INFORMATION technology has been a mighty force for good in India. Its first tech revolution began 30 years ago, when a few engineers came up with the unlikely idea of doing back-office IT work for far-off Western firms. Today that outsourcing industry is a capitalist marvel. It has annual sales of $100 billion, mostly from abroad, and these export earnings have been vital in a country with a weak balance of payments. Millions of good jobs in India have been created. Young Indians have seen that globalisation creates winners. India’s reputation in the world has changed, too: Bangalore’s shining IT campuses have become as famous as the Ganges and the Gandhis.

Yet India has been a comparative failure in terms of innovation over the past decade. You might have expected India’s many advantages (the English language, abundant engineers and a thriving diaspora in Silicon Valley) to pay off spectacularly on the internet. But only a few start-ups have made clever technical innovations that have been sold abroad. And at home e-commerce is in its infancy, with sales only 6% of China’s. Thanks to lousy infrastructure, useless regulation and a famously corrupt telecoms sector, the web is available to only 10% of Indians, many of them squinting at screens in cafés.

India boasts no big internet firms to compare with Chinese giants such as Alibaba, Baidu and Tencent, nor start-up stars like Facebook’s Mark Zuckerberg. Instead, it has seen a succession of false dawns, from its version of the dotcom bubble in 1998-2002 to more recent hype over deal-of-the-day websites and text-based cricket updates. In 2010-11 lots of start-ups raised cash, but they have struggled since. Venture capitalists grumble that their returns have been poor. The original emerging-market tech pioneer has fallen behind in the internet era.

Feeling luckier

Catching up should be a priority for India—not least because its outsourcing champions are now reaching middle age. As the wages of India’s engineers rise, its IT industry cannot rely for ever on doing straightforward work cheaply for foreigners. The good news is that India now has a chance to lead again; the bad news is that this opportunity relies in part on Delhi’s bureaucrats not messing it up.

Optimism springs, first, from a healthy stock of young entrepreneurs (see article). Many have gained valuable experience working in America or for multinational firms. Many are battle-hardened through previous ventures that flopped, from dairy farms to bowling alleys. As in California, failure is no longer frowned upon in India. New firms such as Flipkart and Redbus are adapting Western e-commerce models to deal with India’s rickety logistics and cash-based economy. They are transforming mundane areas such as bus tickets, and opening up scores of smaller cities to modern retailing. Tens of millions of people are benefiting as a result.

The second change is the mobile internet. India’s fixed-line system may be abysmal, but cheap smartphones and fast wireless networks are rapidly spreading. India is poised to leapfrog the era of the personal computer and go straight to the mobile-internet age. Already a quarter of internet traffic is from phones, compared with a seventh worldwide. E-commerce sites are getting a surge in activity from phone-users.

But this budding revolution needs clever regulation. Outsourcing boomed in part because it avoided government: the product was exported through global networks. The mobile internet needs capital, payment systems and wireless capacity. In all three areas the government is in the way.

The e-commerce industry appears stymied by the same restrictive rules on foreign investment that have bedevilled bricks-and-mortar retailing. Only a fifth of Indians have credit or debit cards—and using them online is a nightmare, again thanks to regulations (India could learn a lot from Africa’s use of mobile money). And India needs more and better wireless networks; some big players such as Mukesh Ambani, India’s richest man, have been tempted in, but the telecoms regime is a tangle of overcomplicated rules and graft.

India has the talent to lead in the mobile internet, as it did in outsourcing. But so long as Indians struggle to get a signal or to make payments, the revolution will be held back.