Internet economy is 8th largest individual sector in India: BCG

NEW DELHI: The Indian Internet economy contributed Rs. 3.2 trillion to the overall economy in 2010, representing 4.1 per cent of the gross domestic product, and is projected to rise to Rs10.8 trillion by 2016.

According to a new report in The Boston Consulting Group’s Connected World series, the total size of the G-20 Internet economy will be $4.2 trillion 2016, equivalent to 5.3 per cent of GDP, up from $2.3 trillion, or 4.1 per cent, in 2010.

‘The $4.2 Trillion Opportunity: The Internet Economy in the G-20‘ says that the Internet is today the eighth largest sector in India – larger than mining and utilities. It is driven especially by exports of IT services: net exports make up 59 per cent of the Indian Internet economy, while consumption is only 20 per cent.

India‘s Internet economy growth rate of 23 per cent places it as the second fastest across the G-20 and ahead of many other developing nations in the G-20, which are growing at an average of 17.8 per cent. Projected growth rates elsewhere are: 24.3 per cent in Argentina, 18.3 per cent in Russia and 15.6 per cent in Mexico. In 2010 developed markets contributed 76 per cent of the G-20‘s Internet economy; by 2016 that will fall to 66 per cent.

Consumption is the principal driver of Internet GDP in most countries, typically representing more than 50 percent of the total in 2010. It will remain the largest single driver through 2016. China and India stand out for their enormous Internet related exports- China in goods, India in services – which propel their internet-economy rankings toward the top of the chart,” said Mumbai-based BCG Partner Arvind Subramanian said. He added, “In emerging countries like India, social media are fast becoming the internet medium and mobile the access medium of choice.”

The $4.2 trillion opportunity builds on three years of research conducted by BCG and is the most comprehensive report published on the impact of the Internet globally. This study is the first to examine the Internet‘s economic impact across so much of the world‘s economy – 90 per cent of global GDP – and highlights how this increases as mobile devices and social networks become more prevalent.

Commenting on the report, Google India VP - Sales and Operations & Managing Director Rajan Anandan said, "India is seeing one of the fastest rates of internet adoption across the globe. It is up to all of us- users, businesses and the government-to leverage the potential of the Internet to deliver value and wealth. We see emerging opportunities for innovation in areas like mobile, e-commerce and cloud and are committed to growing the market by offering more locally relevant services."

Online Commerce

In 2010, the share of total retail carried out online in India was only 0.9 per cent but is projected to reach 4.5 per cent by 2016. What‘s more, the Internet influences only an additional 0.8 per cent of total retail from connected consumers researching online and purchasing offline (‘ROPO‘). These numbers compare to 3.1 per cent for online sales and 4 per cent for ROPO in Brazil, 1.7 per cent and 4.8 per cent in Russia, and 5 per cent and 9.6 per cent in the U.S.

Consumer Value

Consumers are the big winners of the Internet economy and BCG‘s study highlights just how essential it has become to everyday life and the value which consumers attach to it.

Asked how much they would have to be paid to live without Internet access, Indian respondents said an average of Rs. 21,436 per year, or 2.8 times what they pay for access and services. When asked whether they would forgo showering for a year in order to keep Internet access, 36 per cent of Indian online consumers said they would; 64 per cent said they would forgo chocolate; 63 per cent coffee; and 70 per cent would give up alcohol.

SMEs – The Growth Engines of the Economy

The report highlights the extent to which the Internet is driving growth in businesses across the G-20. Drawn from the most comprehensive survey of its kind of SMEs around the world, the BCG report finds that “High web” companies in India – ones that use the Internet for marketing, sales and interactions with customers and suppliers – grew their revenues 19 per cent over the past three years, compared to only 13 per cent for those who made low or no use of the Internet.

"Around the world SMEs which embrace the Internet are growing faster and adding more jobs than those that don’t. By encouraging businesses to adopt the Internet, countries can improve their competitiveness and growth prospects," said BCG Senior Partner David Dean, who is co-author of the report.

The value of the Internet economy was estimated using the expenditure approach to GDP measurement. This approach measures total spending on finished goods and services. It covers four key elements: consumption (both goods sold online and the costs of getting online), investment, government spending, and net exports. BCG used the loss aversion approach to measure the value of the Internet to consumers in a survey of 9,710 Internet users in 13 countries.

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