India Internet Opportunity - Kstart

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India Internet Opportunity MAY 2017

May 2017

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India Macro and Consumption India took the path of a socialist economy after independence in 1947. The policies tended towards protectionism, strong emphasis on import substitution, state regulated industrialization and a dominant public sector. But India started having large fiscal deficit problems since 1985, and by the end of 1990, it was in a state of serious economic crisis. The government was close to a default and foreign exchange reserves had reduced to the point that India could barely finance three weeks’ worth of imports. The country ran into the risk of precipitating into an era of economic crisis, unemployment, despair and civil unrest - in contrast to the hope and confidence we enjoy today of becoming a superpower by 2030. Making a bold and uncharacteristic move, on May 21, 1991 India airlifted 60+ tons of gold to be sent to Bank of England and Union Bank of Switzerland. Govt. of India had to take a loan from IMF and as a condition had to “liberalise” the economy. This pivot etched 1991 into the cornerstone of the great Indian economic turnaround, ushering-in unprecedented economic progress. This remarkable story has been captured in several notable books. Gurcharan Das, in India Unbound, remarks, “Although slow, hesitant and incomplete, 1991 reforms set in motion a process of profound change in Indian society. It is as important a turning point as Deng’s revolution in China in 1978”. As of 2016, India is not only the 7th largest economy in world, but it is also growing faster than its peers like China. By 2025, India is expected to surpass Germany and become the 4th largest economy. That India is the last standing beacon of hope amongst the emerging markets, found resonance at 2016 WEF Davos.

Source: World bank, OECD

Economic growth aside, India is also set to reap what is now famously called the demographic dividend, with its working age population being larger than the population that is dependent on

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it. Today, India’s 65% population is below 35 years of age. With Western Europe, the US, South Korea, Japan and even China’s aging population, could this demographic dividend offer India an edge? As per IMF, it could add a significant 2% to the GDP growth rate of country. World-class infrastructure, deeply rooted education systems, and pro-business government policies among other things that define the economic progress of Europe, North America and even the shining cities of China, are often considered lagging in the country by foreign visitors. Frequent instances of friction between governments and industries further bring forth investor’s concern on growth and capital risk. Govt.’s misguided tax fight with Vodafone in 2011 and West Bengal’s tussle with Tata’s for the Nano project are two prominent examples. On the other hand, the government never regulated the country’s IT industry, because it never fully understood its potential. As a result, that sector flourished. A book by Gurcharan Das captured this phenomenon in its very title: India Grows at Night. Fortunately, the environment is changing fast, business friendly outlook and initiatives of the Modi government is set to make the India’s economy bigger and better again. Today, India can grow during the day too, while the government is wide awake.

Consumption Class is Growing Rapidly Rapid economic growth has pulled millions of people out of poverty and created a sizable consumption class. In 2015, 66M households were part of the ‘consumption class’ with annual household income of more than $4000, which is 27% of India’s total household. This class constituted only 7% households back in 2005. As India continues the path of economic development, the consumption class will rise to 53% of total households in 2025, implying a mammoth 800M+individuals belonging to the co