The Debate

India’s Internet Boom at Risk?

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The Debate

India’s Internet Boom at Risk?

India’s Internet economy has been growing fast. But corruption could undermine its future prospects.

India’s overall economic growth may be sputtering, but the rate of growth for the so-called Internet economy is soaring, according to a new report from Boston Consulting Group.

By 2016, there will be 3 billion Internet users globally, says the report, which forms part of the group’s “The Connected World” series says. “The Internet economy will reach $4.2 trillion in the G-20 economies. If it were a national economy, the Internet economy would rank in the world’s top five, behind only the U.S., China, Japan, and India, and ahead of Germany.”

And India is demonstrating particularly fast growth, outpacing all but one of its G-20 peers with a rate of 23 percent, just behind Argentina at 24.3 percent, but well ahead of Russia (18.3 percent) and Mexico (15.6 percent). As a result, India is expected to see its internet economy grow from about $64 billion in 2010, to $215 billion by 2016.

Such growth has prompted international investors to pour money into the country’s e-economy. As the Times of India noted at the end of last year, “Marquee venture capital and private equity investors made aggressive investments in start-ups – most of which are less than 5 years-old – as they backed the story of rising disposable income and Internet penetration.”

“These investors have already ploughed more than $900 million between January and November, while deals worth another $250 million could be clinched by December-end, said an Avendus Capital report titled ‘India Goes Digital.’ The boutique investment bank, with work expertise in internet and technology, said the domestic e-commerce market would quadruple to $24 billion by 2015.”

The internet hunger is apparently mirrored among the population as a whole. The Times of India reported that the Internet has become such an integral part of daily life for Indians that two thirds surveyed claimed they would forgo showering for a year to keep Internet access, while about two thirds said they would forgo chocolate and 70 percent apparently said they would give up alcohol.

The key hurdle to maintaining foreign interest in investing India, though, is likely to remain corruption. According to Transparency International’s most recent corruption perception index, India finished 95th in the world in terms of public sector transparency.

And confidence in India’s economy won’t be bolstered by news such as that reported in the Sunday Times, which claims that personal information including credit card details and medical records of as many as 500,000 Britons may have been sold by Indian call center workers.

According to the results of a sting operation conducted by the paper, personal records are being offered up for sale to criminals and marketing firms “for as little as 2p (3 cents)”.

According to the paper, two “consultants” who claimed to be IT workers at a number of call centers met up with undercover reporters from the paper and said they had 45 sets of personal information.

As Indian Decade contributor Sumit Ganguly has noted in The Diplomat:

 “There’s no denying that corruption in India is a perennial, monolithic phenomenon. Corruption here is all tied to ‘tweaked’ interpretations of the rules of governance and administration…The  current situation in India is a result of what happens when the laws of a land ‘grow so voluminous and vague that they oppress those who live under them, (and) society can become as unlivable as if it were lawless.’”

Such a reality hardly provides an encouraging environment for overseas investment, and risks hamstringing India’s aspirations of greatness. Former Indian President A.P.J. Abdul Kalam has described corruption as “a cancer engulfing India’s political-bureaucratic-judicial system,” and a disease that requires urgent treatment.

He’s absolutely right.