ONE of the most lucrative tenants in Blackstone’s new office complex in Bangalore, the Indian Silicon Valley, will be Flipkart, India’s premier ecommerce company, which has just signed a letter of intent for 1.5m square feet to house its new campus.

The contract is a sign India’s mobile internet is acquiring scale and contributing to economic growth. “The number of start-ups is mind-boggling,” says Tuhin Parikh, who runs property investment for the big private equity firm.

Meanwhile, 38pc of the newly minted graduates from the Indian School of Business in Hyderabad have joined tech and internet companies, ‘including Amazon, Facebook, Flipkart, Google, Infosys, Microsoft, etc.’, the school’s interim placement report notes.

Indian internet companies at last are becoming interesting for investors. “The pieces are finally falling into place for Indian e-commerce to take off. Online retail sales are growing by 140pc a year and, more importantly, Indian companies such as Flipkart and global operators such as Amazon are developing models that are adapted to the unique challenges of the Indian economy,” McKinsey Global Institute notes in a recent report.

In recent months, sectors such as outsourcing and software have been among the strongest stock market performers. Last year, the equity market rose 30pc in one of the most impressive performances anywhere, but this year growth is expected to be less than half that.

Indian internet companies at last are becoming interesting for investors

Even an impressive infrastructure-friendly budget followed by an interest-rate cut did not do much for the market. But it is still early days for the internet to play a role in generating excitement for investors in India comparable with that in China.

The Indian internet ‘is the promise which hasn’t delivered for 20 years’, says the head of tech investing for one leading international private equity firm. Twenty years ago it would have been inconceivable that China would leapfrog India so dramatically.

Today, “China and the US are the internet’’, this executive says. Indeed, virtually all internet companies with a market cap of at least $10bn are either American or Chinese, as are the 50 or so companies valued at $5bn or more. About 150m-185m people in India use the mobile internet compared with about 700m in China. Estimates from McKinsey suggest it is only in 2025 that India may reach or surpass the current Chinese level.

All the characteristics that should have made India leading edge have turned out to be a drag. Since India has been so open and English speaking and because the development of technology has been largely driven by foreign multinationals looking to cut costs, the Indian internet has not been exactly Indian. Global companies have been all over India, in effect suffocating local operators.

Finally, though, this is changing. The mobile internet is starting to address affordability and connectivity. Handsets are available for less than $25 while tariffs are just about the lowest anywhere. In addition, applications are now being developed in India’s numerous local languages.

While English is still the language of the elite and is widely spoken as a second language, for the mobile internet to become truly widespread, people must be able to access it in the language they feel most comfortable with.

For the first time, India now has young local companies that reflect the needs of most of its people. Thus, for example, Quikr India, the local equivalent of Craigslist, (al­though with a for-profit model), urges potential users of its services with items to sell to take advantage of its ‘missed call’ contact number. If users call that number, Quikr promises NOT to answer, but will call back to bear the cost of the call. (This makes little sense to more affluent Chinese users given how cheap calls are on the mainland.)

Flipkart and InMobi (a mobile advertising group) took just four to five years to achieve valuations of $1bn-plus, while data-mining group Mu Sigma (with money from General Atlantic) took nine years. So the pace of change is picking up even if Flipkart has a long way to go before becoming an Alibaba. India may never catch up with China but at least the virtual elephant is now stirring, even though it may be early days for investors to cash in on it.

Published in Dawn, Economic & Business March 16th , 2015

On a mobile phone? Get the Dawn Mobile App: Apple Store | Google Play