What India must do to unlock the next phase of its digital economy

Reaping the benefits of a digital economy will not only require ease of creating, scaling and exiting businesses but also policies that can facilitate new jobs and retrain workers.

Quite often we hear stories of enterprises in India using digital technologies to build solutions. Unsurprisingly, most of the unicorns that India added in 2021 were in the digital economy.

India’s share in labour-intensive sectors has been falling recently and its position in skill-intensive manufacturing isn’t strong. Sectors like automobiles see a large home production base but exports remain low. However, growth in exports of Information and Communication Technology (ICT), along with pharmaceuticals and chemicals, has been impressive. India leads in best practices for digital payments and must use such capabilities to make high-value enterprises in the digital economy that are capable of becoming world leaders. 

Speaking at the Azadi ka Digital Mahotsav, Minister of State for Electronics and IT, Rajeev Chandrasekhar, said, “Primary objective is to make sure that our digital economy is a trillion-dollar economy — the largest in the world. If not the largest, then at least one of the top two digital economies in the world.”

India has a huge market for digital consumers and it’s growing rapidly. It has over 750 million internet users which could grow to over 1.5 billion by 2040. The mobile data consumption rate in India is the highest in the world, with each user consuming 12 GB a month. This is only going to go up, considering every quarter it’s adding almost 25 million new smartphone users.

There are over 1.2 billion mobile wireless subscriptions in India and nearly 27 billion apps were downloaded in 2021 alone, with smartphone users spending an average of 4.7 hours on their devices. Compared to other emerging economies, India is digitising much faster.

Both private and public sectors are driving the growth of digital consumption in India. With billions of people covered by the biometric digital identity, Aadhaar, and millions of businesses onboarded on one platform thanks to the Goods & Services Tax (GST), digitisation has been widely accepted and adopted. Data consumption and internet subscriptions have seen an exponential rise as a result of competitive data plans offered by telecommunication service providers.

This has bridged the digital divide and has driven low-income states to grow faster than high-income ones in internet subscriptions and infrastructure.  

“India’s consumer digital economy, which was pegged at $85-90 billion in the calendar year 2020, is expected to become an $800 billion market by 2030, according to reports released by consulting firm RedSeer at its flagship event Ground Zero 5.0”, writes the Business Standard.

McKinsey Global Institute surveyed over 600 firms and found that when it came to businesses across all sectors, digital adoption had been uneven. For instance, it’s 15 times more likely that a digital leader in the top quartile of adopters will centralise digital management. Compared to a firm lying in the bottom quartile, they’re two to three times more likely to use technology for processes such as search engine optimisation (SEO), enterprise resource planning (ERP) or customer relationship management (CRM).

But if we delve a little deeper, we find that the size of a firm is not always a differentiator. Big firms may be ahead in areas of large investment such as successfully selling online through mobile apps and websites but smaller firms leapfrog ahead in areas like accepting digital payments, using social media platforms to sell products or using video conferencing for reaching and supporting customers.

India has to formulate and implement legislation of a global standard in this regard. This will ensure that technologies and the internet remain safe, open, trusted and accessible to the citizens of the country. Smart architecture must be intensified to drive the digitalisation of government services and have a clear, broad architecture of digital governance. Chandrashekhar further said, "We will be leaders at emerging technologies, artificial intelligence, blockchain, quantum computing, high-performance computing, cyber security where focus on emerging technologies. We must lead the world in these technologies". 

Rajendra Kumar, MeitY Additional Secretary, believes there has to be a focus on developing platforms. “We also need to focus on cyber security, where India has made very significant progress in the last three years. Currently, we are ranked 10th in the world in cybersecurity. That's an area we need to constantly be on the watch for emerging threats and counter them”, he said.

The proliferation of digital applications will happen across most sectors of the Indian economy. Core digital sectors could double their GDP level by 2025. In 2025, newly digitised sectors could each create up to $150 billion increment in economic value. 

Unlocking the digital economy will create several million jobs and using digital applications will help save time and costs, raise output, improve matching supply with demand and reduce fraud. Digital ecosystems are already visibly reshaping business-consumer interactions in fields such as agriculture, logistics, retail and healthcare.  Data-driven operations in the farm sector can be used to provide solutions like mapping out efficient routes for cargo and monitoring its movements on Indian highways.

In healthcare, we saw the pivotal role telecommunication played in connecting patients to doctors via audio and video during the pandemic. Retail stores commonly go digital by selling on e-commerce websites. 

For India to reach its full digital potential and fulfil the dream of a $5 trillion economy, stakeholders have to be efficient in responding to the transition. Digital forces that can disrupt the market have to be identified, investments must be made in capabilities and talent must be acquired to deliver projects.

The government needs to invest in public data and digital infrastructure for organisations to leverage, simultaneously devising strong security and privacy safeguards. 

Reaping the benefits of a digital economy will not only require ease of creating, scaling and exiting businesses but also policies that can facilitate new jobs and retrain workers.