As a proportion of per capita income, data on Indian mobile networks has gone from being the most expensive globally two years ago to being the cheapest, having fallen 95 per cent. Such steep price declines affect habits and behaviour. We at Credit Suisse embarked on a study to understand the economic implications of this change.
Understandably, during this period there has been a dramatic surge in data consumption, with per capita monthly usage rising eight-fold to nearly six and a half gigabytes. Indian mobile networks now claim that they carry more data than several global telecommunication companies combined. While some pride is justifiable for these firms, per capita data usage in India is still a small fraction of what it is in developed markets, and may remain so for the foreseeable future. This is because most data consumption globally is through fixed line networks, where India has made very little progress: In many countries, per capita mobile data consumption is less than half of India’s, but total data consumed is fifteen times as much.
Instead, the exciting change is in the number of people who can now use mobile broadband without worrying about how much data they are consuming. We estimate that by 2020 there will be 550 million Indians with data/video-capable phones, from just 200 million at the end of 2016. Each such user is a consumer as well as a worker — let us look at both the facets.
Five years ago, we wrote about the “Silent Transformation” of India, on how the spread of rural roads, electricity and phones was driving never-before-seen changes to productivity. During a discussion on this report with the board of a large consumer goods company, the CEO asked “Exciting changes, but how do we build our brands with the families benefiting from these changes? They don’t watch TV!”
That is indeed a significant constraint. India’s TV penetration has improved significantly in the last decade or so, but a third of the households still do not have access. For the ones that do, 95 per cent have only one TV (as against the US average of three screens per household), and minutes of TV viewing per capita in India are among the lowest in the world.
Cheap video-capable phones help: If each user watches one to two hours of video on the phone, it adds 550 million to 1.1 billion screen hours per day to the 1 billion screen hours of capacity currently available through televisions. We estimate that the share of rural consumption that can be targeted by video advertising may jump from just 27 per cent to over 95 per cent. Not only does the reach widen, but smaller advertisers can reach more niche audiences too: One can run an advertising campaign targeting only a few thousand users now, instead of relying on mass media advertising that has very large ticket-sizes for advertising spots. The cost of advertising should fall as well — the surge in volumes on some of the internet platforms has brought down the cost per impression by three-fourths in the last two years. Thus, branding reach broadens, sharpens and also becomes cheaper.
Illustration: Binay Sinha
A far more significant impact is likely to come from the share of India’s workforce that is connected, rising from 33 per cent in 2016 to 96 per cent in 2020. Of the myriad ways in which this helps productivity, let us discuss three.
The first is a significant improvement in worker utilisation. While friction in job markets (inefficiencies in matching a job opening to a worker) is a universal challenge, in India the problem is amplified by tens of millions of workers doing multiple jobs every year. Workforce size and the unemployment rate depend on the question asked: Whether there was work in the previous six months (unemployment ratio 2.2 per cent; 474 million workers); or if there was work in the previous week (5.6 per cent; 416 million). Social media, on which Indians collectively spent 71 billion hours last year, may be a drag on productivity for some (including this author), but can significantly increase the number of days worked in a year for many by expanding the network of trust. The Nobel laureate Daniel Kahneman writes of a study that showed how repetitive exposure builds trust: Social media plays this role, improving the functioning of informal employment networks.
The second is on supply chain efficiencies: India’s inventory-to-GDP ratio is the highest in the world. That is, to generate the same amount of income, there is a lot more of capital stuck in idle inventories than is necessary. The fragmented nature of India’s retail chain and the surfeit of small manufacturers compound the problems of an inefficient transportation infrastructure. Connected supply chains can improve planning, and can release capital that can be reinvested for growth. Further, in sectors like packaged food that have short shelf-lives, data connectivity is critical for business feasibility. The reason every locality in India has a bakery, but there are no national chains, is that in fast expiring products like cream rolls, the supply chain information could only travel efficiently in a radius of a few kilometres.
The third and the largest impact would be through services networks that bring down fixed costs by improving utilisation. If a car costing Rs 7,00,000 runs 50,000 kilometres in say 7 years (at 20 kilometres a day), just the capital cost is fourteen rupees a kilometre. However, if a taxi driver in a second hand car purchased for Rs 3,00,000 drives 1,50,000 kilometres, the capital cost falls to two rupees a kilometre, improving affordability. If taxi drivers and users are connected, this helps create jobs, and also provides more affordable transportation. This same mechanism applies to hotels, as well as skilled professionals such as beauticians, electricians and plumbers, among others.
These are early days, and human ingenuity and Indian entrepreneurism can significantly amplify the positive impact. But we estimate just these three mechanisms can add nearly 5 per cent to GDP: If these play out over three years, that means 1.5 per cent a year addition to GDP growth; 1.2 per cent a year if over four years. The government and the private sector have invested nearly 2 per cent of GDP in telecom infrastructure in the last four years. Even if the decline in data prices has been painful for the telecom industry, the benefits to the economy seem significant.
The writer is India Equity Strategist for Credit Suisse