Digitalization Of Indian Economy:- A Revolution For The World.

Accelerating growth of the digital economy in India: role of policy interventions.

In July 2015, the GoI launched the ‘Digital India’ initiative to improve online infrastructure and increase internet accessibility for citizens, empowering them to become more digitally advanced. This initiative encompasses three key dimensions namely, a) establishing a secure and stable digital infrastructure, b) delivering digital services, and c)ensuring that every citizen has access to the Internet. GoI’s persistent effort to digitalize the Indian economy and make India’s population at large participate in it is already showing results.

Some notable GoI initiatives for creating public digital infrastructure include the UPI and Open Network of Digital Commerce (#ONDC). The latter is based on open-sourced methodology, using open specifications and network protocols independent of any specific platform. In the financial sector, digitalization is taking advantage of a large set of Application Programming Interfaces (APIs) which allows the government and private companies to deploy cashless and paperless technology products. In the health sector, a notable initiative pertains to Ayushman Bharat Digital Mission (#ABDM) which involves extensive digitization of various health records and related data. The public health stack includes linking historical records of patients, offering a network of doctors and medical service providers, and a linked registry of drugs14. The main initiatives affecting the growth of digitalization in India include Aadhaar, Common Services Centres, DigiLocker, Unified Mobile Application for New-age Governance (UMANG), e-Sign, MyGov, MeriPehchaan, Digital Village, National Rollout of eDistrict MMP, Open Government Data Platform, eHospital/ OnlineRegistration System (ORS), CoWIN etc15.

Role Of Digital Economy In India’s Economic Future: Digitalization as a growth enabler.

India’s explosive growth of the digital economy is itself going to serve as a significant enabler of India’s overall economic growth. As compared to developed countries, India’s pace of digitalization has been very high in recent years, particularly over the period from 2011 to 2019 (Table 1). The pace of digitalization as measured by CAGR in the ICT sector during this period has been as high as 10.6% with only China exceeding India’s growth marginally. With the advent of #5G and the setting up of semiconductor industries in the country, India is expected to accelerate its pace of digitalization in the next few decades.

India is projected to become one of the largest economies by the middle of this century in market exchange rate terms. This has been highlighted in EY’s recent publication titled “India@100: realizing the potential of US$26 trillion economy”. In this growth journey, digitalization is expected to play a key role.

According to a recent study published by ACI Worldwide16 in collaboration with GlobalData, India is way ahead even in comparison with China in terms of the number of digital payments. According to this source, the number of real-time payments in 2021 was 48.6 billion in India as compared to 18.5 billion in China and 8.7 billion in Brazil. This is indicative of the ease with which the Indian population has adopted digital platforms for making payments even if the average value of such payments may be rather low.

Employment In The Digital Sector.

The RBI report points out that employment in the digital sectors of the Indian economy is still quite limited. Based on India’s current population (2022) and the worker population ratio in 2019-20 as per PLFS (at 38.2%), the total employed workers in the core digital economy was estimated at 4.9 million. Table 6 gives the relative share of employment in the digital sectors. The highest share at 59.8% pertains to computer programming consultancy and related activities followed by telecommunication services at 15.2%.

E-Commerce.

We live in an era where digitization is driving transformation across industries and e-commerce is no exception. With increased internet penetration, there is a rampant shift in consumer behaviour, that has widened the operational scope of the industry. According to a report by #FICCI, the Indian e-commerce market is projected to reach $120 billion by 2026. As per other estimates, the Indian e-commerce sector is estimated to surpass its American and Chinese counterparts by 2033-2034.

Retail players are now going head-to-head against each other by enhancing customer experience, easing access, using digital analytics and devising attractive promotional offers. Emerging and fast-growing technologies like Artificial Intelligence (#AI), Data Analytics, and online payment gateways like Unified Payments Interface #(UPI) are driving the next growth revolution in the e-commerce domain in India. With this, companies today are heavily leveraging these technologies to influence consumer behavior, strengthen supply chains, and heavily upscale their businesses in Tier 2 and 3 markets in #India.

FINTECH :- One of the largest market in the World.

Over the last decade, #FinTech has had a significant impact on the global financial services industry. However, greater regulatory scrutiny, shifting client preferences, uncertain macroeconomic events, and ongoing geopolitical turmoil hindered FinTech investments in the first half of 2022, resulting in muted growth. Despite pandemic-induced delays, 2021 was still a strong year of growth for the global FinTech industry.

In line with global trends, India’s FinTech ecosystem has seen tremendous growth over the last few years, making it one of the largest and fastest-growing FinTech markets. Earlier in 2020, India topped among Asia-Pacific (#APAC) countries in FinTech investments, and then extended its lead in FinTech investments, with $7.8 billion raised in 2021. Southeast Asia-based FinTech companies were close behind and registered the biggest funding growth in Asia-Pacific in 2021. FinTech startups in Southeast Asia netted $4.70 billion across 217 transactions in 2021, up from $1.13 billion across 118 deals in the prior year. For a comparative lens - according to S&P Global Market Intelligence, private funding received by FinTech in Asia-Pacific more than doubled to $15.69 billion in 2021 from $5.87 billion in 2020. While this growth followed subdued funding activity in 2020, the 2021 figure also represented a 74% jump from 2019’s pre-pandemic level. Deal volume followed a similar trend. In the most recent year, FinTech companies in the Asia Pacific sealed 754 deals, up 81% and 49% in 2020 and 2019, respectively5. According to the Tracxn database, as of July 2022, the number of FinTech startups in India was over 7300, excluding the acquired and the Deadpool players. Some of these are recently founded players in the early days of building minimum viable products. The total volume of FinTech funding till June 2022 has been approximately $30.2 billion, with 35% of the funds raised in the last sixteen months. In 2021, FinTech funding recorded a massive surge, clocking at $7.8 billion. While earlier in 2020, FinTech faced a dip in funding by 26.7% to $2.9 billion.

Personalising Customer Experience With AI?

AI is one of the main technology frontiers that has significantly transformed e-commerce in recent years. Today, consumers get best-in-class, customized, and seamless mobile commerce experiences, thanks to slick AI tools. E-tailers have greatly benefited from AI in ways including increased internal productivity, demand forecasting, business intelligence, improved pricing, and better product positioning.

Thanks to cutting-edge analysis capabilities made possible using AI, now, e-stores now never have too much or too little inventory. E-commerce companies and brands have used these AI tools to build intelligent warehousing and inventory control protocols. This tool further helps them maximise profitability and streamline the processing of product returns. AI tools are not only limited to inventory management, but they have optimized logistics and supply chains for efficiency. As per reports, AI applications in logistics and supply chains are growing at a CAGR of 24% projected to touch $12 billion by 2027.

Simplified and Secure Payments Keep The Registers Ringing

Indian consumers majorly have a cash-oriented mindset and are reluctant to make online payments owing to the lack of secure gateways and complex payment processes. This was a serious challenge for companies trying to create an omnichannel presence for their brands. According to research, 52% of customers abandon their cart if the checkout and payment process is overly complex.

Third-party secure payment gateways and wallets have addressed this problem by making transactions safe and hassle-free. Additionally, UPI has revolutionized the payment system in India allowing large sums of peer-to-peer and person-to-merchant transactions at zero charges. UPI, being an open-source application programming interface (API), and multi-platform compatible, empowers all types of businesses and consumers to make transactions seamlessly. As per the economic survey 2021-22, UPI is the largest retail payment interface in India. Research also shows that UPI has increased the everyday spending capacity of its users, marking a massive shift in consumer behaviour.

The Conclusion.

India’s digital leap distinguishes the Indian economy as compared to those of its peer countries. India’s digital payment platforms have become quite popular amongst its general population. The digital economy, however, has broader connotations due to its backward and forward linkages with other sectors in the economy.

The #RBI estimates the size of India’s core digital economy at US$222.5 billion in 2019, exhibiting a growth rate of 15.6% over the period 2014 to 2019. Its share in overall GVA is estimated to have increased from 5.4% in 2014 to 8.5% in 2019. Further, the share of digitally dependent economy (digitally enabled sectors) is estimated at 22.4% in 2019. Another recent study by MeiTY (2019) projects the size of India’s digital economy to rise to US$500 billion by 2025 in their ‘business as usual’ scenario. However, it also points out that potentially, the size of India’s digital economy can be increased up to US$1 trillion by following a set of policy initiatives. Digitally enabling products reflect backward linkages of the core digital economy while digitally enabled products capture forward linkages. As per RBI, industries with the highest forward linkages in India from the aggregate core digital economy in 2019 were construction (6.1%), renting of machinery and equipment (4.2%), food beverages and tobacco (3.8%), textiles and textile products (3.6%), and electrical and optical equipment (3.5%). The growing digitalization of India’s economy may itself serve as a major factor for sustaining robust growth over a long period of time. Thus, digitalization is a critical and distinguishing feature of India’s unfolding growth story in the 21st century.