The Economist writes that the Indian economy is overheating.
Fast growth is essential to pull millions of Indians out of poverty, so it is sad to pour cold water on this story. But that is precisely what is needed when there are so many alarming signs of overheating. Across India prices are rising fast, factories are at full capacity, loans are piling up. Yes, the economic reforms of the early 1990s spurred competition, forced firms to become more productive and boosted India’s trendor sustainablerate of growth. But the problem is that this new speed limit is almost certainly lower than the government’s one. Historic data would suggest a figure not much above 7%well below China’s 9-10%.
When you mention overheating, many analysts point towards China. Yet India displays far more symptoms of the disease. Inflation has risen to 6-7% (compared with 2.8% in China); a record 99% of Indian firms report that they are operating above their optimal capacity; and credit is expanding at an annual rate of 30%, twice as fast as in China. Unlike China, India also has a widening current-account deficita classic sign of overheating, as domestic output fails to keep pace with surging demand. And if you are looking for a stockmarket bubble, Indian share prices have risen more than four-fold over the past four years, far more than in China. If something is not done, then a hard landing will become inevitable.
Atanu Dey gives a backgrounder on how and why advertising works:
In the traditional broadcast media, the advertisers choose the content around which they will push their advertising message. The users then select from the available content and thus self-select which advertising messages they receive. Thus, Home Depot chooses to advertise on a home improvement show, and Nike advertises around the Super Bowl. Depending upon the choice of the show, the user reveals his profile and thus receives the advertising message. The user thus self-selects the message he or she wants to receive. Both the advertiser and the users meet around the chosen content.
In the case of a non-broadcast channel such as the mobile phone, the advertiser does not have the freedom to choose the content since the content is not known to the advertiser. The advertiser therefore has to somehow choose the user to whom they will send the message. For this, the advertiser has to know the profile of the user. Getting the user profile is therefore the most critical bit when it comes to advertising on the mobile.
A number of speakers at 3GSM discussed the growth in the Indian mobile phone users.
One of the first factors was the National Telecom Policy 1999 which allowed for third and fourth operators in a circle, and enabled all operators to move to a revenue share regime from a high licence fee one. After that, the Calling Party Pays system helped accelerate growth further with its introduction in May 2003. This ensured that receiving calls and messages became free. In addition, the entry of Reliance Infocomm with its Rs 500 offer to go mobile forced other operators to compete by lowering tariffs. After that, the IUC charges were reduced and the unified access licence was introduced.
Later, in 2005, the IUC and ADC charges were again reduced. All these reductions helped bring voice call tariffs to more affordable levels. Finally, Tata Indicom led the operators in launching the lifetime offer in December 2005. In parallel, mobile phones prices were falling and their capabilities were increasing.
Taken together, all of this created a very strong hockey stick growth curve for mobiles in India. India has the lowest voice call pricing in the world. Operators have learnt to be profitable at Re 1 per minute by bringing their cost of operations to half of that. In India, the lack of penetration and the pain of getting land lines also helped accelerate the growth of mobile subscribers, along with the prepaid model.
I remember the early days when mobiles were introduced in India. In 1995, voice tariffs were Rs 16 per minute. The mobiles were thick and big. The screens were limited to a few lines, and were black and white. What a change to todays mobiles which are multimedia computers! Also, in India, mobiles have become an extension of ones lifestyle for the youth. SMSing has become a way of life. Mobiles fill lifes empty moments.
Put it all together and you have the makings of a dynamic industry. The combined market capitalisation of the top Indian operators exceed $20 billion (nearly $700 per subscriber). There is a bidding war underway for Hutch, with at least three entities interested. There is still a lot of growth left in the industry both in terms of breadth (number of users) and depth (ARPUs). The future is as exciting as the recent past.
Tomorrow: Looking Ahead