5 minute read 7 Feb 2023

Digitalizing India: a force to reckon with

By EY India

Multidisciplinary professional services organization

5 minute read 7 Feb 2023
Related topics Technology Growth Digital AI

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If India uses digitalization the right way, it can fix its structural problems. 

In brief

  • Deep penetration of telecom and internet, combined with government’s focus to develop digital infrastructure, have laid the foundation for a digital economy. 
  • The Digital India Stack is now the global benchmark for most countries and provides a competitive advantage for growing businesses. 
  • Wide-scale adoption of Unified Payments Interface (UPI) or digital payments by 260m unique users has enabled formalization of the digital economy.

What is Digital India?1

Launched by the Government of India, Digital India is a program to develop India in a learning future and involves various government departments.

The objective of the program is to establish better connect between citizens and the government via e-services and deliver government services in a cost effective and transparent manner. 

There are nine pillars of this program, which include:

Why digitalization matters

Digitalization is a big technological change which is underway and how countries adopt these technologies will lay the groundwork for the coming decades. It will increase economic efficiency and competitiveness, creating new businesses and products, and addressing challenges relating to increasing financial inclusion, improving governance and reducing disparities.

For India, digitalization is especially important given the large population, with over 60% living in rural areas. Connecting the country together allows for greater access to the benefits and opportunities of a modern economy to a larger number of citizens, thereby bridging the economic divide. Further, the adoption of advanced technologies, such as AI, Machine learning, blockchain, cloud computing, among others, will improve the efficiency of Indian businesses, making them globally competitive, explore new markets, create new business models, and position them for strong growth over the next few decades.

India has been digitalizing at a rapid pace driven by a combination of factors, including growing broadband penetration, technological advancements, low costs of data usage and  the government’s thrust on building digital infrastructure. This provided an impetus to the emergence of the start-up ecosystem and entrepreneurship among the relatively young population, which has been quick in adopting and using digital technologies.

Digital India

Digital infrastructure built on India Stack 

India has followed a different strategy in digitization of its economy vis-à-vis other developed countries. India has an open internet and there is no firewall between it and the rest of the world. However, the difference is that India has leveraged the internet to create a plethora of digital public goods and government services. This has allowed India to connect numerous citizens and provide a more democratic and an inclusive digital network and infrastructure. 

Underpinning this infrastructure is the “India Stack”, a set of open Application Programming Interfaces (API), which is unlocking economic building blocks like identity, digital payments and data, thereby creating a platform for facilitating transactions and providing goods and services. 

The Aadhaar layer provides online bio-metric based digital identities to 1.35b individuals. Another layer of the Digital Indian Stack is the UPI. There are over 350 banks on the network with over 260m unique users and the network has grown to become India’s largest digital payment network and world’s fifth largest digital payment network by volume.  

Development of the UPI interface has fundamentally changed behavior among Indians, with a long-term positive impact on:

  • Formalization of the digital economy in India – through cashless and paperless transactions.
  • Deepening of financial inclusion by bringing in a number of small businesses and unbanked individuals into the formal economy by creating a financial record and credit history and allowing these businesses and individuals to access credit. 
  • Provision of an alternate retail payment system and lowering of the dependence on existing card-based payment systems.
  • Provision of an architecture for private players to innovate and develop new business models, for example, fintech and e-commerce solutions. As a result of development of this stack, the impact of the pandemic and the growing e-commerce market, digital payments have been exploding with UPI leading the surge in India, confirming its bright future in the country. 
Digital payment trends

Economic impact of digitalization in India

The economic impact of digitalization can be seen across the Indian economy.

  • India’s core digital economy share in GVA increased from 5.4% in 2014 to 8.5% in 2019, with a digitally dependent economy estimated to be around 22% of GDP in 2019. 
  • In absolute US dollar terms, India’s digital economy exhibited a growth rate of 15.6% over the period 2014 to 2019, which was 2.4 times faster than the growth of the overall Indian economy.
  • Digital output multiplier has increased over time from 1.35 in 2014 to 1.52 in 2019, highlighting the role of investments to drive growth.
  • 62.4m workers were employed in the digitally dependent economy in 2019.

Digitalization of government and governance 

Government of India has been progressively digitizing its interface with citizens and thereby making it easier to get licenses, certificates, payment of taxes and bringing efficiency in governance outcomes. The government has also digitalized procurement of goods and services by creating a centrally managed marketplace - Government eMarketplace (GeM), which is one of the largest procurement platforms with annual gross merchandise value of US$14.2b.

Social aspects of digitalization, of bringing relief to people during the pandemic, were driven on India’s digital public infrastructure — COWIN36, a technology platform created by the government to control the rollout of the world’s largest vaccination program.

Broadband usage has been surging, driving marketplaces

Broadband usage in India has been growing at an unprecedented pace. Mobile broadband (MBB) subscribers have increased from 345m to 765m over the past five years. Data traffic per user has seen a jump of 31% over the last five years reaching 17GB as of December 2021. As a result, India’s data traffic usage from 2017 to 2021 was among the highest in the world with a CAGR of 53%. India’s Gen Z spends an average of 8 hours per day online. The next wave of smartphone adoption is happening in rural India. It is now expected that India would have the second largest universe of online shoppers by 2030, estimated at 500m to 600m.

Online marketplaces have been exploding across all sectors of the economy. Reflecting the behavioral change, it is but logical that these metrics will continue to explode. The size of the e-commerce market is expected to grow to US$350b by 2030.

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The digitalization of India’s economy, including digital public infrastructure and its adoption by people, provides India with a unique competitive advantage by not only reducing the cost of doing business, but also formalizing the economy, supporting financial inclusion, and creating new business opportunities.  

About this article

By EY India

Multidisciplinary professional services organization

Related topics Technology Growth Digital AI