India has come a long way, from waiting for years to acquire a simple landline phone connection to a mobile phone in every hand. With the growth of mobile network, phone access has grown almost 100-fold in the last 20 years. This increase in the number of mobile phone users has also given a push to internet penetration, which further supports the Digital India initiative.  

 

A digital India is a huge opportunity for the citizens and economy. It can transform lives and livelihoods of many. But this ambitious project is facing some serious problems. Issues like access and cost of network, infrastructure for connectivity, investment and role of regulators and policymakers continue to delay the digital dream.  

 

While some of these challenges have been tackled by experts, users and the industry, for others a combined effort from the industry and government is required.

 

The most obvious and the major challenge is internet access. India has the second largest number of internet users in the world, but these numbers are misleading. There are still roughly one billion people who do not have access to internet. And those who do are predominantly urban, young men. They consume less than 1 GB data per month – a far cry from the mature markets. They access internet in less than 10 out of 22 official Indian languages, as regional language content on internet is sparse. This hardly represents the country’s diverse population. 

 

However, thanks to a competitive market, the number of subscribers and usage of data, which is less than 1 GB per month, is rising steadily. 

Another challenge is the cost of access to networks, the prices of which were high initially. Fortunately, wireless technologies have helped in reducing them. Roughly, 98 percent of users rely on their mobile phones to access internet, and consume about 65 percent of data. Mobile broadband technologies, including 3G and 4G, are available widely but they are yet to reach majority of the users. Other networks like fixed and satellite are being used by barely two percent of the users. This means greater and worrying reliance on a single type of network, i.e., wireless. 

 

Also, given low levels of income in India, the cost of devices and internet services serves as a deterrent for many potential users. Fortunately, prices of both have fallen in recent times. The price of a smartphone, which is needed to access internet, now starts at less than Rs 2,000. But roughly half of Indian phone users still rely on feature phones, which have little or no access to internet. With the entry of Reliance Jio, which is yet to start billing for its services, the tariffs have plummeted (to levels threatening the existing of some companies). It is fair to say though, that markets have delivered visible value.

 

However, markets will take much longer to make internet relevant to those who find little interest in it or lack the awareness, skills or literacy. Much will depend, broadly, on how fast the mix of content creators, providers of e-governance, banking and other services and social media applications can engage the unconnected users. 

 

As India prepares to meet the burgeoning demand for bandwidth, a key concern which it faces is infrastructure for connectivity. Take rural areas, for example, which do not have reliable coverage. Many urban areas also lack access to sufficient bandwidth. 

 

 

Moreover, India’s telecom networks offer slower speeds than those in developed countries. There are several options to correct this. Networks can be created or augmented using traditional copper-based fixed lines, wireless (2G, 3G, 4G, etc.), optical fibre, satellite, etc. However, they require setting up physical infrastructure irrespective of whether it is underground cable and fibre or mobile tower and satellite equipment. Creating or augmenting such connectivity is often expensive and time consuming. Investments for these networks will certainly have to come from the private sector.

 

The government, which was the lone player in this space till the mid-90s, is not the largest anymore. Indeed, its key argument for allowing the private sector was that it lacked resources to meet the demand (which is exponentially higher now). Not surprisingly, the government-controlled companies, Bharat Sanchar Nigam Limited and Mahanagar Telecom Nigam Limited, continue to struggle as private players have snatched their market share. Whatever our views on the private vs public players in infrastructure are, the dominance of private players will likely continue.

 

But this dependence on private investment has important implications for digital infrastructure. Unlike the government, which would typically factor in social objectives too, private players prioritise commercial viability of their services. The rollout of Digital India thus gets inextricably linked with business models of private players. This is good news for areas with high demand and high incomes, which attract commercial players more readily. However, as we have already seen, regions that are rural, remote or where the population is predominantly poor, attract less private investment. 

 

So, a sector that is unattractive to investors poses a risk to the success of Digital India. This is arguably true for India’s digital infrastructure than for other infrastructure segments, like roads, railways, water and electricity, where the state is a far more significant player and investor. The government-funded BharatNet project, which aims to connect all gram panchayats (roughly 2,50,000) using optical fibre, would seem an exception. However, the funding for the project comes largely from the mandatory contributions that licensed telecom operators have to pay from their revenues. So, the financial health and profitability of India’s telecom business is central to Digital India and are a precondition for ensuring that its benefits extend across India, and not simply to areas that present ready business to investors.

 

The role of regulators and policymakers is then easy to understand. They must work to remove barriers or disincentives that face those investing in networks and services, especially in areas that are unattractive to investors. They must do so not to protect private players from the rigours of the market by limiting competition or facilitating super profits. They need to incentivise development of markets where they are weak and change rules and procedures that deter investors and innovators or distort competitive markets.

 

There are several examples of regulatory barriers thwarting Digital India. A case in point is India’s licensing regime, which imposes huge regulatory burden on telecom companies – the main investors in the digital infrastructure. Levies on players, in the form of licence fees and spectrum usage charges, run into several thousand crore rupees. They are virtually non-existent in mature markets. 

 

Then there are the huge costs of spectrum obtained through auctions and many other levies common to other businesses. It is estimated that companies pay roughly 29 percent of their revenues in form of taxes and levies. Few will dispute that the high costs substantially reduce the funds needed for the infrastructure. 

The huge regulatory costs hurt in another important way. The operators paying them demand – with some justification – that they be imposed on those who offer services like theirs. They demand, for instance, that providers of so-called OTT (over the top) services, such as WhatsApp or Skype, be required to pay all levies imposed on telecom companies that offer messaging or telephony services. They have appealed to the government to insist on ‘same-service, same rule’. The licensing regime thus poses a unique but contrived challenge: either impose a substantial regulatory cost on widely popular services that are unregulated and unbilled in most countries, including India, till now. Or, continue an anomaly that treats similar services differently, hurts investor confidence and risks litigation. This bodes ill as India seeks to expand the footprint of Digital India.

 

The anomalies of the licensing regime need to go, if Digital India is to realise its potential that Indian citizens deserve. This will mean equalising regulatory barriers, including levies on all comparable services, and not by imposing them on hitherto unlicensed services but by removing them from all that have them. The increased productivity will make some of the lost revenues. Others can be recovered, if necessary, through increased productivity by taxing digital businesses in a manner consistent with regulatory best practices.

 

This will not just be fair but also unleash greater innovation and competition and benefit consumers across the board. 

Safety and privacy are areas where the government and regulators will be expected to provide workable solutions to protect consumers. However, the challenge would be to do so without hurting consumer value. Digital technologies and competitive markets hold much promise for key areas including health, education and governance. 

 

These are precisely the areas which Digital India would most want to prioritise.