India’s Digital Economy — A Tale of Optimism and Opportunity
As the title suggests…a peek into India’s digital economy
Digital economy refers to the economic activity resulting from billions of daily online connections between people, businesses and processes. The global digital economy has witnessed a steady incline over the past years and, since the onset of Covid-19, digitization has seen accelerated and tremendous growth. It is becoming highly challenging to ring-fence the digital economy from the broader economy as technological adoption is now ubiquitous. And, with sights set on becoming a $1tn digital economy by 2025, India has been progressing by leaps and bounds to achieve this goal.
Technological Innovation
IoT, 5G, AI, ML, blockchain, big data analytics, 3D printing, cloud and quantum computing are some of the critical technologies for the coming decade, and India’s academic and industry minds are working on innovation and practical incorporation of these technologies. Jio’s 5G capabilities, Kerala’s emergence as a blockchain hub, Tech Mahindra’s work on Blockchain-as-a-Service are some of the exciting projects being undertaken by Indian entities.
Finance Minister Nirmala Sitharaman, in her recent budget speech, announced a National Quantum Technology Mission with an investment of ₹8000 crores over five years. The Department of Science and Technology is actively involved in building up India’s quantum technology ecosystem. By focusing on improved funding for research, we can increase the probability of serving as the base for groundbreaking innovations.
Bustling Start-up Scene
India has recently emerged as the country with the fourth-largest number of unicorns, with 21 unicorns possessing an impressive overall valuation of $73.2 billion. With an environment becoming more and more conducive to entrepreneurs, numerous successful startups are emerging in the ed-tech, health-tech, fintech, Software-as-a-Service (SaaS), ride-hailing, food delivery, agri-tech and e-commerce spaces. PayTM, Bounce, Dunzo, Swiggy, Freshworks, Byju’s and Zerodha are among an extensive network of startups proliferating. However, there are some issues regarding funding that needs to be addressed.
As with any developing start-up ecosystem, good venture capital and investor environment are paramount. 2019 saw investments of ~$5bn across ~1500 startups. However, a lot of this (>80%) comes from foreign countries. Since 2015, foreign investors have put in around $82.1bn in India’s startups, and of this, $8bn comes from China. With the ongoing sentiment around China, this does throw a spanner in the works.
Amidst calls for self-sufficiency, one also needs to consider a level of autonomy when it comes to start-up financing. The focus must be laid on encouraging institutional investors in the country, like pension funds and insurance firms, to invest a portion of their funds into startups. Appropriately structured funds that can allow retail investors access to the start-up space is another option. Further, with several VC and PE funds targeting the Indian and South-East Asian tech start-up market, there are opportunities to develop favourable policies to encourage the same.
SMBs Boarding the Digital Bandwagon
Other industries are also undergoing digital metamorphosis. Notably, a lot of small and medium businesses (SMBs) are turning to technology. Incorporating digital payment options and digital discovery, they are also climbing aboard the digital bandwagon and bringing forth a digital revolution. This is paramount as it improves efficiency and connects these businesses to the broader online and digital networks, thus increasing their contribution to the digital economy.
With 26 million SMBs now discoverable on Google Search and Maps, Kirana stores climbing aboard digital platforms via aggregation by Jio, Flipkart and Amazon, the digital umbrella is encompassing more and more of India’s businesses.
Improving Digital Access
Citizens’ digital access has also improved with the introduction of cheaper smartphones, internet plans, and electrification of villages and projects like Bharat Net aim to further digital access. The ongoing pandemic has however highlighted the gaps in the internet and digital hardware access for large swathes of the population. Conquering this challenge is paramount.
There are numerous opportunities for innovation and development of better, affordable, resilient and easy-to-handle systems and networks that can further democratise access to the digital economy. Nurturing micro-entrepreneurs from villages would go a long way in digitising the country as they would be key in delivering digital transformation to the heart of India. We still have a lot of work to do to bridge the digital divide, but we are making progress.
FDIs Galore
Google and Facebook recently announced massive commitments to India’s digital economy via investments in Reliance Jio. Amazon has also shown interest in investing in Reliance Retail, to get strategic access to Jio Marts. Google announced the Google for India Digitization Fund, to invest ~$10bn into India’s digitization efforts over the coming years.
Numerous PE and VC funds have invested in India’s startup ecosystem since the pandemic, with players like Unacademy, Byju’s and Vedantu scoring huge deals. The Prime Minister recently invited foreign nations to invest in sectors like quantum computing, 5G and blockchain in India. And, given the current public sentiment towards China, India is in a favourable position to become an ideal hub for technological investments.
Policy Environment
Robust public policies and government initiatives form the backbone for a successful digital economy. DigiLocker, Internet Saathi, Bharat Net, Smart Cities Mission, TIDE are some of the ambitious initiatives under the aegis of the Digital India campaign intending to accelerate India’s digitization. Startup India, announced in 2015, is another initiative aimed at promoting and fostering the spirit of entrepreneurship amongst the people.
Since the ban on Chinese apps, the Government has been vigorously encouraging indigenous app development. For instance, the Aatmanirbhar Bharat App Innovation Challenge witnessed ~7000 submissions.
Policies surrounding e-commerce, data protection, blockchain and telecom have major potential to influence the growth of the digital economy and the status of FDI into the sector. A policy for quantum technologies is also in the works. Recent announcements encouraging the privatisation of the space sector among others is indeed a significant step, fostering innovation and development. Government encouragement for digital payment platforms has been beneficial too.
Salient steps need to be taken to enrich the digital research and entrepreneurship ecosystem by ensuring that the coming generation of students is equipped appropriately. The latest National Education Policy 2020 is indeed focused on building up a digital-ready generation, encouraging coding from a younger age, and fostering the spirit of entrepreneurship. Further, up-skilling and re-skilling activities are taking place in numerous settings, and there is no shortage of content for the same.
In the international front, India is emerging as an alternative to China to enhance ASEAN digital connectivity. With the recent submarine optical fibre from Chennai to Port Blair, India might have just opened the door to a wide array of opportunities. By engaging in connecting neighbouring countries using fibre, India stands to benefit via improved trade and revenue.
“India is already having an offer of $1 billion lines of credit for digital connectivity with ASEAN countries. Countries such as Myanmar, Laos, Cambodia, Vietnam can take advantage to have their OFC (optical fibre cable) digital highways connecting to the north-eastern states through a protected ring architecture and extension by 700 kilometres (km). Myanmar and other ASEAN countries can enjoy better international bandwidth option via the north-eastern states,” according to RK Bhatnagar, a former technological advisor to the Department of Telecommunications.
The Indian digital economy story so far has been one of growth. India’s human capital and innovation potential are immense and, with the right policies and investments, this growth can be further accelerated to a great extent.
