The number of phones in India, as late as 2000, was 28.5 million, mostly fixed-line phones (less than 1.88 million mobile phones). By the time 2008 ended, it had risen to 385 million, with fixed-line phones making for a shade less than 38 million units or 10%—making India the second-ranked market by phone users in the world, expanding at a pace that was the fastest.
Analysts say there were three main reasons for this: a regulatory decision that made incoming calls free, entry of more operators and the affordable combine of inexpensive mobile phone handsets and low-priced phone calls.
Phones costing less than Rs1,000, especially used and refurbished handsets, and effective perminute tariffs of less than Re1 were tailor-made for India. “The high prices of handsets was one of the main barriers for the evolution of...the telecom market in the country,” says Varadrajan Sridhar, professor of information management at Management Development Institute, a business school in Gurgaon, on New Delhi’s outskirts. Indeed, mobile phone calls in India, at an average 65 paise a minute, are today the lowest in the world.
New Delhi-based think tank Indian Council for Research on International Economic Relations, or Icrier, in a January report said the impact of mobile phones on economic growth is amplified by “network effects” beyond a penetration of 25%. Every 10% increase in the mobile phone penetration rate resulted in an increase in growth rate by 1.2 percentage points, wrote authors Rajat Kathuria, an Icrier professor, Mahesh Uppal, director of Com First (India) Pvt. Ltd, and Icrier researcher Mamta, who uses only one name. “If Bihar were to enjoy the same mobile penetration rate as Punjab then, according to our results, it would enjoy a growth rate that is about 4% higher.”
As mobile phone networks expand into rural areas and competitive pressures mount (there are at least three phone firms waiting to expand nationwide), say experts, this virtuous effect is only likely to expand in scale and depth.
Re1 air ticket
Until 2003, a dozen years after India initiated economic reforms that triggered record income expansion, a plane trip from New Delhi to Kochi cost at least Rs20,000, which was more expensive than an air ticket to Singapore. The trip to the coastal Indian city was under four hours away, less than half the time taken to reach Singapore.
That changed with the passing of the summer of 2003. A former army captain, who tried his hand at farming, silkworm rearing and helicopter charters before, had the previous year flown Ryan Air, a so-called low-cost carrier, in Europe and wanted to replicate the model in India.
G.R. Gopinath launched Air Deccan in August 2003 with a flight between Bangalore and Hubli. “The Indian middle class was increasing but they were still not taking vacations. (For them) vacation was going to parents’ house,” Gopinath told Mint last week, adding that the only way people could have shifted to a new product was if he flew them safely, on time, and in clean aircraft with the assurance that they will not lose their baggage in transit.
His trick to make that happen was the Re1 ticket. “People who were not looking at air travel at all said—oh, let’s see it. That’s how you change a habit. That’s what the Re1 fare did—shift passengers,” he said.