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The anniversary of the signing of the first International Telegraph Convention and the creation of the International Telecommunication Union (ITU) was celebrated on 17 May as World Telecommunication and Information Society Day (WTISD). The theme this year was “ICT entrepreneurship for social impact".

As has been pointed out by Houlin Zhao, secretary general of ITU, ICT entrepreneurs and start-ups have a particularly relevant role in ensuring economic growth in a sustainable and inclusive manner. They are involved in the development of innovative ICT-enabled solutions with a unique potential to make a long-lasting impact in global, regional and national economies and as an important source of new jobs, especially for the youth, in our knowledge economy.

This is the first time that we have seen entrepreneurs and the start-up ecosystem in India are focussed on the domestic market for consumption of IT and IT-enabled services. Spanning categories such as retail, healthcare, education, transport, finance and hospitality, start-ups aided by feature-rich smartphones, high-speed mobile broadband networks, cloud technologies, Big Data collection and analytics are touching Indian citizens as never before. Though one might dismiss them as mere duplicates of Silicon Valley start-ups with over-emphasis on non-disruptive technologies, catering mainly to the elite in urban areas, the benefits they bring to the economy and society cannot be ignored.

These ICT start-ups have enabled spill and cross-over effects in the traditional economies as well. For example, the e-tail sector has propelled the logistics and transport sector giving employment to more than 100,000 bikers, double that of last year. Their average compensation is around 25,000, increasing the disposable income and economic welfare of this young population. Cab aggregators have increased the demand for cars by 50-75% purchased by taxi owners. Small corner stores have become part of start-up ecosystems selling merchandise to distant markets.

Apart from these effects, start-ups in select sectors have increased the utilization of critical resources. For example, education technology firms have enabled working professionals to engage in teaching kids, sharing their knowledge and experience during free time; and financial technology firms have enabled peer-to-peer lending, thus reducing brokerage fees and flow of surplus money for those who are in need.

India and other developing countries are very different from advanced economies on the following: (i) presence of information asymmetry (ii) high search costs and (iii) ubiquitous intermediaries. Using ICT, start-ups reduce all three factors, resulting in improved economic and social outcomes.

So far so good. How do we take this energy to the next level?

First is the mindless spending of venture capital (VC) fund to scale up and improve the topline. While for most start-ups, scaling up is required to leverage economies of scale, it cannot be at the expense of unsustainable business models. With VCs becoming cautious, and the funds drying up, the start-ups should not lose momentum and instead try to leverage technology for sustainable business outcomes.

Second is the shift in focus required from the smartphone-savvy urban clientele to other geographies and demographics. India, unlike the developed economies, needs the energy of these start-ups to better the lives of semi-urban and rural populace for their economic and social well-being, especially in the areas of finance, education and healthcare. Though the value accrued to the firm per individual in these markets can be low, the numbers are large enough to generate huge network effects.

Third is the enabling environment for start-ups. Though 19 exciting plans were revealed on the “Start up India, Stand up India" programme earlier this year, a carefully crafted regulatory framework for ICT-enabled services is the need of the hour. Force fitting extant regulation to new-age products and services will not only be detrimental to adoption, but also force our committed younger generation to seek greener pastures outside the country, as has been the case until recently.

Regulatory arbitrages that these start-ups have enjoyed thus far are diminishing as indicated by new guidelines that are being put in place by various regulatory bodies. Instead of portraying themselves as technology-only companies, they should work with government agencies to formulate guidelines and policies that do not thwart the massive economic and social benefits that seem to be accruing, but at the same time reduce levels of undue arbitrage.

Let us leverage the momentum that we have gained thus far and take it to greater heights in the years to come.

V. Sridhar is a professor at IIIT-Bangalore.

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