Consumption Growth from Digital Infrastructure: Evidence from India’s Mobile Internet Rollout
Professor Yi Fan
Associate Professor
Department of Real Estate
Business School, National University of Singapore
The long-term growth effects of large-scale infrastructure investments depend crucially on how much households’ consumption expenditure rises as a result of such investments. We estimate the increase in consumption from India’s mobile internet rollout, which was staggered across regions due to legal uncertainties surrounding a major telecom corruption case. Transaction-level data from two of India’s largest banks show that within two years of the rollout, average household income rose by 4.7–5.6%, and consumption by 0.90–0.93 rupees per additional rupee of income. These estimates are broadly consistent with the Permanent Income Hypothesis (PIH), but additional mechanisms unique to the setting are also at play. These include expanded access to goods via e-commerce (especially for wealthier rural households), greater use of digital payments, and increased insurance adoption that reduced precautionary saving. Overall, our evidence suggests that digital infrastructure durably transforms economic activity, not just through improved productivity-driven income growth, but also through a strong follow-on consumption response.
