chapter 3

initial assessment: republic of india

Executive Summary

The Internet infrastructure in India today is poor. Although the number of users is relatively low, they already overwhelm the network’s capacity. The dimensions of the Internet in India are provided in Table 10 and Figure 1. Government policies and inaction have been the principal causes of the Internet’s lack of development in India, compounded by the country’s poverty and the attendant extremely poor telecommunications infrastructure. Privatization of the telecommunications sector has begun, but noticeable improvements in basic telecommunications (e.g., the quality

Dimension	Level	Explanation
Pervasiveness	(1) Experimental	The Internet user community comprises less than 1 person in 1,000. However, the user community extends well beyond a core of networking professionals, and there are hundreds of computers connected to the international Internet. This dimension will likely increase to 2 by 1999.
Geographic Dispersion	(2) Moderately Dispersed	Internet points of presence are currently located in 14 of 25 States and 3 of the seven Union Territories (17 of 32 first-tier administrative divisions). Planned near-term expansion will connect three more States. There are international connections from at least 12 locations, six of which serve the public network.
Sectoral Absorption	(1) Rare	There is leased-line connectivity to the Internet in less than 10 percent of the constituents of every sector.
Connectivity Infrastructure	(2)	The average bandwidth of the domestic infrastructure is less than E-1 (2.048 Mbps). There are several closed and bilateral Internet exchanges. Access is predominantly via modem, but 64 Kbps leased lines are available and used.
Organizational Infrastructure	(2) Controlled	There is only one commercial Internet service provider (ISP) offering public Internet access. The legal barriers to establishing new ISPs have been eased, although the degree of competition that will be allowed remains unclear.
Sophistication of Use	(2) Conventional	The Internet is being used to improve the efficiency and expand the scope of current activities and processes without fundamentally changing them.
Table 10. Internet Dimensions for India

and availability of local loop, inter-exchange, and long distance connections) will take several years to achieve, even in the absence of any further government interference.

Figure 1. Indian Internet Dimensions, 1988-1998

The development of the Internet in India has occurred in three phases: a promising beginning in the 1980s, a lengthy period of stagnation, and the current phase that promises rapid future growth. The academic community was the first to use the Internet and was responsible for its introduction into India. This is consistent with the “early” model of Internet diffusion. However, from its introduction until the present, the Internet has seen little development. Future growth of the network will be driven by commercial forces and requirements, consistent with the “later” model of Internet diffusion.

· Promising Beginning The first Internet connection to India was effected in 1989.

· Interest in the Internet resulted in government action in 1986, with the establishment of the Education and Research Network (ERNET) as a project within the Department of Electronics (DoE). At this early date, the government telecommunications agencies had no interest in what was viewed as a non-standard network protocol with no commercial applications.

· Coincident with the beginning of ERNET, the DoE established the Software Technology Parks of India (STPI) as incubators for small software development companies in an effort to spur the export of software.

· Following this early recognition of the Internet as a potentially useful tool for the academic community, nearly three years elapsed before the first connection to the Internet was made. The National Centre for Software Technology (NCST) brought the ERNET on-line in 1989, followed shortly thereafter by STPI.

· Stagnation From 1989 through 1995, there was hardly any further growth of the Internet.

· The DoE did not have adequate funding to proliferate the ERNET throughout the academic and research communities. As a result, the ERNET grew only very slowly and only as a result of direct efforts by institutions that wished to be connected. Eventually, 700 organizations were connected, but use and bandwidth continue to be limited.

· Although STPI established a satellite communications network connecting the member parks and companies with each other and clients overseas, this network was and continues to be used principally for point-to-point communications between individual companies and their clients. SoftNet has offered Internet links for almost a decade, but the system remains under-utilized.

· The government telecommunications monopolies, the Department of Telecommunications (DoT) and Mahanagar Telephone Company Limited (MTNL) for domestic communications and Videsh Sanchar Nigam Limited (VSNL) for international communications, continued to refuse to consider implementing TCP/IP networking. Such efforts as were expended on developing data networks focused on accepted international standards such as X.25 and X.400.

· Poised for Growth? Commercial Internet connections became available in India in 1995.

· VSNL established the first commercial Internet links as a “gateway” service in August 1995, adding it to its portfolio of international telecommunications services. Additional nodes for local access were built by VSNL and turned over to the DoT for operation.

· Despite the demand for services, however, the prices remained high for several years, and access was limited by the small number of hosts and limited number of dial-up lines. Between 1995 and early 1998, only 30 nodes, connected to the Internet through six international satellite gateways each with limited bandwidth, were built. There were only about 150,000 subscribers—about 0.01 percent of the population—by mid-1998, fully half of whom had only signed up for service following a significant price reduction in January 1998.

· Government and court decisions announced in June and July of 1998 have cleared the way, at least in principal, for the licensing of an unlimited number of private ISPs, which will also be allowed to establish international links to the Internet independent of the government monopolies. This freeing of the market is expected to result in a large infusion of investment and the rapid creation of multiple, competing services.

· The basic telecommunications infrastructure is also expected to improve, albeit more slowly, as the sector is opened to competition and new providers bring their networks on-line. The Indian railroads and electrical power companies (themselves government monopolies) are already installing new fiber optic networks along their respective rights of way.

There is a high demand for Internet services, especially in the private sector. Public-sector undertakings have made some efforts, albeit with only limited success, to meet this demand. Recognizing its inability to provide the capital investment required for rapid network expansion, and in keeping with the general trend of privatization of the telecommunications sector, the Indian government decided to open Internet service provision to the private sector. Bureaucratic “turf battles” between incumbent public-sector operators and the newly-created independent regulatory authority have resulted in a delay of about one year in the licensing of private Internet service providers. Licensing should begin in the fourth quarter of 1998 and the first private commercial service providers could be offering Internet access in early 1999.

The Bharatiya Janata Party (BJP), which took over as the leading party in the Indian government earlier this year, identified information technology (IT), especially software exports, as key to the country’s future economic growth and development. In keeping with the priority that its party platform placed on IT, the BJP government appointed a blue-ribbon National Task Force on Information Technology and Software Development to identify the relevant goals and the means for achieving them. In the IT Action Plan produced by the Task Force (included at Tab C), the further diffusion of the Internet was explicitly identified as important for the country’s future. Specific recommendations included requirements to provide Internet connections in every district, school, and medical establishment.

The IT Action Plan was approved by the Indian Parliament in July 1998, and now has the force of law. This means that every ministry and department of the Indian government has been tasked to issue or amend the required laws and regulations to implement the Action Plan’s recommendations. The next step, identifying the specific steps to be taken within the Indian government to implement the various recommendations, is underway. There are early indications that the recommendations that require legislative action, such as changes in import and export regulations, will be implemented by the Parliament. Whether the vast Indian bureaucracy will respond to the bulk of the recommendations, however, is far from certain. The most significant shortfall is the lack of identified budget resources to support implementation of the Action Plan. The National Task Force evidently has placed a great deal of confidence in the private sector’s ability and willingness to invest in the country’s infrastructure and the further development of the IT sector. Citizen participation is critical as well, since the potential for successful private sector initiatives relies to a great extent on the Indian consumer.

Government inactivity has been largely responsible for the slow pace of Internet development in India to date. The adoption of the IT Action Plan signals the Indian government’s recognition that the country is at a strategic crossroads, where is must chose whether to continue business as usual and continue to fall behind not only the developed world but its own neighbors or overhaul the government bureaucracy to more effectively develop and employ the country’s vast human resources. Attempts to realize the Action Plan’s ambitious program will have a salutary effect on the availability and use of the Internet in India. The further development of the Internet will, in turn, contribute to the success of the Action Plan. However, even should the Action Plan be entirely or largely scrapped, unlikely in our judgment, the current regulatory and commercial environments will ensure that the Internet continues to grow in India, albeit at a slower pace and less widely than it would have with the support of the Action Plan’s initiatives.

In this final quarter of 1998, the Internet in India is beginning to show some robust growth, and the situation is such that it is poised for exceptionally rapid growth over the next twelve months, should the government do its part. With the recent decisions and court rulings that have opened the way for private Internet services providers to compete with the public sector operators, the prospects for competition are good. The government must come through, however, with the promised ISP licenses, and the defense ministry must approve the ISPs’ international connections. Legislative action is required to authorize competition among domestic backbone providers. To ensure that the full potential of the Internet is realized, the government must make at least a good-faith effort to implement the Action Plan. This will require not only the issuance or amendment of laws and regulations, no simple task in itself, but the enumeration of specific steps and processes to implement the Action Plan’s recommendations. The bureaucracy must be tamed, as well. Most importantly, where the government cannot directly fund recommended projects, and this includes most of the Plan’s recommendations, the promise of incentives to lure private sector investment must be fulfilled. These requirements, however, strike at the heart of any bureaucracy’s core values: its own processes and its revenues, both of which it seeks to maintain and increase as a matter of course. As was recently noted in the Indian press, “it’s an expensive business keeping the Indians in poverty.”[8]

The government of India has recognized that the country requires a “jump start.” The lessons of the recent problems with privatization, such as the extensive litigation and loss of international capital investment in the basic telecommunications circles and mobile telephone projects, suggest that the government must more carefully plan its projects and be much more consistent in their implementation, especially with respect to the lessening of the government’s direct role. The government appears to recognize these lessons, and may even have taken them to heart. A critical mass may have been reached. IT is developing ever more quickly and “information content” of all products is rapidly increasing. Despite impressive achievements, Indian IT has largely been stagnating. With business as usual thoroughly discredited, the government’s actions during the next year will likely determine whether India enters the 21^st century in the vanguard or bringing up the rear.

A cautionary note Despite all the favorable portents, there is still a significant possibility that the bureaucracy will, if not stifle, at least stall or weaken future development. As N. Vittal, former Secretary of Telecommunications and a member of the National Task Force, reminds us: “Don’t underestimate the power of the babus. An army marches on its stomach. But the government marches on paper.”[9]

Introduction

The “largest democracy in the world,” India is the world’s second most-populous nation, although it is only about one-third the size of the United States. The country’s population of more than 960 million people (Table 11) comprises two major ethnic groups, Indo-Aryan and Dravidian, speaking 15 official and dozens of unofficial languages, which are approximately as mutually intelligible as those in Europe and are not written using the Latin or other common alphabet. English is thus the language of inter-communal business and much of the central (Union) government’s operations, as well as of the judicial system. As one Mumbai (Bombay) resident mildly exaggerated, “India has 980 million people and even more gods. Travel 30 or 40 kilometers, and everything changes: people, climate, culture, geography, food, religion.”

Table 11. India in Statistics
Metric	Value[10]	Remarks
Population	944.58 966.78[11]	millions, 1996 millions, July 1997 estimate
Population density	298	per km^2, 1996
GDP	338.8	US$billions, 1995
GDP per capita	365	US$, 1995
Telephones	14,542.7	thousands, 1996
Teledensity	1.54	telephones per 100 inhabitants, 1996
Teledensity in largest city	11.3	telephones per 100 inhabitants, 1996
Cellular subscribers	328.0	thousands, 1996
Cellular density	0.03	cellular lines per 100 inhabitants, 1996
Personal computers (PC)	1,400	thousands, 1996 estimate
PC density	0.15	PCs per 100 inhabitants, 1996 estimate
Television sets (receivers)	60,000	thousands, 1996
Television set density	6.4	TVs per 100 inhabitants, 1996
Literacy rate	52[12]	% of population >14 years old, 1997 est.
Infant mortality	65.5[13]	deaths per 1000 live births, 1997 est.

From the first known settlements around the 24^th century B.C., through the middle of this century, the Indian subcontinent has been subjected to five major invasions from the north and west, three of which resulted in the establishment of foreign rule over much of the region. Also, during the height of European exploration in the 16^th century, relatively small sections of the country were acquired by several European powers. Today’s India still shows the effects of Mogul rule in its most famous tourist sites and lingering divisions between Muslims and Hindus, and the effects of more than a century and a half of British rule, most especially in the extensive government bureaucracy and common use of the English language. Portuguese can still be heard in the former colony of Goa, while French is common in the villages of the Pondicherry enclaves.

The modern Republic of India was created in August 1947, when the British granted its former colony its independence, at the same time separately creating the Islamic Republic of Pakistan in the northwestern and northeastern regions of the colony. The ensuing flight of Hindus from Pakistan and Muslims from India resulted in a population exchange of about 10 million people and a huge death toll from inter-ethnic violence. India has since fought two wars with Pakistan, the most recent of which resulted in the secession of East Pakistan as Bangladesh. The northern border region between India and Pakistan, Kashmir, is still contested between the two countries and is the locus of continued military deployments and sporadic armed conflict. India also fought a border war with the People’s Republic of China in the Arunchal Pradesh, the border of which is still disputed. Thus, almost half of India’s land borders abut hostile neighbors.

The Indian subcontinent is a 3.3 million km2 diamond that dominates the Indian Ocean, with 7,000 km of coasts on the Indian Ocean, North Arabian Sea, and Bay of Bengal (Figure 2). The extent of the modern republic, with the exception of the Northeastern Region, is naturally bounded by these coasts and the mountains to the northeast and northwest. Within its borders, virtually every type of climatic and geological region can be found. The Vindhya and Satpura mountain ranges of central India, just north of the Tropic of Cancer, have historically impeded north-south communication, reflected in the virtually independent development of empires and cultures in northern and southern India.[14] The country is divided into 25 states and seven Union territories that are administered by the central government, listed in Table 12.

Despite the large populations and attendant high population density, India remains a largely rural country, with about 70 percent of the population residing outside of the major metropolitan areas. About 67 percent of the work force is employed in the agricultural sector.[15] The varying geological and climatic conditions and the dispersion of the country’s vast population make the development and maintenance of basic infrastructure components (e.g., roads, electrical power distribution, telecommunications) difficult and expensive. The poor infrastructure and population density and dispersion compound the problems caused by frequent natural disasters such as flooding and earthquakes.

Key Organizations

Department of Telecommunications (DoT)—The DoT (which does not have a Web site or home page) is subordinate to the Ministry of Communications and was until recently the monopoly domestic telecommunications service provider, except in Mumbai and New Delhi. The provision of local telecommunications services has been liberalized, with commercial groups now licensed to provide service in 20 regional “circles.” DoT remains the monopoly provider of long distance (i.e., inter-“circle”) telecommunications. DoT operates the domestic terrestrial IP infrastructure and offers Internet service to the public in conjunction with VSNL.

Table 12. Indian States and Union Territories
State	Capital	State or Union Territory*	Capital
Andhra Pradesh	Hyderabad	Nagaland	Kohima
Arunachal Pradesh	Itanagar	Orissa	Bhubaneshwar
Assam	Guwahati	Punjab	Chandigarh
Bihar	Patna	Rajasthan	Jaipur
Goa	Panaji	Sikkim	Gangtok
Gujarat	Gandhinagar	Tamil Nadu	Chennai (Madras)
Haryana	Chandigarh	Tripura	Agartala
Himachal Pradesh	Shimla	Uttar Pradesh	Lucknow
Jammu and Kashmir	Srinagar	West Bengal	Calcutta
Karnataka	Bangalore	Andaman and Nicobar Islands*	Port Blair
Kerala	Trivandrum	Chandigarh*	(metropolitan region)
Madhya Pradesh	Bhopal	Dadra and Nagar Haveli*	(cities)
Maharashtra	Mumbai (Bombay)	Daman and Diu*	(cities)
Manipur	Imphal	Delhi*	(metropolitan region)
Meghalaya	Shillong	Lakshadweep*	Kavaratti
Mizoram	Aizawl	Pondicherry*	Pondicherry

ERNET India—An autonomous society, ERNET India (www.doe.ernet.in) was established in 1998 under the Department of Electronics (DoE) to assume the task of operating, maintaining, and further developing the Education and Research Network, which was established by the Information Infrastructure Division of the DoE in 1986. ERNET India operates an IP network and offers Internet connectivity via VSNL to member organizations from the academic and research sectors.

Mahanagar Telephone Nigam Ltd. (MTNL)—Literally, the “Great Cities” telephone company, MTNL (www.nic.in/mtnl) was established on 1 April 1986 to provide local telecommunications services in Mumbai and New Delhi. MTNL is a public sector company subordinate to the Telecom Commission under the jurisdiction of the Ministry of Communications; however, 20 percent of the stock was listed on public stock exchanges during 1991-92. MTNL has applied for a license to become an Internet service provider (ISP).

National Centre for Software Technology (NCST)—The NCST (www.ncst.ernet.in) is a DoE research center in a northern suburb of Mumbai. It was the first ERNET member organization to establish an international connection to the Internet, and is the .in national top-level domain (TLD) manager (i.e., NCST is the registrar for the .in TLD).

National Informatics Centre (NIC)—The NIC (www.nic.in) was established in 1975 by the Planning Commission to act as a centralized source of information and services for the government. It has since extended its coverage to include state and district governments and public sector companies and societies. The NIC also provides computer training and consulting services, and develops software for government applications. The center’s nationwide computer network, NICNET (www.nic.in/nicnet.html), is one of the largest very small aperture terminal (VSAT) networks in the world, offering X.25 and IP packet switched communications, with a gateway to the Internet via VSNL.

Software Technology Parks of India (STPI)—STPI (www.stpi.soft.net), another DoE autonomous society, was established in 1986 as part of a concentrated effort to boost export earnings from software development and related professional services. These parks offer a full-service “incubator” environment for entrepreneurs and small companies. Services offered include office spaces at affordable rates, equipped with stable electrical power supplies and international communications links. STPI also offers a wide variety of business services and acts as a single point of contact for companies dealing with the government. The concept was the brainchild of Dr. N. Sheshagiri, Director-General of the National Informatics Center, and N. Vittal, at that time the Secretary of the DoE, both of whom serve on the National Task Force on Information Technology and Software Development, the current effort to boost the IT sector once again.[16]

The first Software Technology Park was set up in Bangalore (STPB). Additional DoE parks were subsequently established in Bhubaneshwar, Gandhinagar, Hyderabad, the NOIDA zone near New Delhi (currently headquarters of STPI), Pune, and Trivandrum. The state governments of Rajasthan and West Bengal set up similar parks in Jaipur and Calcutta, respectively.[17] The program is currently being expanded to include Chennai, Indore, Mohali, and Mumbai, with another seven sites under consideration. The STPI as a whole is self-financing (i.e., receives no support from the Union budget), and each park is set up as an independent cost center.[18]

Telecommunications Regulatory Authority of India (TRAI)—The TRAI (which, like the DoT, does not have a Web site or home page) is also subordinate to the Ministry of Communications but reports to the Parliament. It was created in March 1997 as part of India’s effort to qualify for World Trade Organization (WTO) membership by creating a separating regulatory body. Under the current arrangement, the Ministry sets policy, which is implemented by the DoT, VSNL, and other telecommunications operating companies under the supervision of the TRAI. There has been significant contention between the TRAI and DoT over the scope of the TRAI’s authority.

Videsh Sanchar Nigam Ltd. (VSNL)—VSNL (www.vsnl.net.in) is the monopoly international telecommunications service provider, having been established as a public company in 1986. A majority of the company’s shares are owned by the Government of India. VSNL had a market capitalization of Rs 98 billion (US$2.4 billion) as of the end of 1996.[19] Like MTNL, the company is subordinate to the Telecom Commission. Headquartered in Mumbai, VSNL has 12 branches with international communications gateways (Table 13). All gateways have satellite earth stations; the gateways in Chennai and Mumbai are also connected to international submarine cable systems, such as SEA-ME-WE 2 and 3 and FLAG. Although there is no branch office in Cochin, there is an additional SEA-ME-WE 3 landfall there.

Table 13. VSNL Gateways
Ahmedabad	Dehradun	Kanpur
Arvi	Ernakulam	Mumbai
Bangalore	Hyderabad	New Delhi
Calcutta	Jallandhar	Pune
Chennai

It is the only commercial ISP in India, offering public Internet access via the Gateway Internet Access Service (GIAS) (internet.vsnl.net.in), as well as providing the international links to the Internet for the ERNET and NICNET.

Telecommunications Regulation

All civil and commercial telecommunications in India, except for radio and television broadcasting, fall within the purview of the Ministry of Communications and the Telegraph Act of 1885. The Ministry exercises its authority through the Telecom Commission, comprising a chairman and four members to oversee services, technology, finances, and production (Figure 3). Each of these members effectively controls the operations of one or more public companies. Until recently, all telecommunications services were provided exclusively by three public sector companies: VSNL, DoT, and MTNL. VSNL still has a monopoly on international communications, although that monopoly is being challenged. Basic domestic telecommunications are supplied principally by the DoT and MTNL, although a second landline carrier has been licensed in each of 20 telecommunications “circles.” Mobile services—paging and cellular telephony—are provided by licensed private companies, although MTNL is attempting to create a cellular service in its areas of operations.