T.V. Ramachandran , Hon. Fellow , IET (London) & President, Broadband India Forum
Pathfinding ICRIER Study finds huge economic potential of Indian app economy 18 lakh crore per annum benefit to nation seen by 2020!
The growth of the app economy is nothing short of extraordinary in India. App Annie recently ranked India as the fourth largest app economy in the world. With over 94 percent subscribers connecting to the Internet on their mobile phone, it is no surprise that India is leading the global phablet revolution. Internet and Internet-based applications have drastically and quickly transformed the architecture of economic activity. Their evolution had regulators of legacy services such as telecommunications, cable and broadcast, commercial public transport, etc. scrambling to manage disruption. Other stakeholders participating in related industries such as advertising have also had to adapt to this new revolution.
First of its kind, the ICRIER study attempts to measure the socioeconomic impact of Internet usage and most importantly, that of Internet-based applications on the country's GDP and outline recommendations for sustained growth. As per the study, a 17 percent increase in the total internet traffic in India in 2015–2016, contributed to an increase of 7 lakh crore in gross domestic product (GDP), of which at least 1.4 lakh crore (USD 20.4 billion) was due to Internet-based app services. This puts the Internet's contribution to India's GDP at about 5.6 percent in 2015–2016. The contribution is estimated to grow to nearly 16 percent of the country's GDP by 2020 or 36 lakh crore (USD 534 billion), of which apps will contribute about half.
While there have been some studies elsewhere that have attempted to capture the impact of this phenomenon and global growth elasticities have been estimated, this is the first time such a specific and meaningful exercise has been conducted in India. As a departure from previous research in the area, this study measures growth elasticity based on Internet usage rather than Internet penetration, as has been done in the past. The measure of usage versus user elasticity allows for estimation of user engagement on the Internet versus that of just being connected to the Internet. This study deployed an instrumental variable regression on a panel data set of 19 Indian states and 23 countries respectively. The growth co-efficients of usage, a first for India, are a starting point to understand the magnitude of impact of app-based usage. The estimates on internet usage were moderated to reflect app-based usage using assumptions on the contribution of apps to the Internet Economy in India. Internet usage was measured with Cisco VNI data on total Internet traffic and mobile Internet traffic.
The study further fortified the substantial economic impact generated by the econometric analysis with a microlevel understanding of the pathways of impact generation using a selection of 16 case studies of different apps in India. Each selected app addressed a unique market need, either left unresolved by the market and/or government intervention. The apps contained a mix of those that cater to the general population, specifically urban or rural users, those that are specific to a limited location, and those that cater to specific vulnerable groups. The case study discussions measured the scope and magnitude of impact created by different apps and also identified challenges to growth.
The study showed that a single app often delivered multiple socioeconomic impacts; sometimes a combination of economic and social development and sometimes different aspects of economic growth or social upliftment. The broader socioeconomic impacts captured by the case studies are summarized below.
- lPotential for increased income. Urbanclap – income for service providers within some categories increased by upto four times
- lAccess to information and reduced asymmetry. Practo – created a fresh database of verified doctors based on specialization and patient feedback
- lImpact on the social perception and self-image of the differently-abled: Inclov – facilitated matchmaking for the differently-abled and transformed physical spaces into accessible areas for the differently-abled
- lJob creation: Inclov – partnered with hotels to create employment for the differently-abled. Direct employment by each of these apps, including PayTM and MMT, involves a team of over 1000 employees each
- lEfficiency in service delivery (one-stop shop for multiple services). MP mobile and Umang – integrated multiple government services under a single platform
- lProviding smaller businesses/individuals a platform to market their product/service. MakeMyTrip (MMT) – Certification program enabled budget hotels to generate business through the MMT platform
- lEncouraging disintermediation and lowering cost to buyers and sellers. farMart – Platform enabled demand–supply match lowered cost of equipment leasing by upto 20 percent.
- lPopularizing use of vernacular languages. Mooshak – changing social perceptions on the use of local languages within a society where the use of English is more fashionable
- lEnabling women's safety. Truecaller – caller identification has helped women manage and block calls from unwanted numbers/people
The case studies also identified potential challenges that might limit the future growth of the app economy. The study categorized these as demand and supply side challenges. On the supply side, most apps were affected by the limited availability of network infrastructure or Internet connectivity in the areas they opt to serve. Moreover, app design needed to allow light versions that operate even in poor networks and on lower cost smartphones. Demand side challenges identified were largely associated with the availability of content in regional languages. With a huge non-English speaking user base, even for e-governance apps such as MP mobile the dominance of English is restricting the use of apps by people in semiurban and rural areas. Data privacy also emerged as a huge concern among app users. App development and app design must address this rising need with caution, especially in case of digital payment apps.
Apps have facilitated the creation of business models, which require regulators to think beyond the comfort of traditional businesses that operate in physical spaces and require physical movement of goods and services. The emergence of digital media, e-pharmacies, etc., falls outside the regulations within which each of these sectors currently operates. Services delivered through many such apps are limited in the absence of clarity on regulations. As apps become core to many businesses, sectoral policies must also align themselves to allow smooth functioning and integration of apps into the economy.
Policy challenges arise in the natural course of innovation and disruption. Apps too have stirred policy debates surrounding regulation of over-the-top (OTT) services, which broadly refer to services that are delivered using existing Internet infrastructure and connectivity provided by a third party. However, this study suggests that in a rapidly changing industry such as the app economy, rather than stringent regulation through rule-making and adjudication, informal tools or agency threats are particularly useful. Under conditions of uncertainty, making long-lasting laws that are likely to be designed without being able to anticipate the future evolution of the sector could subsequently stifle innovation. Under such conditions more informal tools of regulation may better serve the needs of the growing economy.
The debates surrounding policies for OTTs and apps are far from settled. However, it may be considered that in the case of new-generation internet-based application services that have a significant socioeconomic impact, it would be ill advised to pass strict rules applying across the sector. Careful and planned approaches to soft law can be attempted and later developed into more firm rules as the sector matures. Regulation, globally, is evolving to strike the right balance between protecting consumer/business interests and encouraging the ecosystem to innovate further. India needs to chart its own course from a policy/regulation perspective considering the significant higher impact on its economy. It needs to resist the temptation to follow global precedence or come up with defining laws without its active stakeholder discussion.
Inarguably, the stupendous growth of the app economy in India and globally represents a significant discontinuous change in human socioeconomic evolution. The above study not only establishes the economic impact of the sector, it also explores the myriad pathways through which the app economy generates positive socioeconomic value for citizens. Further, the study shows that apps provide an efficient and effective way to reach particular vulnerable segments of society, fill market gaps, and correct specific market failures. Any policy formulation for the sector must thus ensure that above all, it does not stifle the vibrant and innovative forces that drive this disruption.