Moving the debate forward The Policy Paper Series • Number 9 • January 2009 India: The Impact of Mobile Phones India: The Impact of Mobile Phones Moving the debate forward • The Policy Paper Series • Number 9 • January 2009 b Welcome This study on India is part of the Vodafone Public Policy series launched in 2004. Our aim is to provide a platform for leading experts to write on issues that are important to us at Vodafone and which may help policy makers as they strive to provide a regulatory environment which stimulates growth and economic development. We hope you find this report informative. Vittorio Colao, Chief Executive, Vodafone Group Foreword In this report, we have returned to the important subject of the economic impact of telecommunications on emerging markets by undertaking research looking in detail at India. As in the other reports in the Vodafone Public Policy Series, we have asked leading researchers to conduct the analysis. We are delighted that a team led by Dr. Rajat Kathuria of the Indian Council for Research on International Economic Relations (ICRIER), one of India’s foremost independent research institutes, was able to direct and conduct this work. The opinions expressed in this document are not ours but those of independent experts whose views we respect even if we do not always agree with them. We believe that they have important things to say that should be of interest to anyone concerned with good public policy, and the policies towards economic and social development of India and other emerging markets. Neil Gough, Director, Public Policy-Emerging Markets, Vodafone Group Diane Coyle, OBE, Enlightenment Economics and chair of Vodafone SIM Panel Contents Page Welcome 00 – Vittorio Colao, Chief Executive, Vodafone Group Foreword 00 – Neil Gough and Diane Coyle A policy overview 01 – Dr. Rajiv Kumar An econometric analysis of the impact of mobile 05 – Professor Rajat Kathuria, Dr. Mahesh Uppal and Mamta The impact of mobiles on agricultural productivity 21 – Sanjay Gandhi, Dr. Surabhi Mittal and Gaurav Tripathi A survey of usage of mobile in poor urban areas 34 – Professor Ankur Sarin and Professor Rekha Jain The impact of mobiles in the SME sector 51 – Dr. Mahesh Uppal and Professor Rajat Kathuria This paper can be seen online at www.vodafone.com/publicpolicyseries Published by Vodafone Group Plc Copyright © 2009 Vodafone Group Plc ISBN 978-0-9552578-5-8 Moving the debate forward • The Policy Paper Series • Number 9 • January 2009 India: The Impact of Mobile Phones 1 Director and Chief Executive Dr. Rajiv Kumar ICRIER Rajiv Kumar is the Director and Chief Executive of the Indian Council for Research on International Economic Relations (ICRIER), and a member of the Telecom Regulatory Authority of India since January 2007. A policy overview Amidst the spreading gloom of the economic downturn across the whole country. We have taken advantage of that following the global financial meltdown, the Indian telecom diversity and the availability of state level data to investigate sector provides the proverbial silver lining. The growth in economic impacts within India across states, economic mobile connections has continued at around 10 million sectors and population segments. Furthermore, because even a month and investment prospects remain bullish. It is state level data can mask great differences, we have looked at important at this stage to ensure that investor confidence is specific economic sectors (agriculture and small and medium maintained by further improving the regulatory environment enterprises) and segments of the population (urban slum and ensuring that the policy regime promotes growth. In this dwellers) to extend our understanding. context, I am delighted that a team of eminent researchers led Encouragingly, the econometric analysis reported here by Professor Rajat Kathuria of ICRIER undertook to examine the extends the conclusion that there is a causal relationship social and economic impacts of mobile telephony in India, with within the same country between higher mobile penetration a view to improving the knowledge content for policy-making (mobile subscriptions/population) in a region and higher in this important sector. The project team has analysed what economic growth. Indian states with high mobile penetration we consider to be an extremely important and relevant topic can be expected to grow faster than those states with lower today. This project is a good example of ICRIER’s strategy of mobile penetration rates, by 1.2% points a year more on carrying out research which generates analytical and empirical average for every 10% increase in the penetration rate. results relevant for generating analytical and empirical inputs This is an important result. The paper in this report by pushing forward the reform agenda and for contributing to Kathuria and Uppal suggests, furthermore, that there are policy formulation in the country. important network effects which magnify the economic We believe the analysis and results reported here to be very impact of mobiles on development when the level of mobile important for the Indian economy. There is a growing body penetration exceeds a critical mass of around 25%. This of careful empirical economic research which provides finding underlines the urgency of increasing teledensity across all a compelling picture of the positive impact of mobile states and especially in those numerous areas of India that are telecommunications on economic growth in developing yet to reach this threshold level. economies. During the past few years this research The extraordinary recent macro-economic performance of has built a detailed understanding of the importance the Indian economy has also raised the question of how the of telecommunications infrastructure to economic benefits of the 8–10% annual GDP growth rate can ‘trickle development. The unique contribution of this report, which down’ to poorer socio-economic groups in the country. In that makes it of special interest to policy makers, is that it looks at context, the ICRIER researchers have also looked at three impacts within a single country, potentially delivering much segments of the population – the agriculture sector, the more robust conclusions. Small and Medium Enterprise (SME) sector and urban slum India has more diversity within its borders than any other dwellers. In each case, the research demonstrates that access country – it comprises 1.1 billion people, living and working to telecommunications is an important catalyst to realizing in very different circumstances and geographies. Yet it has productivity and efficiency improvements and thereby a national government and policy environment that sets making it possible for the benefits of economic growth to critical economic policies (including telecommunications) be shared. Mobiles currently provide more than 300 million India: The Impact of Mobile Phones Moving the debate forward • The Policy Paper Series • Number 9 • January 2009 2 points of connectivity in India, through which information and • Teledensity in India lags well behind most other countries opportunity flows. Citizens with access to telecommunications at similar stages of development (for example, China, can tap into the benefits of broad economic and social growth Pakistan and Sri Lanka have achieved significantly superior much more easily than those who are unconnected. penetration rates of 77%, 60% and 61% respectively). This result is all the more important for two reasons, one • There is enormous variation within India, and many of internal and one external. The first is that India is at a stage the less developed states have average penetration rates in its development when there is a large-scale movement of of well below 20%, including Bihar, UP, Orissa, Madhya the population from the countryside to the towns, posing new Pradesh and Assam. challenges for both rural and urban economies. The second is • The level of access to the internet remains persistently that the global economic environment has become harsher, low across the whole country (at about 5%) and in less- and it will be essential to take advantages of all possible developed states is virtually non-existent – only 0.1% in opportunities to sustain growth. Bihar and 0.2% in Assam, for example. Of course, access to mobile telecommunications is certainly In a world where other countries are increasingly not the only thing that matters to economic growth. In this taking advantage of the opportunities being created by regard, the research also highlights the vital importance of telecommunications and other technologies, this is not a complementary skills and other infrastructure. Unless these are in comfortable position for India. India needs to catch up with its place, the full potential of better access to telecommunications major trading competitors such as China, Korea and Indonesia will not be realised. There is no benefit in farmers knowing the if it is truly to join the ranks of emerging economies that have prices that their produce could be sold for in different markets made or are making the transactions to middle income level if the roads are too poor for them to be able to transport the economies. Other countries enjoying higher penetration goods to those other markets. The research in this report on telephony and internet access are driving innovation and the uses and impacts of mobiles in agriculture by Gandhi, more sustainable economic growth. India cannot challenge Mittal and Tripathi show that improving