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Digitization Wave- A Key Driver of India

Digitization Wave- A Key Driver of India

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India is poised to become a global digital leader, riding on the back of rapid digitization across sectors supported by various government initiatives. With a population of over 1.3 billion and more than 650 million internet users, the size and growth of India’s digital economy presents a trillion dollar opportunity.

As per reports, India’s digital economy is projected to reach $1 trillion by 2025 driven by widespread smartphone and internet penetration. The government aims to digitally empower every citizen through programs like Digital India, boosting e-governance, digital payments, online education and telemedicine. BharatNet is creating digital infrastructure in rural areas while initiatives like Startup India are fostering innovation and digitization.

Transformation of Digital India

As India’s Digital Economy prepares to realise its $1T value potential, a number of factors will push this digitization transformation:

  1. Ubiquitous Digital Consumption: As India’s under-35 population continues to grow and disposable incomes rise, more and more consumption will shift online, boosting the value potential of digitally native and digitally enabled enterprises. A surge in online spending has also been seen due to digitization.
  2. New Business Opportunities: Indian entrepreneurs will continue to innovate business models that fulfil particularly Indian requirements, tapping on infrastructure such as WhatsApp and other social media platforms, leading to an upward curve in digitization.
  3. Public Market Hunger: The investment ecosystem is seeing robust public investor appetite, as seen by the first IPO of an Indian unicorn, Zomato, which was 38 times oversubscribed on listing day, resulting in a valuation of over $13 billion. In addition, the $1 billion initial public offering (IPO) of Freshworks on the NASDAQ is a clear signal of the capacity of Indian enterprises to take the lead on global platforms for digitization.
  4. Strong Private Market Presence: Furthermore, we anticipate that out of the 250M firms already valued at > $100M, approximately 10052 new unicorns will be established in the next 5 to 7 years, helped by the growing interest of global financial investors. This further pushes the digitization process. To benefit on this wealth creation potential, investors will require a combination of extensive networks, local on-ground presence, technical competence and multi-cycle/stage investing experience.

The IT/Business Process Management sector already contributes over 7% to India’s GDP and employs millions. However, the real transformation is occurring in sectors like e-commerce, edtech, fintech, healthcare and agriculture which are being disrupted through technology. Major global tech companies have expanded operations in India to tap the market. Indian startups are also at the forefront of driving innovation, receiving over $73 billion in funding since 2016. The amounts that are disbursed after linking of Aadhar with under-privileged individuals showed an upsurge after the digitization of various e-portals.

E-commerce is a $200 billion opportunity by 2040 with digital payments growing exponentially. The pandemic accelerated digitization adoption – grocery, pharmacy and education saw 4-5x growth. Fintech is revolutionizing banking, insurance and wealth management through offerings like UPI, digital loans and robo-advisory. Edtech and online learning saw 10x growth with the shift to virtual classrooms. Telemedicine and digital health records are improving access to quality care.

5G rollout, blockchain, AI/ML, IoT, cloud computing and data analytics present new avenues in the digitization process. Emerging areas like virtual reality/augmented reality, robotics, drones and cleantech also offer prospects. India’s talent pool of engineers and developers is a major strength to develop these technologies. Partnerships with leading global companies will aid transfer of knowledge.

To fully realize this opportunity, India needs to focus on aspects like data privacy, infrastructure development, skilling workforce for digital jobs and fostering entrepreneurship which will in turn help in the growth of digitization. Continued policy support can help establish India as a global digital powerhouse.

Key enablers of India’s digital success and how they are valued:

Affordable smartphones:

  • India is the second largest smartphone market in the world with over 750 million users. This was made possible by the availability of affordable smartphones under $150 from manufacturers like Xiaomi, Samsung, Vivo etc.
  • Cheap data plans have also boosted adoption, with 1GB of mobile data costing around $0.25 on average in India.
  • Smartphones account for over 90% of total internet usage in India. This widespread availability of low-cost smartphones is valued at over $50 billion and has been instrumental in introducing hundreds of millions to digital services.

Digital payments:

  • India saw a spike in digital payments during the pandemic, growing from $59 billion in 2019 to $3 trillion in 2021.
  • UPI processed over 5 billion transactions worth over $1 trillion in FY23 alone. Major payment platforms like Paytm, PhonePe and Google Pay are also hugely popular.
  • Digital payments have boosted e-commerce by providing safe, convenient options for both buyers and sellers. They also encourage financial inclusion by allowing access to banking services even in remote areas. This cashless ecosystem is valued at over $500 billion currently.

Digital infrastructure:

  • Initiatives like BharatNet have laid over 1.5 million km of optical fibre, connecting over 250,000 panchayats digitally.
  • Digital India program aims to provide broadband access to every citizen. Over 1 billion Indians now have access to high-speed broadband internet.
  • Public WiFi projects under Digital India have created over 10,000 hotspots across India. This expanding digital infrastructure is valued at over $50 billion and helps connect both urban and rural populations online.

India’s rapid transition to a digital-first economy

India is transitioning from a cash-dominated to a digital-first economy at a rapid pace. The pandemic accelerated digitization shift as more citizens adopted digital services for work, education, entertainment and payments out of necessity. Sectors like e-commerce, fintech, edtech saw 4-5x growth. This massive digital adoption will allow India to leapfrog stages of development and establish itself as a global digital powerhouse.

How India and China benefited from their large populations

Both India and China had a key advantage – huge internal markets provided by their large populations. This allowed digital entrepreneurs in these countries to focus on serving domestic demand first, achieving scale. They did not need to look abroad initially for users and customers. Digitization of multiple services will help foster good relations with neighboring countries.

This large captive market acted as an incentive for private companies and the government to invest heavily in digital infrastructure and services. It also attracted global tech giants to prioritize these markets.

How India and China have “leapfrogged” the West

India and China largely skipped establishing traditional landline telephone networks and desktop computer markets. Instead, they moved directly to widespread adoption of more advanced mobile phones and internet on phones.

Mobile phones provided an easy way for their large populations to access the internet and digital services anytime, anywhere. This helped digital and mobile apps flourish in these countries before the West fully transitioned to smartphones, leading the path toward digitization.

Younger populations more receptive to new technologies

The young demographics of India and China made their populations naturally more receptive to new technologies compared to older Western nations. Students and young professionals drove digital adoption through their enthusiasm for the latest apps and gadgets.

This early and rapid adoption of digital technologies among their youth helped India and China develop very vibrant digital ecosystems in a much shorter time frame than the multi-decade transitions seen in the West.

India’s trillion dollar digital economy presents massive investment and partnership opportunities for global digitization and businesses. As a financial consulting firm, we recommend our clients strategize early entry to tap into India’s growing consumer base and talent pool. Investing in digital infrastructure projects and partnering with Indian startups will help gain first-mover advantage in this rapidly transforming market. With continued policy support, India is well positioned to emerge as one of the top global digital economies, delivering high returns for early investors.

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