Budget 2014: What government should do to help the digital economy

India is at the cusp of evolution in its Internet economy. With more than 200 million Internet users, and adding 4.5 million every month, India will surpass the US in the number of Internet users by the end of 2014, becoming the second largest user base globally.

It took India a decade to get its first 100 million Internet users, but the next 100 million came in three years, thanks to mobile. The next 100 million users are expecting to come in just the next two years. India has 100 million mobile only Internet users, and another 50 million use both the PC and the mobile. To put things in perspective: in China, of the 400 million Internet users, only 150 million access it only through their mobile phones.

The other big change are the Internet companies. There are at least five start-ups which have crossed a billion dollar in value: Makemytrip, Cleartrip, Snapdeal, Flipkart and InMobi.

The government can do a lot to create more billion dollar companies, starting with enabling the acceleration of broadband infrastructure.

Most of Indian mobile users are accessing data on a narrow band network, where the Internet speed is slow. Only 30 million out of 150 million are 3G users. The telecom companies which have seen regulatory uncertainties in the past need to roll out the 3G and 4G networks faster, and increase the reach of fibre-to-home. The Rs. 20,000 crore National Optic Fibre Network project will be critical.

The other important thing is that FDI should be allowed in ecommerce. Ecommerce, excluding ticketing, matrimony and travel has already crossed the three billion dollar mark, and has the potential to become a $100 billion industry in the coming years. The only constraint is investment. India will need another four to five billion dollar of investment to get there.

Small businesses get direct access to large number of consumers. The best example is Taobao, Chinese ecommerce giant Alibaba's online marketplace, which has two million merchants. In contrast, in India, all ecommerce sites put together have only 20,000 transacting merchants. It has been proven that small businesses using the Internet grow 50 per cent faster than the ones which are not on the Internet. Enabling small and medium businesses to grow faster is a great way to accelerate GDP.

The government should also look at accelerating innovation. India has three million software professionals. Israel has a total population of only eight million, but had 800 new, funded start-ups last year. India had 200, which was double of that of the previous year.

The government should focus on how to accelerate the innovation ecosystem by simplifying incubation process, help in easy ways of raising money. The government should look at creating a pool of capital from where venture funds should be able to raise funds. Over the next four to five, we should aim to create 2000 funded start-ups a year.

The Internet can help in health care, education and tourism. The beauty of India should be taken to the 2.5 billion Internet users globally.

Rajan Anandan is Managing Director, Google India

(as told to Sunny Sen)