Venture Intelligence Blog has a quote from Basab Pradhan:
– Unlike in the Valley, Web 2.0 has no relevance to the Indian domestic market. Internet penetration is low (5.4%), broadband is lower (<0.5%). Even if you include use at work, account sharing and internet cafes, the consumer internet is a tiny market. It may be interesting for some compelling ideas or if someone wants to bet on growth. But in my opinion, it is not going to attract much investment unless there is a broader "global Indian" or a "click and mortar" play.
– Mobile however is hugely interesting. Mobile penetration in India is twice that of the internet and is growing at rates close to 50%. There are opportunities to develop mobile applications that the developed world never needed because of high internet penetration. Booking a cinema ticket in the US is probably done 95% of the times over an internet connection and 5% on a cell phone screen. In India it may be totally different. This also holds out the opportunity that Indian startups may develop mobile applications for the Indian market and then take them to Europe and other developed markets.