Can mobile apps boost the Indian economy and its GDP?

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When the Indian app ecosystem took off in 2007, nobody expected it to become such a big revenue generator. But with apps currently contributing 5.6 per cent of India’s GDP, is it time this segment of the IT space got more attention?

India’s mobile and technology market is booming. In a statement issued jointly on March 28, 2018, by the India Cellular and Electronics Association (ICEA) and India’s minister for electronics and IT, Ravi Shankar Prasad, it was confirmed that, “India has now emerged as the second largest producer of mobile handsets, by volume.”

Currently, the nation boasts of over a billion mobile subscribers, and around three-quarters of the population has access to this device. The mobile phone is playing a pivotal role in the lives of people and is helping India in playing an important role in the global economy. In several developing countries like India, people possess a mobile phone before they get a bank account, or access electricity and clean water. Smartphones, coupled with cheaper Internet, have provided Indians with basic access to education, health related information, entertainment, online banking services and e-transactions. This has established India as a ‘mobile first’ economy. The tremendous growth in the number of mobile phone shipments and in the manufacturing of related hardware has strengthened India’s trade and financial position. Along with all this, it must be noted that mobile apps are now playing a big role in the economy.

The growth of the app economy is nothing short of extraordinary in India. App Annie recently ranked India as the fourth largest app economy in the world. “With over 94 per cent of the subscribers connecting to the Internet on their cellular device, it is no surprise that India is leading the global phablet revolution. Internet and Internet based applications have dramatically transformed the architecture of economic activity,” says T.V. Ramachandran, president, Broadband India Forum.

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A recent survey report from the Indian Council for Research on International Economic Relations (ICRIER) reveals that there was a 17 per cent increase in the total Internet traffic in India in 2015-16, which contributed to an increase of ₹ 7 trillion in GDP, of which at least ₹ 1.4 trillion was due to Internet based apps. This amounts to a contribution of 5.6 per cent of India’s GDP in 2015-16. It is speculated that the Internet’s contribution will escalate to 16 per cent of the country’s GDP by 2020, of which apps will contribute about half. Last year, a collaborative study by Broadband India Forum and ICRIER pointed out that a single app often delivers multiple socio-economic benefits—sometimes a combination of economic and social development, and sometimes different aspects of economic growth or social upliftment.

“The fundamentals of the economy are currently shifting and we are witnessing the transition at the moment. Apps play a very important role in this transition. We may not be creating new jobs, but a lot is being driven by apps. For instance, look at the growth in the logistics business due to app-commerce, driven by Amazon and Flipkart. At the same time, look at how aggregator services ranging from Ola and Uber to Swiggy, Zomato and Dunzo have resulted in so many jobs for owners of cars and bikes,” remarks Faisal Kawoosa, founder and chief analyst, techARC.

—Faisal Kawoosa,
founder and chief analyst, techARC
What experts say
“OTT (over the top) content and similar apps are contributing to exponential data growth, which is helping broadband grow. Broadband is going to be a fundamental driver of future economies. Apps are increasingly becoming the default interface for citizens with any company or service, including government services. Every business activity is being driven either through or over an app. In fact, the erstwhile OTT content-delivery model has got replaced by OTA (over the app). For some years, apps may not increase the size of the economy, but they are definitely enabling a decline in service delivery costs, which is improving the bottomline of businesses. After five years, we may see apps significantly contributing to the GDP and, hence, our economy. We might also have to revisit how we measure GDP, etc, taking cognizance of such developments.”
—Faisal Kawoosa, founder and chief analyst, techARC

—Hanish Bhatia, senior analyst,
devices and ecosystem, Counterpoint Research
“India has become a mobile-first economy. It has also become a breeding ground for fintech innovation. Payment apps and various payment tools and services have enabled quick, easy and accountable financial transactions. It has provided the unbanked population with tools to conduct financial transactions and enjoy basic banking services. This is very important for a country like India. The government has launched various app-based outreach programmes aimed at delivering other social, financial and civic services. At the same time, this market still has immense growth potential considering India has a base of just 430 million smartphone users compared to a population of over 1.3 billion people. This is primarily because feature phones are still relevant in India. Over the coming years, these feature phone users are expected to upgrade to smartphones, increasing the overall pool of digitally connected consumers who will download more apps.”
—Hanish Bhatia, senior analyst,
devices and ecosystem, Counterpoint Research


Origins of the Indian app economy: A huge revolution

The beginning of a bustling app economy dates back to 2007 when the Cupertino tech giant, Apple, introduced its first iPhone globally, following which it set up its App Store in 2008. Experts claim that since 2008, the usage of apps has started growing on a massive scale. Mobile researchers and App Annie analysts discovered a year back that downloads of apps have escalated to 194 billion in 2018, up from 178 billion in 2017, globally. Both the Apple App Store and Google Play store dominate the app economy. But App Store was the world’s first successful app market, which also successfully distributed digital platforms.

In those early days, in order to access apps and additional VASs (value added services), users were forced by the telecom operators to interface with their networks, as these services were available exclusively on the operators’ networks. These telecom operators were like watchdogs, and were paid large amounts by content providers for featuring their applications on the operators’ platforms.

Competition, triggered by technological advances such as the development of Wi-FI enabled smartphones and the emergence of special online stores, allowed content developers to bypass an operator’s network. This weakened the latter’s grip on the app ecosystem. These developments encouraged the shift from a telecom operator controlled network to Wi-Fi as a means of content delivery. This marked the inflexion point for the app revolution. For its part, Apple permitted any developer in the public domain to design apps for the App Store and offered a flat 70 per cent of the total revenue to developers. By contrast, telecom operators had adopted a 30:70 revenue share model, in their favour.

Eight years back, Vodafone offered higher revenue shares to developers to popularise apps. Content thus became more easily discoverable, and the App Store represented a one-stop shop which interfaced between many developers and buyers. The model of having a single platform to disseminate and facilitate the payment for apps has been so successful that Apple’s competitors, which include Google, Nokia, Research in Motion and Microsoft, launched their own app stores. Other aggregators such as Vserv provide app developers with fresh avenues for monetisation.

According to ICRIER, the major contributions of apps in India in the past few years are as follows:

  • Potential for increased income: UrbanClap is an example of how income for service providers within some categories increased by four times.
  • Impact on social perceptions and the self-image of differently abled: Inclov facilitated matchmaking for the handicapped, and transformed physical spaces into accessible areas for the differently abled.
  • Job creation: Inclov also partnered with hotels to create employment for the differently abled; this resulted in direct employment by app creators like MakeMyTrip and PayTM, which work with a team of 1000 employees each.
  • Lowering transaction costs for buyers and sellers: The farMart platform for renting farm equipment matches demand with supply, which has helped to lower the rent of such equipment by up to 20 per cent.
  • Enabling women’s safety: Truecaller is a caller identification app that has helped women manage and block calls from unwanted people.

The growth of apps in India
Even during the first quarter of 2018, ET reported that India had turned into one of the world’s fastest growing markets for apps on both Android and iOS. The nation has now surpassed the US in this field, with the highest number (40) of app downloads per month per person, claims mobile marketing analytics platform AppsFlyer. Even the average number of installs per app jumped three times higher than the previous year, in January 2018, the research report stated. It’s mostly entertainment and video streaming apps that are downloaded. A spokesperson for App Annie said to ET, “India is the fastest growing of any app market. Its Q1 Y-o-Y growth in 2018 was 41 per cent, while Indonesia ranked second with revenue growth of 24 per cent, and Albania came in third at 23 per cent.”

“India is the second largest app market, ahead of the US, in terms of the number of downloads. The availability of affordable smartphones, clubbed with cheap 4G data plans, has revolutionised the overall consumption of apps in the last two years. Mobile apps have opened up a plethora of opportunities across all sectors, from B2B to B2C (including retail, delivery services, entertainment, banking, and even dating and matrimony). Businesses are increasingly shifting their focus to digitally-connected consumers who use mobile apps as a key enabler. This allows a more targeted approach for businesses while opening up huge opportunities for app-based marketing and for analytics firms as well,” says Hanish Bhatia, senior analyst, devices and ecosystem, Counterpoint Research.

AppFlyer’s survey, which was done between January 2017 and January 2018, mentions that Indians spent about 170 minutes per day on mobile apps. By March 2018, the country had witnessed 4 billion app opens of 950 apps, US$ 400 million in app revenue, and over one billion app installs. This is simply because the popularity of smartphones grew massively across India in a very short span of time, because of the lower price of the device. In India, the total number of shipments of smartphones in Q3 2017 was 39 million, a 40 per cent increase in number from Q2 2017.

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