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Last Updated : Sep 04, 2019 04:34 PM IST | Source: Mint

How economic slowdown is affecting India’s internet market

According to data from the Telecom Regulatory Authority of India (TRAI), between 2014 and 2018, the number of wireless subscribers doubled to 568 million even as data usage rose a whopping 56-times to 46.4 billion GB over the same period.


From biscuits to cars, India’s economic slowdown has already hit many sectors.

Is the slowdown spreading to the lone bright spot: the internet economy?

Rising smartphone penetration and the growth of Reliance Jio, which slashed data prices and disrupted the sector over the past few years, led to a phenomenal surge in India’s internet economy over the past few years. According to data from the Telecom Regulatory Authority of India (TRAI), between 2014 and 2018, the number of wireless subscribers doubled to 568 million even as data usage rose a whopping 56-times to 46.4 billion GB over the same period.

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This growth has created a large, lucrative internet economy which has seen internet-based firms become a major magnet for capital investments. For instance, in 2018, the e-commerce and internet consumer sector raised $7 billion through private equity and venture funding, according to data from Ernst and Young. Buoyed by such growth, India’s IT ministry estimated last year that India could create up to $1 trillion in economic value through the internet economy.

Yet more recent data and developments point to a plateauing of the internet economy and suggest that the ministry’s projection could be hard to meet.

Growth in broadband subscriptions (accounting for 88 percent of overall internet subscriptions) grew 84.6 percent in March 2017 over the year-ago period but has more than halved since then. Even the fund flow into internet companies seem to be drying up. Last month, Alibaba, a major Chinese investor in Indian web-based start-ups such as Paytm and Zomato, announced that it would be pausing all new investments into Indian firms. Digital transactions, which form the backbone of the internet economy, are also showing signs of saturation. According to data from RBI, growth in digital payments has slid over the last few months and is a long way off from growth levels in 2015.

Growth in broadband subscriptions has more than halved from 84.6 percent in March 2017

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Digital transaction growth is yet to recover to 2015 levels

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The slowdown in consumption demand is also likely to have taken a toll on the sector.

Yet, the drying up of investments in the sector may have as much to do with the flawed business models of some of the internet-driven start-ups as with the expectations of growth.

It is worth noting that India’s high growth rates on measures of internet access in recent years are partly a reflection of its low base. Globally, India still lags behind major economies in terms of internet penetration. Data from the International Telecommunications Union, the United Nations telecom agency, shows that internet penetration in India is the second-lowest among the G-20 economies with only 34 percent of Indians using the internet in 2017.

Internet penetration in India is one of the lowest amongst G20 economies

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One reason for the low internet penetration is India’s digital divide. Much of rural India is unconnected to the internet. According to the latest TRAI data, in rural India, internet subscribers account for just 25 percent of the rural population (and one person may have more than one internet connection) compared to a subscriber-to-population ratio of 98 percent in urban areas.

Another reason for the low internet penetration lies in the relatively low penetration of smartphones in India. Despite the surge in smartphone penetration in recent years, most of India still does not use a smartphone, according to TRAI.

With a large number of Indians still lacking internet access and basic smartphones, the internet economy’s potential remains large. However, the pace of growth is likely to be less frenetic than earlier. This is not simply because of the base effect or because of the wider slowdown in the economy but also because tariffs may have hit the bottom already.

In the race for market share, triggered by Reliance Jio’s predatory pricing, telecom operators had slashed data costs, making mobile data in India among the cheapest in the world. If in 2014 a customer paid Rs 269 on average for 1GB wireless data, by 2019 this has come down to Rs 8. Analysts believe that this business model is not sustainable for telecom firms and expect data costs to rise eventually.

Data costs have fallen dramaticallytechnology,economy,india,internet but are expected to rise soon

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This may mean greater sustainability for the telecom operators but as data costs increase, growth in internet access is likely to be lower than earlier. After the internet economy’s heady growth over the past few years, lower but steadier growth may be the new normal.



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First Published on Sep 4, 2019 10:51 am
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