value has the potential to increase to $271 billion by 2020.
Roadblocks to digital development
One of the roadblocks that continue to hamper digital development is the non-availability of adequate funds. This is especially true as commercial banks are fast approaching their sectoral exposure limits while infrastructure companies are highly leveraged. Therefore, there is an urgent need to improve financing measures. The industry’s limited capacity to undertake large and complex digital projects at the state and central levels is another challenge. This is because there are no standard/central guidelines for undertaking digital projects. In addition, there is a lack of a robust regulatory environment, which is essential for attracting investments. These challenges need to be addressed at the earliest to drive digitalisation in the country.
Towards a digital future
The challenges notwithstanding, India has emerged as one of the fastest growing digital economies in the world. To sustain the momentum, the country needs to formulate appropriate strategies. In this regard, a national mission needs to be launched to develop all the elements of a sustainable digital infrastructure. Further, a government-led fund can be set up to provide low-cost access to large amounts of funds for the development of digital infrastructure. The government can also look at making budgetary allocations for digital infrastructure projects. In sum, a collaborative approach involving various government agencies, private companies and other key stakeholders can facilitate a strong digital ecosystem.
The Broadband India Forum and the Asian Development Bank Institute, along with the Indian Council for Research on International Economic Relations, are organising a Hi-Level Workshop on Digital Infrastructure on December 6, 2018 in New Delhi. The workshop will focus on the country’s technological shift from legacy infrastructure to next-generation digital infrastructure, which will be the bedrock of the digital economy of the future.