India: A Digital-first Economy

India witnessed massive changes in the fiscal and economic policies with the advent of LPG reforms, and it resulted in companies to compete with the global players and come up with the best product and services driven by innovation and technology. The government realized that connected and digital world would be the foundation of the Indian economy in the future and thus, multiple policies and incentives were provided to companies working in this domain.

Evolution of IT Sector

India set out on a massive transformation journey with BSNL launching public internet in 1995. With that, India joined the exciting digital race that led to an enormous transformation in the Indian business space, and other sectors such as education and healthcare. This provided the foundation of the IT industry, which is one of the success stories of the Indian economy. 

IT sector provided a boost to the Indian industry and economy, and it evolved faster than any other industry throughout the last two decades. From email, web services to cloud and big data, etc. innovations have transformed the nature and value of enterprises across the country. Around 30% of the total Indian exports is contributed to by the IT sector. Government of India has correctly identified the importance and utility of IT services and how it can help in better channelling and execution of the initiatives, yojanas and schemes.

Government Policies and Initiatives

India set out to achieve a world-first: unique, biometrically verifiable identity to every citizen with its Aadhar program, launched in 2009. The idea behind Aadhaar was to create a centralized system for the whole of India reliant on one form of recognizable ID. Pradhan Mantri Jan Dhan Yojana was undertaken by the NDA government in 2014, to ensure that all citizens must have a bank account. This would help in transferring the aid or benefits directly to the user, ensuring transparency and incentivizing people to participate in the formal banking system. On the very first day of its implementation, 10 million bank accounts were created using existing Aadhaar IDs digitally. 

The Digital India initiative launched by GOI in 2015 set forth a direction to transform the nation into a digitally empowered society, thereby speeding up the process of revamping the traditional Indian enterprise. The digital India program focused on digital empowerment of citizens by providing governance and services on demand. Taking advantage of the rising nationwide digitalization, India implemented the largest-scale tax reform: the replacement of 17 different taxes with a single GST. In the first month of its introduction, over 1 million businesses registered with the GST system. Within a few weeks, the increased transparency and data availability that is integral to the GST started to open up new sources of lending to small and medium-sized enterprises (SMEs).  

The last few years for the payments industry in India have been disruptive. India witnessed a phase where the government, regulator, banks, service providers and even consumers encouraged and adopted digital payments. With Demonetization, the government removed 86% of the country's currency notes by value from circulation. Though not the primary objective, Demonetization gave a boost to the digital infrastructure, with a combination of policy and technological innovation. The usage of cards, UPI and digital wallets, as well as other payment channels, has skyrocketed and the overall acceptance infrastructure has been on the rise. While the fast-tracked uptake of digital services after Demonetization and the increased lending to MSMEs following GST reform came as a surprise, but a positive one indeed. With the Pandemic striking in, the adoption of digital transactions has increased at an unprecedented rate.

Will the Future be, "ALL DIGITAL"?

The GOI strives to become $1 trillion digital economy by the year 2025. The government aspires to provide affordable internet and digital access, reaching all strata of people and facilitating new digital ecosystems that can remedy problems across economic and social sectors. Doing this would establish India as a vibrant digital economy that creates up to $1 trillion in economic value and paves the way to be a digital factory for the rest of the world. The aim is to provide lucrative opportunities for global and local businesses, startups, and platform-based innovators who will be investing in emerging technologies. 

Digitization is on the path to improve India's image in terms of ease of business. The last decade has witnessed a considerable improvement in ease of operations and reduced operating costs for digital companies. Domestic capital flow, along with Foreign Investment into digital businesses, will boost the economy and rate of digitalization. Steps like rationalization of tax rates so that investment in startups are some of the steps GOI has taken to hasten the process of funding these technology startups which will support Indian digital innovators. 

It is undeniable that any transformation in the current processes would not be completed overnight. The challenge with bringing these transformations is that the difficulties or the pain points would be immediately encountered. On the other hand, the benefits would usually follow in the longer run. The issues that are mostly attributed to this digital transformation are generally centred around the increase in online fraud, non-uniform internet penetration, lack of data protection norms and regulations and awareness among people to use these technologies in a secured manner. These issues and concerns have come up primarily because of the high speed at which this transformation is taking place. The regulatory bodies are aware of them and are taking necessary steps to address them in a manner that would be scalable and reliable. 

As we look forward, digital services will continue to help sectors grow at a faster rate, driving innovation, easing customer acquisition, and improving the customer experience. Increased adoption of smart networks and the integration of advanced technologies such as the Internet of Things, Artificial Intelligence and cloud will drive a massive push to the manufacturing as well as service sectors.

Authors: Suhas J Ram, Madhavpreet Saini, Tanvi Chaudhary, Chaitanya Joshi, Nikesh Kumar Mahto