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INDIA ADDA – Perspectives On India

IBEF works with a network of stakeholders - domestic and international - to promote Brand India.

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Authors

Colin Shah
Colin Shah
Shri P.R. Aqeel Ahmed
Shri P.R. Aqeel Ahmed
Dr. Vidya Yeravdekar
Dr. Vidya Yeravdekar
Alok Kirloskar
Alok Kirloskar
Pragati Khare
Pragati Khare
Devang Mody
Devang Mody
Vinay Kalantri
Vinay Kalantri
Varun Aggarwal
Varun Aggarwal
Erich Nesselhauf
Erich Nesselhauf
Ghanshyam Lal Vyas
Ghanshyam Lal Vyas
Mr Siddhartha Sacheti
Mr Siddhartha Sacheti
Satish Kannan
Satish Kannan

Investing in India's Digital Revolution

Investing in India's Digital Revolution

Introduction
The Digital Revolution in India started with the Government of India initiating the Digital India programme in July 2015 to transform India into a digitally enabled knowledge-based economy. According to Prime Minister Mr. Narendra Modi, the Digital India programme was developed to better the lives of average citizens. It aimed to make technology "accessible, affordable, and useful" to the country's citizens. The effort was divided into different parts: digital infrastructure as a utility for all citizens, governance, on-demand services, and citizen digital empowerment. After six years of this effort, the country has built a strong foundation of digital infrastructure and expanded internet access throughout its economy. India is poised for the next phase of growth — the creation of tremendous economic value and the empowerment of millions of Indians as new digital applications permeate and transform a multitude of activities and types of work at a national scale.

Benefits of India's Digital Revolution
India's digital revolution has benefited the country to a great extent. In the last six years, the government has leveraged its digital ecosystem to improve the lives of its citizens. India has used its JAM ecosystem to transfer a total of Rs. 22 lakh crore (US$ 300 billion) through Direct Benefit Transfer (DBT) schemes. The government has also revolutionised the digital payment system. India has the most significant number of real-time transactions globally, with 48 billion transactions in 2021. This is almost three times greater than China which is at 18 billion, and 6.5 times greater than the US, Canada, France and Germany combined. The Indian government's measures have gone beyond transaction standardisation. In 2019, the government was able to bring over 63 million MSMEs into the formal economy through GST. This formalisation has compelled businesses to embrace technology for tax filing and other purposes, acting as auxiliary drivers for India's growing internet adoption.


Source: Investcorp

Critical Drivers for India's Digital Revolution
India has become the world's second-fastest-growing digital economy. The key drivers towards the rapid rise in India's digital ecosystem include:

  • Growing Internet Penetration:
    India's cost per GB of data consumed is the lowest globally, with an average cost of Rs. 50 (US$ 0.7) per GB, India also has the highest data consumption in the world, with an average per-user consumption of 14.1 GB. According to the World Bank, the country's internet penetration was at 43%, with a total internet user base of 830 million. India's internet user base grew by 530 million in just three years.
  • Demographic Dividend:
    India has the youngest population globally, with an average age of 29; more than 68% of Indians are below the age of 40, out of which 70% of users are already on the internet. India's middle class is expected to comprise a billion people by 2030, 70% of India's population.
  • Increasing Smartphone Penetration:
    According to a study conducted by Deloitte, India is expected to have about 1 billion smartphone users by 2026. India currently has about 750 million smartphone users, and the country is expected to be the second-largest smartphone manufacturer in the next five years.
  • India's Robust IT sector:
    India's IT sector is expected to grow at twice the rate of the economy at 15.5%, and the revenue of the industry is expected to be at US$ 227 billion in 2021-22. The sector added 4.5 lakh freshers in 2021-22; this robust growth in the industry has significantly pushed India's digital revolution.

Private sector investments in India's Digital Revolution:
Heavy private sector investments backed India's digital revolution. India has the world's third-largest startup ecosystem, with over 60,000 startups. The country was home to over 94 unicorns in 2021, with a total valuation of US$ 319.67 billion. India has a tech-heavy startup ecosystem with a maximum of the unicorns targeting India's mobile-first economy. One out of every 13 unicorns globally are born in India. The country witnessed a 60% rise in early-stage capital from 2015 to 2020. India's technology sector witnessed 217 deals worth US$ 14.3 billion in 2021. India's tech-based startup ecosystem includes various sectors like fintech platforms, including insurance and payments, gaming, SaaS-based tools, logistics, health-care services, education technology, logistics, e-commerce and online marketplaces.


Source: Orios Venture Partners – India Tech Unicorn Report 2021

India has also seen rapid growth in its Software as a Service (SaaS) landscape. The Indian SaaS ecosystem experienced a 170% increase in investments in 2021, which reached US$ 4.5 billion. More than 35 Indian SaaS enterprises had US$ 20 million or more in annual recurring revenue (ARR) in 2021, a sevenfold growth in five years, with seven to nine of these companies exceeding the US$ 100 million ARR mark as compared to one to two companies five years ago. India has also witnessed public-private collaboration in the digitalisation of India's economy and is providing the ideal environment for technological advancement. India's telecom and IT services industries, the backbone of digital infrastructure, have received significant investments in recent years. The Indian telecom tower industry has grown by 65% in the last seven years. The government is collaborating on 44 telecom infrastructure projects across the country with multinational investors such as Vodafone, Verizon, Telefonica, Nokia (NOK), SoftBank, and Ericsson. This rise in private sector investments and startup culture has significantly boosted India's digital revolution.

Recent Government Initiatives for India's digital revolution
Since 2015, the government of India has led the charge in digitisation with its "Digital India" initiative to expand e-governance, providing individuals with access to government entities, expanding digital infrastructure across the country and connecting Indians through the Internet. India has since completed various reforms to boost its Digital ecosystem. To continue with India's Digital revolution momentum, the government has announced further reforms, including plans to boost semiconductor manufacturing, electronic manufacturing and drone Manufacturing. A few of the significant reforms that will further enhance India's Digital revolution are:

  • Open Network for Digital Commerce (ONDC):
    India's Open Network for Digital Commerce is described as the next Unified Payments Interface (UPI) moment for Indian E-commerce. According to the government, Open Network for Digital Commerce (ONDC) is expected to digitise the whole value chain, standardise operations, encourage supplier involvement, improve logistical efficiency, and increase customer value. This network will provide open networks for all aspects of exchanging goods and services in India's Digital ecosystem. The ONDC platform has received investments of Rs. 157.5 crore (US$ 20.30 million) for the first stage of the project from 17 banks and financial institutions.
  • Drive to provide quality internet:
    The Government of India has made various investments to provide affordable and quality Internet. These investments include the BharatNet Fiber project and Investments in developing 5G and 6G infrastructure. According to a statement by the Union Minister of Commerce and Industry, Consumer Affairs, Food and Public Distribution and Textiles, Mr. Piyush Goyal, India's 5G ecosystem is expected to contribute US$ 450 billion to the Indian economy in the next 15 years.
  • Reforms in India's Digital Payments:
    The Indian government plans to reform India's Digital payment ecosystem further. The government has pushed UPI to be made available on feature phones to serve rural India. NPCI International Payments Ltd (NIPL) has expanded UPI to a global scale, with nations such as the UAE and Nepal actively participating in the UPI ecosystem. This would boost India's digital transformation and benefit the country globally. In the Union Budget for 2022-23, the government has also revealed plans for a Digital Rupee.
  • Push towards Data Centers:
    To further assist India's digital revolution, the Indian government has announced plans to push investments to build Data centres. The country's data centre capacity will increase to 1.3 GW by 2024, a CAGR of 34%. Mumbai and Chennai are expected to account for 68% of the country's capacity by 2024.

Outlook
India's digital revolution will cause a paradigm shift for India and its economy. With the help of public and private partnerships, favourable government policies, innovative reforms, demographic advantage, rising incomes and the rise of India's startup culture, India can become the fastest-growing digital economy. India's digital revolution is expected to be a US$ 1 trillion opportunity. The digital revolution has already helped the Indian economy to become resilient to the changing time. In the future, India's digital economy is expected to support India achieve its goal of a US$ 5 trillion economy.

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