Economy

The economic impact of Internet in India

Read more at timesofindia.indiatimes.com

Internet, one of the phenomenal inventions about 30 years ago has flattened the world according to Thomas Friedman, the renowned author of The World is Flat. In India internet hit the market in 1995.

Computerization of the offices including LAN connections on a large scale has ramped up scale of businesses ubiquitously. Banks, healthcare, IT, agriculture, logistics, State social welfare policies, etc are sectors that have seen huge technological innovations in the last two decades.

Internet contributed 5.6% to India’s GDP in 2015-16, according to a study by ICRIER(Indian Council for Research on International Economic Relations) and Broadband India Forum.

By 2020, this contribution had grown to 16% of which 8% was driven by apps.

The Internet economy contributed up to $537.4 billion to India’s GDP in 2020, of which a minimum of $270.9 billion was contributed by apps. Apps were contributing 70% to the mobile traffic.

A World Bank study finds that every 10% increase in broadband penetration boosts GDP growth by 1.38 % in developing countries. McKinsey & company found that 10% increase in broadband household penetration delivers a boost to a country’s GDP that ranges from .1 – 1.4%. 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.
Globally 10% increase in global internet traffic delivers on average a 1.3% increase in global GDP. An increase of 10% in the global mobile internet traffic would lead to 0.7% increase in global GDP.

Regulation, globally, is evolving to strike the right balance between protecting consumer/business interests and encouraging innovations.
The overall India Internet gross merchandise value (GMV) grew to $65 billion in 2020, and is now creating a large impact on the overall economy with almost 4.6% of total private consumption coming from India Internet, suggests research from consulting firm RedSeer.

India Internet is expected to cross triple digits GMV for the first time in 2021 and eventually become $250 billion scale and 10% of private consumption in 2025.

Among Indian brands, online-first brands gained 30% share of e-commerce which will grow to 45% by 2025.

Direct-to-consumer (D2C) and digitally native brands (DNB) are now driving much of the e-commerce growth in India.
Now let’s see the growing number of internet users in India.

India has 504 million active Internet users in 2020.

Of the total Internet population, 433 million are more than 12-year old, while 71 million are in the age of 5-11 years, who access the Internet on devices of their family members.

Nearly 70% of the active Internet population in India are daily users.

Nine out of 10 users in urban India access Internet at least once a week. In rural India, there is an addition of 30 million new users, who access internet daily compared to March 2019.

With better connectivity, quality of service and affordability of mobile Internet, there could be an increase in rural consumers spending more time on the Internet in the future.

Then let’s see the boom of ecommerce in India.

Despite recovering quickly after the lockdown, Indian online retail growth was nowhere near the pace seen in US and China. 2021 could script a different story.

Ecommerce sales are estimated to have risen by only 7-8% in 2020, compared to almost 20% in China and the United States, whose governments made full use of contactless buying options to prop up the economy even while enforcing shutdowns to battle the Covid-19 outbreak, according to
Forrester Research.

The overall ecommerce industry’s gross sales are estimated at about $33 billion for the calendar year.

The sector saw big upsides from new online shoppers, existing shoppers buying more food and grocery, and mature shoppers moving more of their spending to online platforms.

Online grocery, e-pharmacy and social commerce are the segments that are expected to see a bulk of the action in 2021.

While the entry of Reliance Industries in the online grocery market with Jio Mart has already sparked a rush, consolidation in the e-pharmacy market is also expected to drive competition.

Innovating further Super apps – mobile applications that offer various services within a single app – will pick up in 2021.

For instance, China’s WeChat started off as an instant messaging app, but quickly added payments, ecommerce, food ordering, cab hailing and several other such services to become a super app.

Instant messaging platform WhatsApp, which has enabled payments and also some ecommerce features like a product cart, is starting the journey towards being a credible super app.

Investments in segments such as online grocery and social commerce will maintain their growth in 2021.

Next, let’s discuss the rise of online entrepreneurs in India.

India’s internet start-ups leaders that operate business ranging from food delivery, e-commerce to online insurance are now on the cusp of listing, according to Internet putting their combined value at $ 180 billion by 2025.

The growing scale and maturity of India’s internet economy is starting to create more value and investment opportunities. More than $ 60 billion has been invested in India’s internet start-ups in the past five years, with around $ 12 billion in 2020 alone, according to HSBC Global Research.

It put the total sector value (ex-Fintech) to reach $ 180 billion by 2025.

Many of these leaders, which operate businesses ranging from food delivery, e-commerce to online insurance, are now on the cusp of listing.
Amazon and Flipkart control over 80% of the industry today but the contours of the competitive landscape are still evolving.

For example, Reliance Jio is set to emerge as a significant competitive threat, along with multiple vertical e-commerce players and hundreds of brands that are now delivering direct to consumers.

In India, 48% of retail spending is on grocery, compared to 15% in China and 10% in the US.

Ed-tech is the second-largest opportunity with a market size of $ 48 billion by 2025. Although still quite fragmented, it is one of the most profitable segments and has one of the largest total addressable markets.

The online insurance market remains lucrative, with PolicyBazaar likely to maintain its lead for the foreseeable future.

Meanwhile, ride-sharing faces significant challenges, travel is the most penetrated market and hotels are an untapped opportunity, the report said adding ride sharing has fallen 40% from pre-pandemic levels. Mobile penetration, demographics, consumer awareness and convenience are the key drivers of most internet sub-segments.

To conclude internet has transformed people’s lives for better be it businesses, consumers or the technocrats. It has increased economic growth, productivity, efficiency, scale, accuracy, profits, markets, utility, jobs and reduced time, energy and money spent on things. The future is likely to see advancements in Artificial Intelligence, Machine Learning, Internet of Things, cloud computing, etc and innumerable novel inventions that would further improve human lives.

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Disclaimer

Views expressed above are the author’s own.



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