Unlocking India's Digital Potential

India is now one of the largest and fastest-growing markets for digital consumers, according to a recent study by McKinsey & Company. With 560 million internet subscribers (second only to China), 1.2 billion mobile phone subscriptions and 12 billion downloaded apps in 2018, consumers in India have been quick to adopt digital technologies.

The report, ‘Digital India: Technology to transform a connected nation’, was published in March 2019 and analysed 17 mature and emerging economies. Aside from Indonesia, India is growing faster than any of these 17 countries, with internet subscriptions and data consumption quadrupling in 2017 and 2018. McKinsey estimates that by 2023 the number of internet users in India will increase by about 40 per cent (to roughly 800 million) and smartphones will double in number (to around 700 million).

But despite this increased connectivity, digital adoption among Indian businesses remains uneven across all sectors. While India has the potential to become a truly connected nation by 2025, there is a need for Indian stakeholders – in both the public and private sectors – to manage challenges and capture opportunities effectively.

India’s digital potential

India’s internet user base is growing rapidly, with over 40 per cent of the population now having an internet subscription. Largely thanks to decreasing data costs (95 per cent since 2013) and the increasing availability of smartphones and high-speed connectivity, even the country’s lower-income states have seen a boost in internet users. In fact, McKinsey’s report found that the lower-income states are now growing faster than higher-income states in internet infrastructure, helping to bridge a previously wide digital divide.

The narrowing of India’s digital divide means that Indians, even in small towns and rural areas, are reading news online, using food delivery apps, shopping online and streaming movies. The share of people with digital finance accounts is also increasing at a rapid rate. The public sector has had a large role to play in this digital consumption growth, with much of it being attributed to the government’s Jan-Dhan Yojana financial inclusion programme, which saw more than 332 million people open mobile phone-based accounts.

Crucially, digital services in India are also growing. Indians download more apps than residents of any other country, except China (12.3 billion in 2018) and the average Indian social media user spends 17 hours on the platforms each week – more than social media users in China and the United States. The rise of digital applications could have a tremendous impact on India’s economy. McKinsey notes that the country’s core digital sectors (IT and business process management, digital communication services, and electronics manufacturing) could see GDP levels double, while the newly digitising sectors (such as agriculture, education, energy, healthcare and retail) are also likely to add huge economic value to the economy. It is estimated that the productivity unlocked by the digital economy could create 60-65 million jobs by 2025.

Slow business adoption of tech

However, while consumers have been quick on the uptake, businesses have been slower to digitise their operations. McKinsey’s survey of more than 600 firms found that digital adoption among Indian businesses has been uneven across all sectors.

Almost 90 per cent of all retail transactions in India are still in cash and only 5 per cent of trade is transacted online – compared with 15 per cent in China (2015). Because of this, businesses are unable to generate the financial records necessary to get bank loans – and thus limiting their growth potential in return. Meanwhile, larger retailers that do trade online have been slow to adopt technology into their day-to-day business operations. McKinsey’s study found that many of these retailers tend to give little thought to the in-store customer experience and that their marketing techniques tend to be outdated and ineffective.

In agriculture, which contributes to 18 per cent of India’s GDP and where 40 per cent of the country’s labour force is employed, digital technology has tremendous potential to transform the sector. Farms in India are small and inefficient due to lack of data available to the farmers on soil and weather variables. They also face the issue of produce going to waste before it reaches consumers.

Tech innovation could be the answer to all of this. Digital land-registry records could enable crop insurance for farmers and real-time weather, soil data could be accessed by farmers through mobile phones, and farmers could make use of the online marketplace to dip into a larger consumer base. McKinsey estimates that such digital solutions could increase crop yields by up to 15 per cent and add $50-65 billion of economic value in 2025.

 Responding to the challenges

Aside from retail and agriculture, McKinsey’s study also found huge potential for technology to revolutionise the healthcare and logistics industries in India. However, this can only be made possible if the public and private sectors are willing to work towards this digital economy.

The McKinsey report crucially notes: “In areas where the readiness of India’s firms and government agencies is low and considerable effort will be required to catalyse broad digitisation, adoption may be as low as 20 per cent. Where private-sector readiness is relatively high and government policy is already supportive of large-scale digitisation, adoption could be as high as 80 per cent.”

Both the public and private sector must also be aware of the disruption that could be caused by this new digital economy. Business leaders would be unwise not to start thinking about how new technologies could disrupt their company, as well as their wider industry. Plans to adapt to this changing environment must be placed at the heart of their operations, from adapting existing business models to digitising internal operations.

In addition, both the government and firms need to keep one eye on the fact that the digital economy could disrupt 40-45 million existing jobs by 2025, which will require millions of job holders to be retrained and reemployed. India will need to create education and training programmes that are affordable and effective, catering to both new job market entrants, as well as mid-career workers who suddenly find themselves without the skills to continue in the digital economy. Meanwhile, firms will need to invest in building skilled digital team that can see them through the transformation.

While governments need to invest in digital infrastructure and public data that can be leveraged by the private sector, business executives need to put technology at the heart of their day-to-day activities. If both are able to get it right, India could unlock its digital potential, leading to new data ecosystems across sectors, innovative products and services, and economic value for consumers.

Source & Credits: Asia House

The sectors which could be transformed by 2025.

Digital Adoption in India is second only to China.