Indian box office revenues increased by 40% last year but it is widely expected to be just the start of a period of radical change and rapid growth.

The quality of local content in a region where Hollywood has barely made a dent remains a vital factor. But an increasingly important driver for growth is the fast improving infrastructure. Across India, single screen cinemas are being upgraded but, more importantly, there has been a hurried expansion of multiplexes.

Multiplex building in India dates back to 1997 but it has been a serious growth area for the last couple of years. The number of multiplexes doubled in 2006 to 400 with ambitious companies like PVR and Adlabs pouring in investment, but most have been in developed metropolitan areas. The growth has coincided with a wider retail revolution in the biggest cities servicing the burgeoning Indian middle class.

But the real expansion looks set to take place elsewhere: "If one is looking for volumes one has to realise that metros will soon get saturated. The real penetration needs to be done in the small cities," PVR Cinemas' managing director Ajay Bijli told India's Economic Times this week.

That advance is already beginning with projects underway in places such as Coimbatore, Kota, and Ambala. Growth is supported by subsidies from many states. Maharashtra, for example, which has 20 new multiplexes under construction, offers a 100% waiver of entertainment tax for the first few years.

At present, as much as 65% of the total box-office takings in the country come from outside cities. The potential is virtually unlimited; India has only 11 screens per million citizens, compared to 117 in the US and 77 in France.

The potential barriers seem less about demand than about rather duller issues such as real estate prices.