February 6, 2009

India: The Impact of Mobile Phones

UK-based Vodafone's Public Policy Paper Series, the multinational mobile telecommunications company published a paper detailing the benefits mobile phones have in India. While many of us conceptually understand the role mobile technology has in facilitating economic development in developing and emerging nations, we may not understand specifically how this technology can help farmers in rural areas, small business owners in urban centers, and the poorest of people living in unimaginable conditions who lack the most basic education. I think is worth spending some time investigating the paper's conclusions and developing implementation strategies, which will be done in this and subsequent blog entries.

Rajiv Kumar, Director and Chief Executive of the Indian Council for Research on International Economic Relations (ICRIER), prepared the report's overview explaining, "Indian states with high mobile penetration can be expected to grow faster than those states with lower mobile penetration rates, by 1.2% points a year more on average for every 10% increase in the penetration rate. This is an important result. The paper in this report by Kathuria and Uppal suggests, furthermore, that there are important network effects which magnify the economic impact of mobiles on development when the level of mobile penetration exceeds a critical mass of around 25%."

Mr. Kumar further elaborates, "The extraordinary recent macro-economic performance of the Indian economy has also raised the question of how the benefits of the 8–10% annual GDP growth rate can 'trickle down' to poorer socio-economic groups in the country. In that context, the ICRIER researchers have also looked at three segments of the population – the agriculture sector, the Small and Medium Enterprise (SME) sector and urban slum dwellers. In each case, the research demonstrates that access to telecommunications is an important catalyst to realizing productivity and efficiency improvements and thereby making it possible for the benefits of economic growth to be shared. Mobiles currently provide more than 300 million points of connectivity in India, through which information and opportunity flows. Citizens with access to telecommunications can tap into the benefits of broad economic and social growth much more easily than those who are unconnected."

There are a few additional findings worth mentioning:
  • Teledensity in India lags well behind most other countries at similar stages of development (for example, China, Pakistan and Sri Lanka have achieved significantly superior
    penetration rates of 77%, 60% and 61% respectively).
  • There is enormous variation within India, and many of the less developed states have average penetration rates of well below 20%, including Bihar, UP, Orissa, Madhya Pradesh and Assam.
  • The level of access to the internet remains persistently low across the whole country (at about 5%) and in less-developed states is virtually non-existent – only 0.1% in Bihar and 0.2% in Assam, for example.
According to Mr. Kumar, "Mobile telephony has an important role to play because it provides a means for the exchange of information and learning, but it is only one element in the process of productivity growth. For example, 60% of the working population in India is engaged in agriculture and the barriers to raising agricultural productivity gains go far beyond communications access. Therefore, access to telecommunications needs to be seen as a foundation on which other initiatives can be built. The debate on telecommunications needs to be expanded from a debate only about access, to a broader vision of how individuals can leverage the capabilities of telecommunications to grasp fully the opportunities of economic development."

It is Mr. Kumar's last point that outlines the problem. While it is important to increase mobile phone access, particularly in India's rural areas, it is equally important to capitalize on the technology's capabilities to stimulate economic development, which I will address in future postings. There are so many ways mobile phones can facilitate economic development in the agriculture sector, stimulate growth among small and medium-sized enterprises, and how mobile technology can have a significant impact on populations that possess a high illiteracy rate and often lack a formal education.

Aaron Rose is an advisor to talented entrepreneurs and co-founder of great companies. He also serves as the editor of Solutions for a Sustainable World.

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