India: The Impact of Internet

Internet/broadband services are not only a key driver of economic growth and competitiveness of nations (OECD, 2008) but also serve as a pillar of development infrastructure. Recent research by the World Bank finds that for every 10 percentage point increase in the penetration of broadband services, developing countries achieved an increase in 19 economic growth of 1.3 percentage points. Cross-country evidence suggests that the growth dividend of internet and broadband is greater than that of plain telephony. This study is the first attempt to capture the growth dividend due to internet across Indian states. An econometric model has been used to estimate the growth dividend due to the Internet. A major finding of the report is that a 1.08 per cent increase in state-level GDP is achieved for every 10 per cent increase in the number of Internet subscribers in India. Although this estimate is lower than that due to mobile telephony, it is assuredly conservative since Internet penetration has occurred to depths far below the critical mass, beyond which network effects should become more pronounced. In addition, the report also presents the micro level impact through 17 case studies across 7 impact areas, viz. agriculture, health, education/training and employment, e-commerce/bpos, financial inclusion, and community development. These case studies attempt to trace the pathways through which access to Internet and broadband results in efficiency and productivity gains that eventually translate into growth at the macroeconomic level. Policy recommendations are provided separately for the demand and supply sides and aim to catalyse development of an entire ecosystem to stimulate usage of broadband services. This includes regulatory intervention on the supply side to boost infrastructure and on the demand side to promote adoption.