INDIA: A DIGITAL FIRST ECONOMY

According to the recently released Kantar IMRB ICUBE report, the number of internet users in the country will increase to 627million from the current 566 million, i.e., an increase of 11% YoY. This points to the increasing adoption of the internet in the country. One of the significant areas of focus of the current government has been to transition India to a digital economy. This has been evident from policies like the JAM trinity to the push for digital transactions to implementation of the GST reform.

The digital-first approach followed by the government has shown its potential, and although it will future it promises will be realized in the long-run; it would be accurate to say that it is on the right track. The foundations have been set solid with the Digital India Stack, a set of integrated software layers seamlessly connecting services such as digital payments, verified paper-less records, and business transactions, all linked with the world's most extensive unique identification system - Aadhar. This integration played a crucial role in opening and operations of over 350 million Jan Dhan accounts and has increased participation in the formal banking economy. The government has been able to leverage the abundance of smartphones with its JAM (Jan Dhan-Aadhar-Mobile) trinity to reduce leakage in the dispersion of funds. The total deposits in the Jan Dhan accounts have steadily increased to cross 1 lakh crore in July 2019. The increased penetration of bank accounts into the hinterland has also benefited other schemes like Direct Benefit Transfer. In 2018-19, 3.29 lakh crore was transferred to 124 crore beneficiaries’ account for 440 programs (ThePrint, 2019).

With the advent of digital initiatives, India has also performed well on metrics such as Ease of Doing business, with the most significant improvements in trading across borders and the ease of getting construction permits, both of which were propelled by the digitally enabled policies. Digital-first policies also helped formalize the economy and tax reforms. By connecting unique IDs with bank accounts, the government has been able to reduce duplicity and anonymity in bank accounts drastically, and the traceability of funds allowed them to identify over 225,000 "shell companies" that were involved in money laundering and tax evasion.

Digitalization has also helped the Small and Medium Enterprise (SME) by focusing on formalizing their business. Businesses enrolled with GST can seek credit of up to $150,000 from public sector banks by submitting their tax invoices and bank statements and get approvals within an hour. With the present generation reaping the benefits of economic reforms, consumer spending on online sites has also increased. The eCommerce market is expected to grow from the current $32b to $60 billion in the next five years.

Lastly, the focus of digital transformation has been met with high adoption rates, which can help put India at the forefront of the "Fourth Industrial Revolution." With over 350 million smartphone users, India has the second-largest number of mobile phones in the world, and this number increases by over 100 million every year. Such a robust digital penetration would make implementing policies easier with time, the effects of which will be seen soon.

However, India still has a long way to go to become a digital-first economy. Though the internet penetration has increased over the years, India lacks the necessary infrastructure to support the rapid digitization. Dhasai, a village in Maharashtra which turned completely cashless a month into demonetization, now has only 15 – 20% of daily transactions digital. Lack of server connectivity, lack of knowledge as to how bank cards are use and convenience people find in using cash for transactions are some of the few hurdles.

Another issue that has gained prominence is regarding the credibility of data presented in government reports. The recent unemployment rate fiasco has raised questions on the reliability of government figures. The government reports have shown a significant increase in the number of digital payments. However, the number of overall transactions in the economy has increased, which might be the reason for this increase. Not only this, Tata Communications Payment Solutions reported significant growth in cash transactions after demonetization. Currency in circulation has gone up from 17.97 crore rupees to 19.57 crore in 2 years. There is a lack of clarity regarding the actual on-ground scenario.

There is a consensus that digitization of economy offers many advantages. However, there are several shortcomings and lacunae in a system which needs to be improved to digitize the economy. Starting from rural India, the Digital infrastructure needs to reach 2.5 lakh panchayat of country. In this direction pace of “BharatNet” project, which connects every gram panchayat of country, needs to be increased. The digital literacy needs to be improved for people of rural India, who generally find it difficult to use digital means. PM DISHA (PM Gramin Digital Shaksharta Abhiyan) is a step-in the right direction, but its presence on the ground level is not felt across the country. Lack of manufacturing of PoS (Point of sale machines). Other infrastructure such as lack of PoS (Point of Sale machines) also needs to be scaled up to improve the digitization of the economy.

Every idea has its pros and its cons, but it would be unwise to throw the baby out along with the bathwater. In this modern era, where technology holds the key to unlocking the potential of the economy, India cannot afford to miss this train of digitization. Transitioning to a digital economy is a prerequisite for a country aiming to become a $5 trillion economy in the next 5 years.

By:

Ankush Kumar(B19007)

Gaurav Vijay Nair(B19017)

Vishal Manmadharao Medida(B19027)

Ravi Shankar(B19037)

Shashwat Nandan(B19047)

Vaasu Sehgal(B19057)