India is a country on the fast track to digitization and the Applications are acting as a driver for exploiting the potential of the latent demand in the 1Bn strong economy. App Annie recently ranked India as the fourth largest app economy in the world. Not only these applications play a disproportionately important role in India, they also help overcome the inadequacies of physical infrastructure. These applications bundle communication needs in one place offering rich interaction with pictures, videos or recorded voice/video messages. Hence, RIAs cover nearly the full range of common internet activities. These services offer added value for consumers by significantly reducing transaction, search and information costs. The most comprehensive RIA can feature up to 23 functions. Generally, an RIA has almost nine functions and is far richer than a conventional telecom service.

It is misleading to use the term Over the Top (OTT) for the Applications popularly used for personal and business interaction. It would be more apt to call them Rich Interaction Applications (RIAs) or New Generation Applications (NGA) as they enable consumers to interact in ways not possible through traditional communications channels, using features such as group chat, photo and video sharing.

While RIAs are not only richer, there are other significant differences between an RIA and conventional telecom services. To suggest that there is a natural parity or similarity between RIA Service Providers and Telecom Service Providers (TSPs) is perhaps flawed. The latter enjoys several exclusive rights conferred on them through their licenses that are not enjoyed by RIAs. In India, these include the right to acquire spectrum, the right to obtain numbering resources, the right to interconnect with the PSTN, and the right of way (RoW) to set up infrastructure.

The economic impact of RIAs in India today exceeds the economic benefits of basic telecommunication services. First of its kind, the ICRIER - Broad band India Forum study attempts to measure the socio-economic impact of Internet usage and most importantly, that of Internet based applications on the country’s GDP.

As a departure from previous research in the area, this study measures growth elasticity based on Internet usage rather than Internet

penetration, as has been done in the past. The measure of usage versus user elasticity allows for estimation of user engagement on the Internet versus that of just being connected to the Internet. This study deployed an instrumental variable regression on a panel data set of 19 Indian states and 23 countries respectively. The growth co-efficient of usage, a first for India, are a starting point to understand the magnitude of impact of app-based usage. The estimates on internet usage were moderated to reflect app-based usage using assumptions on the contribution of apps to the Internet Economy in India. Internet usage was measured with CISCO VNI data on total Internet traffic and mobile Internet traffic.

Regulation, globally, are evolving to strike the right balance between protecting consumer/business interests and encouraging the ecosystem to innovate further

The results show that a 17 percent increase in the total internet traffic in India in 2015-16, contributed to an increase of Rs.7 lakh crore ($102 Billion) in Gross Domestic Product (GDP), of which at least Rs.1.4 lakh crores ($20.4 billion) was due to Internet based app services. The contribution is estimated to grow to nearly 16 percent of the country’s GDP by 2020 or Rs.36 lakh crores ($534 billion), of which apps will contribute about half.

The study further fortified the substantial economic impact generated by the econometric analysis with a micro-level understanding of the pathways of impact generation using a selection of 16 case studies of different apps in India. Each selected app addressed a unique market need, either left unresolved by the market and/ or government intervention. The study showed that a single app often delivered multiple socio economic impacts; sometimes a combination of economic and social development and sometimes different aspects of economic growth or social upliftment. The broader socio-economic impacts captured by the case studies are summarized below.

RIAs drive a huge demand for data usage over the telcos infrastructure whilst the telcos infrastructure enables end-users to access innovative online services and content. All efforts should be made for promoting this understanding between the telcos & the RIAs so that they embrace this symbiotic relationship.

The RIA ecosystem is in a nascent stage in terms of its development; therefore, any undue regulatory burden is bound to stifle growth and innovation. The focus of policy & regulation should be to promote innovation and investment to ensure users are able to benefit from increased use of RIAs. Further, the regulatory framework for RIAs should be light touch as this would allow the natural evolution of this sector and will allow for creative innovation. Increasing the regulatory burden of RIAs will hamper innovation and growth. A regulatory framework that requires RIAs to be ‘licensed’ in the jurisdiction in which they operate will fragment the Internet along national boundaries and negatively impact the startup economy currently booming in India.

Internet apps and services are disrupting traditional industries. Regulation, globally, are evolving to strike the right balance between protecting consumer/business interests and encouraging the ecosystem to innovate further. India needs to chart its own course from a policy/regulation perspective considering the significant higher impact on its economy. It needs to resist the temptation to follow global precedence that are not relevant for India or come up with restrictive laws that inhibit these NewGen Apps.