India’s Internet economy to reach Rs10 trillion by 2018: Report

New Delhi: India’s Internet economy will grow to almost ₹ 10 trillion by 2018, accounting for 5% of the country’s gross domestic product (GDP), according to a report by the Boston Consulting Group (BCG) and Internet and Mobile Association of India (IAMAI).

Internet economy includes e-commerce services and products, advertising, online content, devices, connectivity, as well as private infrastructure and government spend in these areas. India’s Internet economy, which was about ₹ 3.6 trillion in 2013, contributed 3.2% to the GDP, the largest among the developing countries and sixth largest globally, the report said. About half the population, or 580 million Indians, will be online in the next three years, including people from all age groups, women and the rural population.

“The report is based on a survey that was done over the last three years. It included 25,000 consumers and over 100 product categories,” said Alpesh Shah, senior partner and managing director, BCG. “We looked at how consumers are doing information search and purchasing online.”

According to Shah, what stood out was the driver behind the growth of the Internet base. “It wasn’t only the younger demography, but also the older generation migrating to the digital platform,” said Shah. “With growing aspirations, there were more people coming online from rural India as well as more women as compared to before.”

The report said while 60% of all Internet users were under 25 in 2013, by 2018, 54% of the Internet user base will be over 25 years of age.

In the same time frame, 40-50% of net users will be from rural areas. There will be one woman user for every 1.9 men users as opposed to one woman for three men online a year back, the report added.

In December 2014, India’s Internet user base reached 300 million, the third largest in the world behind China and the US, while the number of users of social media and smartphones grew to 100 million.

Rajan Anandan, managing director at Google India Pvt. Ltd and chairman of IAMAI said the last year was very good for the industry—with a new government, explosive growth in the mobile start-ups and rise of the e-commerce companies.

“E-commerce companies’ revenues were in excess of ₹ 25,000 crore at the end of the year,” he said. “Six years back, there was no single billion-dollar Internet company in India; now there are seven of them.” They comprise three public companies, Info Edge (India) Ltd, MakeMyTrip Ltd and Justdial Ltd, and four private companies—Flipkart, Snapdeal.com, Paytm.com and InMobi.com.

“There are only three countries, which have more than five Internet companies with billion dollar valuation, India being the third one behind the US and China,” Anandan added.

The e-commerce industry is projected to grow to $75 billion by 2018 from $17 billion in 2013, devices to $25 billion from $12 billion and connectivity to $12 billion from $5.6 billion. Private infrastructure that includes telecom and corporate devices is set to grow to $36.7 billion from $22 billion in 2013.

Government spending in the area is set to rise to $3.4 billion from $1.4 billion in the same time frame, the report said.

The country also saw a 10-fold increase in the venture funding that went into Internet companies in 2014 as compared to 2013. More than 800 Internet start-ups got funding in 2014 as compared to 200 in 2012, said Google’s Anandan.

The industry is looking at three main areas this year, according to Anandan. First is building Indian language or vernacular Internet; second, accelerating the mobile app ecosystem; and third, making sure the Internet continues to be free and neutral.

At present, though there are three million software engineers in the country, Google’s Play store features only one Indian mobile app among top 100 apps.

Union telecom minister Ravi Shankar Prasad, who released the report, said the government is in the process of finalizing guidelines to incentivise the establishment of business process outsourcing (BPO) firms in mofussil towns.