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View: Time to “Florey” the Digital Infrastructure for accelerated growth

2021-03-24 14:55:44

By JS Deepak, ET CONTRIBUTORS | Last Updated: Mar 23, 2021, 09:09 AM IST



India started on the long, difficult but exciting path of providing digital connectivity with several optical fibre projects for BSNL and defence networks



JS Deepak (ex-telecom secretory), Member - Advisory Board, STL


In 1928, Alexander Fleming discovered Penicillin, arguably the world’s first antibiotic, after he noticed that a mold called Penicillium notatum prevented the normal growth of staphylococci, a pathogenic bacteria. While Fleming had discovered penicillin, he did not possess the expertise to make it usable. Ten years later, Howard Florey, an Australian professor, took the gigantic step to use it as a drug. In March 1942, penicillin went on to save the first life, and since then has contributed to preventing over 200 million death!


Digital Infrastructure is India’s “Penicillin” that needs a “Florey”


India started on the long, difficult but exciting path of providing digital connectivity with several optical fibre projects for BSNL and defence networks. However, Bharatnet signaled the first major step in bringing broadband to the masses by taking optical fibre to gram panchayats to provide high-speed connectivity to more than 70% of remaining homes and make it available to them, government to citizen services as well as the benefits of education, telemedicine, and e-commerce. But here success has eluded us and the country needs a trigger to cross this chasm and remove the shadow between the vision of Digital India and its achievement. What can be the Florey moment for India's digital infrastructure? 


It would be useful to look at the international experience and global best practices in this area, especially of those that have been able to provide ubiquitous connectivity and universal services to their citizens. It is estimated that the digital economy is worth US$ 11.5 trillion globally, equivalent to 15.5% of the world’s GDP. Moreover, over the last 15 years, it has grown two and a half times the rate of growth of global GDP! Most large economies, especially those in the range of GDP of US$2.5 trillion-plus, including the UK, Germany, Japan and the US spend about 1 to 1.5%of their GDP on digital infrastructure. This translates to an expenditure of more than US$35 billion annually for the UK and France, about US$ 60 billion for Japan and whopping US$160 billion for the USA. Again, Australia and China also spend about US$45 percapita per year on digital infrastructure.


India, on the other hand, spent about US$ 13 billion annually on telecoms of which only about US$ 2 billion is spent by the government. The total telecom investment translates to about half a percentage of its GDP and a tiny US$ 2 per capita per year. The percentage of government contribution to telecom investment in most large economies that match India for sizes like the UK, Germany, Japan and the US is of the order of 50%.


While it is true that the Indian telecom sector has grown largely through private sector enterprise and investment, supported many a time by forward-looking government regulation, the same model appears difficult to sustain. With the huge investments that are required to realize the vision of Digital India, Bharatnet, and Ghar tak fibre, the government will have a much larger role to play. A deep dive into the requirement of Capex for digital infrastructure in India, benchmarking it with the digital infrastructure programs of the top 5 economies, suggests that India would have to spend anywhere around US$ 35 billion annually to arrive at parity with them.


The impact of the Covid pandemic on government revenues and even more significantly the deterioration in the health of the telecom industry makes this enormously challenging. The sectoral revenues have plummeted from Rs 279,591 crores in 2016-17 to Rs 2,43,705 crores in 2019-20. More recently it has seen a shift from net profit in Q3 FY 19 to a net loss in Q3 FY 20. The increase in gross fixed assets in the telecom sector has also slipped to negative in H1 FY 20 from a growth of 35.7% in H1 FY19 due to a volatile environment. Further, private sector investment in infrastructure has remained weak and the share of private investment in the overall infrastructure sector has fallen from 37% in FY08 to 25% in FY18. Thus if the private telecom companies, which continue to be by far the biggest providers of broadband through their mobile networks, can make investments to maintain and expand their networks to unserved rural areas and begin upgrading them to 5G in metros, it will be a big achievement. 

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