Consumption economy & infrastructure
World-class infrastructure is needed to accommodate rising e-commerce, mobile data, entertainment, and of consumer goods
Driven by rising incomes and steady growth, consumption patterns of e-commerce, mobile data, entertainment, and consumer goods will see an uptick in India. World-class infrastructure is needed to enable these rising levels of consumption. Essentially, consumer-driven businesses and infrastructure are two sides of the same coin and have a symbiotic relationship.
As mobile data usage increases and the data-dependent economy gathers momentum, the corresponding infrastructure must keep pace to ensure a seamless transition into a more digital world. Growth in the digital world implies the growth of both, wireless and fibre infrastructure, to eventually enable a hassle-free 5G ecosystem in India.
Better and faster data speed that can allow digital services requires better connectivity through both a greater number of telecom towers and proliferated fibre infrastructure.
This need, for more telecom towers and fibre in India, will require significant infrastructure investments from the various players in the telecom ecosystem. Incumbent companies in the tower and fibre space may not always be able to use their capital-constrained balance sheets to fund the infrastructure expansion. Thus, a funding gap emerges.
This funding gap creates an opportunity for capital-rich investors to tap into a growing and dynamic investment opportunity through innovative financing mechanisms. There are the three main components of the Indian telecom market where investors can make fortunes: (1) The consumer-facing telecom business; (2) the telecom tower business; and (3) the fibre business. And these three different markets offer investment opportunities for a diverse group of investors.
Beyond the financial aspects of tower and fibre expansion, policies such as the 'Right of Way' rule that expedites infrastructure creation deserves attention. Laying fibre requires telecom operators to deal with a myriad set of rules and charges that can at times be a severe impediment to infrastructure creation. Greater clarity around such policies, for greater consistency and rational pricing, which makes more economic sense is required to promote investments in fibre and telecom tower expansion.
Beyond data speeds, e-commerce in India needs greater connectivity through the integration of back-end infrastructure with front-end businesses. For e-commerce to realise its full potential, one cannot view e-commerce as being distinct from data speed, logistics, transportation, and data storage.
For e-commerce to reach the next 200 million active users, we require a greater logistic infrastructure (independent from the e-commerce vendors), more fulfilment centres, efficient and modern warehousing, and more cost-effective transportation. The entire ecosystem needs to be developed and financed, effectively.
It may be underscored that creating the entire consumption economy driven ecosystem requires different kinds of balance sheets at play. For instance, investors who undertake technology risk to drive the front-end e-commerce businesses aren't focused on creating infrastructure at the backend and vice versa.
In general, investors looking to invest in telecom towers or logistics infrastructure are very different from those investing in consumer-facing technology businesses. It is essential to create an environment that allows different balance sheets to invest, operate, and exit investments.
A financial ecosystem that provides investors with the right financial instruments, secondary market liquidity, and high corporate governance will be vital. For great consumer-facing companies to be created, exceptional infrastructure is required.
For infrastructural businesses to be financially sustainable and for investors to be willing to invest for longer periods of time, the Indian consumer-driven growth story must deliver results. Therefore, both consumer-driven businesses and infrastructure must develop in tandem.
For both investors and policymakers, it is essential to keep in mind that the quantity of infrastructure is vital, but so is its quality. For example, while high-speed data is crucial to enable a digital economy, it is also critical that there is the consistency of data speed. Only when quantity and quality with regards to infrastructure converge can the end-consumer get access to high-quality services.
As consumption and incomes grow in India, the coming decades have the potential to unleash significant economic growth. To truly maximise the economic value of the consumption-driven boom, it is essential that both front-end companies and back-end infrastructure get attention.
(Taponeel Mukherjee heads Development Tracks, an infrastructure advisory firm. The views expressed are strictly personal)
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