In focus

How the digital age is transforming India

India has undergone a process of major long-term reforms and change over the last few years, laying the foundations for sustained future growth.

It comes after a number of setbacks around crony capitalism and corruption scandals earlier in the past decade.

Some noteworthy changes include the introduction of the Goods and Services tax, real estate reforms, a bankruptcy code, and farm sector reforms. These have the potential to position India as a more organised economy, and to allow economic efficiencies to be unlocked through the implementation of better practices across a range of industries. As expected, these have created challenges in the implementation stage, but there is significant value yet to be unlocked over the coming years.

In addition to these policy reforms, a number of disruptive forces are shaping a very different operating environment for many Indian businesses.

The two primary drivers of this change are the unique biometric identification system know as Aadhaar (meaning “support” in the Hindi language), and the penetration of telecoms in the country, which has a rising middle class and increasing demand for going mobile.

Read more on India: The four "M"s: why the 21st century belongs to Asia

What is the Aadhaar system?

Aadhaar is the world's largest biometric ID system and is one of the key pillars of the government’s ‘Digital India’ campaign, launched in 2015.

The platform promotes social and financial inclusion, enables public sector reform delivery, manages fiscal budgets and promotes hassle-free, people-centric governance. Aadhaar is used as a primary identifier to roll out several government welfare schemes and programmes for effective service delivery. The chart below illustrates the number of people who have enrolled annually since launch, with 99.7% of the total population now in the system.  

However, the data collected from the platform is also available to the private sector to implement digital initiatives. The state of the art digital tool is being provided free of charge on a huge scale, and it has the potential to change the way in which services are delivered. It also paves the way for many businesses to reach a much wider customer base.


The importance of low cost mobile data 

Widespread growth and adoption of wireless or mobile telecoms in India has been an important force for change. Today, there are over 1.1 billion mobile subscribers in India, which is over 90% of the population.

A key driver of this has been the fact that India has one of the lowest data costs in the world, as the table below highlights. This stems from the entry of a number of new companies to the market over the past decade, resulting in an increase in competition. An ensuing price war led to significant reduction in data prices, estimated by McKinsey to have fallen by 95% between 2013-2017, and a multi-fold increase in affordability.

The telecoms sector has undergone some rationalisation over the last few years, but prices remain low. And we expect this to remain the case, given the importance of data to the digital ecosystem, and the consumer market opportunities which it offers.



Global technology giants attracted by the scale and opportunity for business

The sheer size of its population and favourable demographic mix of youth makes India a major strategic location for many technology companies.

Global giants like Facebook, Apple, Google, Amazon, Netflix, Walmart, Tencent, Alibaba and local player Reliance Jio have made significant investments across key sectors of the Indian digital economy.

India currently has upwards of 525 million internet subscribers. Reliance Jio has added more than 350 million users in the first three years since its launch, WhatsApp has over 400 million users, Facebook has over 300 million users, and YouTube has over 265 million.

The opportunity in this space is huge as internet penetration in India was 55% as at the end of 2019, as seen in the chart above. A key difference in the Indian internet space is that it relies more on mobile smartphones rather than fixed line broadband.

Low data rates coupled with affordable entry pricing for smartphones, which start at INR3,000 (US$40), have ensured that there is mass acceptance of the system. The revenue pie for these companies has moved from tier 1 cities and metropolitan areas to tier 2 cities and below, as well as spread to the rural areas. India classifies cities into three tiers based on population density, with tier 1 having the highest population density. This will only continue to increase, and can potentially create further value in the market.


Covid-19 has accelerated existing trends

Covid-19 is bringing about what we believe are lasting changes to consumer patterns. The pandemic has also changed business and investment. This is more relevant than ever before in an Indian context. The investments made by large players together with the easy availability of digital platforms for various services has had a significant impact on the way people go about offering services or buying goods.

The consumer acceptance of such mediums has increased exponentially over the course of the pandemic and the ensuing lockdown. The government backed digital payment interface, “Unified Payment Interface (UPI)”,  has seen its share in the volume of transactions in the retail segment jump from 1% in 2017 to more than 69% at the end of 2020.

Massive forces are moulding sectors from finance, shopping and transportation to healthcare and many more in a short space of time. These disruptive platforms have been able to catapult themselves many years ahead in terms of customer acquisition and profitability.

Disruptive technologies have been around for decades, but India has generally not been impacted to the same degree, as existing businesses were not built around a technology-oriented core. The past few years has changed this, with many companies building up their digital pipelines. Covid-19 has acted as a booster shot to bring these initiatives to the forefront of business priorities.



Payment platforms have seen multi-fold increase in volumes. Digital retail transactions have grown from 0.8% of GDP in 2004 to more than 32% of GDP in 2021. E-commerce penetration has been accelerated by several years. Education platforms that were not mainstream have become primary consideration for learning.

On the infrastructure side, digital toll collections will improve efficiency of the system. Most services from healthcare or banking to investments have seamlessly turned digital with tele-medicines/tele consultation/e-pharmaceuticals increasing dramatically.

The digital economy is creating a virtuous cycle

In this digital economy, “geography is history”, said Uday Kotak, Managing Director and CEO of Kotak Mahindra Bank.

Businesses can be operated remotely anywhere, anytime and by anyone; all it takes is access to the right technological backbone.

This will give a boost to data and analytics driven growth in artificial intelligence and machine learning that eventually leads to further automation and in turn creates a virtuous cycle of disruption. No company or sector can remain isolated from these sweeping changes.

In the second of this two part note, we will look at the transformation in the retail markets and how new entrants and emerging unicorns are expected to be the giants of tomorrow. With some of these “new economy” companies already listed or approaching public markets, the Indian equity markets offer global investors some attractive growth opportunities.




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