COVID-19 as a fillip to ongoing digitalization efforts in India

Ever since it recorded its first case of the coronavirus on January 30, 2020, India has witnessed an exponential spike in cases, emerging as a global hot spot. August saw the highest number of fresh cases globally, and the number of fatalities crossed the 50K mark. With an increasingly deleterious pandemic slowing down economic growth to historically low rates (with some predicting the first contraction in four decades), down from an average of 7% over the last five years. Indian businesses find themselves gravitating towards adopting teleworking practices, reflecting the silver lining of COVID-19 as a leading cause in expediting the government’s pursuit of a fully digital economy, which was formed through an initiative called Digital India in July 2015. Prime Minister Narendra Modi’s Digital India encompasses bolstering digital infrastructure, digital literacy, and the digital delivery of services to Indian citizens, through a number of initiatives envisioned by the Modi administration, some of which have charted more success than others.

One such initiative is BharatNet, also called Bharat Broadband Network Limited (BBNL), aims to expand the scope of broadband connectivity to all 250,000 gram panchayats (a model of self-governance, gram panchayats are the lowest division of democratic set-ups at the village level in India) through an extensive optic fibre network. While ambitiously set to be completed by March 2019, only 150,000 gram panchayats have been connected with optical fiber cables as of March 6, 2020. This delay has been attributed to a number of factors including delayed commencement, right of way issues, the utilization of the state model for implementing the project in 8 states, and more recently, Covid-19. Another flagship initiative within Digital India is the establishment of Common Service Centers (CSCs) in every gram panchayat in India, which function as access points for the delivery of essential utility services, social welfare schemes, healthcare, financial, education, and agriculture services, primarily in rural areas. However, the overwhelming majority of CSCs remains underdeveloped; by one statistic, just 800 of 546,246 CSCs offer Wi-Fi. Despite these hurdles, given the Indian government’s efforts towards transforming India into a fully digital economy, there is hope for the success of Digital India in the foreseeable future.

Digitalization and the Indian Financial Sector

The financial sector in India has been one of the most important targets, and indeed one of the biggest beneficiaries, for digitalization. After PM Modi took the controversial decision in November 2016 to demonetize all ₹500 and ₹1000 notes, effectively rendering 86% of the economy’s cash valueless, many Indians had no choice but to embrace digital payment systems, and India operated with USD 45 Billion less cash than it did prior to demonetization. A second stride to India’s “Digital First” economy came from its tax reform, which streamlined 17 different taxes with a single Goods and Services Tax (GST). The policy change saw over 10 million businesses file and pay their taxes online, in order to improve the efficiency of tax collection and reduce the likelihood of tax evasion.

In recent times, the digitalization of payment systems has most directly been furthered by the JAM trinity, an innovative digital infrastructure crafted by the Modi administration. The three components are Jan Dhan bank accounts, Aadhaar unique identity numbers, and mobile phone connections. The synergistic effects of combining these three initiatives is the implementation of large-scale, real-time, technology-enabled Direct Benefit Transfers (DBTs) in India, especially in rural areas where financial literacy and affordable access to financial services such as bank accounts, remittances, insurance, and pensions to the poor is low. By the end of 2018, over 350 million Jan-Dhan bank accounts had been opened, granting the impoverished access to banking and credit facilities, including a RuPay debit card in order to incentivize people to participate in the formal banking system rather than in the shadow economy.

Aadhaar, meaning “foundation” or “base,” was the world’s first public sector system to break the 1-billion-user threshold. Adopted in 2009, Aadhaar is an open-technology digital system that utilizes applicants’ biometric information, in order to generate a 12-digit unique identification (UID) number. Aadhaar UIDs are linked to bank accounts created under the Jan Dhan program in order to digitally verify the bank account holder. The latest government figures show that 88.6% of the Indian population is registered with an Aadhar card. The conjunction of the Jan Dhan bank account and Aadhaar card, gives all Indian residents effortless access to an efficient digital payment system and to the provision of credit, which also enables businesses to expand and better manage their cash flow. Most importantly, the system brings India’s poor into the formal economy, granting them access to a gamut of welfare schemes from the Indian government via DBTs, which are deposited straight into their Jan Dhan bank accounts.

The last layer of JAM trinity is the use of mobile phones to make transactions. Mobile phone penetration in the Indian market has been very successful, with over 1.2 billion people owning a mobile phone at the end of 2018, almost 90% of the population. The provision of mobile phones and mobile networks has predominantly been driven by the private sector, with Reliance Jio spearheading the latter. Jio’s market share has staunchly risen in previous years because of its ability to identify and cater to the rural population, a largely underserved market. Jio’s customer-centric business model, which has been successful because of its deep pockets, managed to attract the not-so-well-off by providing them free data schemes for simply using Jio’s network. Schemes such as these also incentivized India’s youth to consume copious amounts of data, shifting more of their life to digital.

Automation Ahoy

As the Indian economy becomes increasingly digitalized and service-sector oriented, the impact of automation will become more pronounced. Some sectors, such as telecommunications, finance, and agriculture, have been revolutionised by digitalization to a far greater extent than others. The digital effect can be seen even in traditional sectors such as agriculture which employs 45% of India’s workforce, yet only contributes to 18% of its GDP. There is immense scope for this gap to be mitigated via digital methods. Digital financial platforms, such as the existing Electronic National Agriculture Market (eNAM), Internet of Things (IoT) monitoring devices, and greater access to a combination of meteorological data from the Indian Meteorological Department and farm data from satellite images have the potential to raise farm productivity, thereby driving future GDP growth in India’s agriculture sector. e-NAM, a government funded pan-India online trading platform for agricultural commodities, established in April 2016, covered 585 regulated wholesale agricultural market yards in March 2018. e-NAM aims to mitigate information asymmetry among farmers and traders by creating transparency during the auctioning process and provide farmers with up to 15% price increases for their produce due to their access to a much larger market.

Automation is likely to be even more pronounced in the service sector. A large bulk of the 40 to 45 million existing jobs estimated to become futile by 2025 are data-entry operators, bank tellers, clerks, and insurance claims- and policy-processing staff. These jobs are highly routine and manual, enabling computers to carry them out with greater efficiency, while saving labour costs. This is why it is imperative for the Indian government to channel its efforts and resources towards expanding the scale of digital infrastructure nationwide and increasing digital literacy.

The Way Forward

The lacklustre pace of progress in ongoing digitalization efforts to date largely stems from the dysfunctionality of 67% of National Optical Fibre Network (NOFN) points during the pilot stage as well as the inadequate and unreliable electricity in rural areas. Implementing a robust digital infrastructure network in rural areas is the first step to boosting the number of internet users in India, which is shy of 400 million, in comparison with the country’s 1,127 million (and counting) telecom subscribers.

The next stage in digitalizing India is the provision of digital literacy to every Indian. The introduction of coding at the primary school level in the recent National Education Policy of 2020 is a welcome first step. Should India want to remain a globally competitive economy in the future, it is no longer sufficient for every Indian to own a smartphone and/or computer; they must be knowledgeable about its functionalities, how to use it responsibly, and to keep their data secure at all times. In the workplace, regulations must be modified such that businesses have an obligation to digitalize supply chain processes from end-to-end and, in tandem, provide on-the-job digital literacy training to all its employees. This is especially relevant as sectors ranging from services to agriculture are expected to see increasing automation in the near future, rendering many jobs obsolete in the coming years.

While the JAM trinity has brought significant gains to the lives of people, especially in rural areas, some barriers need to be highlighted as well. Almost 20% of Jan Dhan accounts were inoperative as January 2020.While significant improvements have been made on this front, the onus is on the government that these accounts are not reduced to paper tigers. Despite the commendable spread of mobile phone penetration, access to the internet connection and smartphones, at 40% and 36% respectively need to be ramped up. Ensuring that the benefits of increased digitalization are available to the widest group of people is critical like never before, especially with everything from education to doctor appointments migrating online. Finally, Aadhar has been criticised on a number of fronts, most significantly, security lapses and inadequate protection of sensitive personal information, especially in the absence of a data protection law in India. Maintaining the faith of people and businesses alike will be paramount, as more and more services start to get liked with Aadhar.

In sum, digitalization in India has gained significant traction in recent years, largely thanks to the heavy government focus towards achieving a USD 1 Trillion digital economy by 2025, a target which ground reality suggests may be overly optimistic. Having said that, the last few years have shown substantial progress in digitalization efforts, in particular, the provision of high quality e-services to citizens, digital literacy, and the implementation of adequate digital infrastructure throughout the nation. The ongoing pandemic has given the much-needed fillip to these efforts and accelerated digital activity, with citizens and businesses being nudged to truly embrace digitalization in order to continue adding value to the economy.