India is a leader in digital finance and is poised for explosive growth

For India, digitization is a part, albeit a large one, of the country’s ambitious modernization agenda.

“India is building a digital nation, and I think that will serve it well over the next decade,” Ajay Krishnan, lead portfolio manager of the $425 million Wasatch Emerging Markets Select Fund, wrote in a May 2022 report. Wasatch Investments analysts Global Investors, based in Salt Lake City, Utah, has been visiting India for more than 20 years and believes that it has already achieved significant digitization and is poised for faster growth.

“Investors are underestimating India’s digitization efforts,” says Krishnan. Over the past five years, India’s government has expanded broadband infrastructure and created a public digital payments system so that everyone has a bank account, as well as a secure, cloud-based digital locker to store, share and verify documents. Combine this pressure with a young, digitally savvy population, and India begins a virtuous cycle that could continue for years to come,” he wrote.

Wasatch writes that India is building 30 kilometers of highways per day and expects to soon reach 40 kilometers per day. The county connects 50 million people to electricity each year, more than the population of Spain. “The country is also on the way to build state-of-the-art metro systems in all its major cities. India has also set a target of building 220 new airports by 2025.

In terms of an important soft skills, India has the second largest number of English speakers in the world after the US, noting that English is the global business language, says Krishnan. IBEF notes that India has the youngest population in the world with an average age of 29; more than 68% of Indians are under the age of 40, of which 70% of users are already online. India’s middle class is expected to comprise one billion people by 2030, 70% of India’s population. It is projected to surpass China in population in 2023. Most importantly, India will gain more than 110 million people of working age, while China will lose several million and have a growing number of aging retirees. A UN model projects China’s population to be 1.4 billion today, peak in 2028, then shrink to 700 to 900 million by 2100.

In June, said Ian Bremer of the Eurasia Group, the Shanghai Academy of Social Sciences issued a report — promptly crypted — that China’s population had actually peaked last year and would fall steadily to 587 million in 2100.

Digitization in India rests on the foundation of Aadhaar, a biometric identity program that has enrolled more than one billion people (99% of the country’s population as of June 2021 — IBEF), providing each individual with unique, verifiable credentials that are critical for digital interactions with government, marketplaces, P2P payments and financial services.

“Aadhaar underpins much of India’s digital, financial, legal and regulatory progress,” added Krishnan. “India has enrolled more than one billion people

Aadhaar in about five years, which is roughly three years faster than it took Facebook to reach one billion users.” India is looking at export Aadhaar and reports suggest that around 20 countries may be interested. The Unique Authority of India (UIDAI) has partnered with the World Bank and the United Nations to roll out the Aadhaar digital identity architecture outside the country.

India’s digitization efforts are led by the national government, which started close to home – by digitizing government services, more than 300 so far in India’s case. The government’s Digital India program aims to “transform India into a digitally empowered society and knowledge economy”.

It has placed top priority on promoting digital payment services with the slogan “Faceless, Paperless, Cashless”.

“The vision is to enable seamless digital payment to all citizens of India in a convenient, easy, accessible, fast and secure manner” through the Unified Payments Interface (UPI), which is the platform for several digital payment services including Google Pay, Paytm , PhonePe, Airtel Thanks or Reserve Bank of India’s Bharat Interface for Money (BHIM).

UPI has made India the largest market for real-time payments. While India is developing a digital currency backed by the Central Bank of India (CBDC), its central bank, Aadhaar can allow the bank to provide an account for each. India’s official digital currency is under development and will be launched by 2022-2023, according to the Reserve Bank of India (RBI). CBDC transactions do not require a bank account, which is crucial in developing countries where a third of the population does not have access to traditional finance but has access to mobile internet. With an Aadhaar number and a smartphone, an Indian customer without a bank account can easily transact using a mobile app. This means that governments in the industrialized world will quickly include those who were previously excluded from the financial system.

The country’s Unified Payments Interface (UPI), a free service, is a mobile app that allows people to transfer money to friends and pay bills without the need for credit cards. The Indian side’s Direct Benefit Transfer (DBT), launched in 2013, could take advantage of this by making benefits faster and reducing fraud.

India’s explosive digital growth is largely driven by mobile phones to connect to the Internet — its telecommunications network is one of the largest in the world, with over 1.1 billion mobile subscribers. The number of internet users has grown from 343 million in 2016 to 846 million in 2021, and new users are being added at over seven million per month, it added. The pillar of Digital India is universal access to mobile connectivity, which aims to provide coverage to villages in India that currently lack mobile phone service, Wasatch writes. Reliance Jio provides India’s largest 4G network, which Wasatch says is extremely cheap and provides much higher voice and data capacity and uses less bandwidth compared to legacy technology. By 2021, the country had about 846 million internet users and was adding more than seven million a month.

Sometimes the adoption of digital processes collides with perhaps the world’s largest bureaucracy with entrenched hierarchies and customs left over from the British Raj. Millions of these bureaucrats are ripe for replacement with technology that can streamline government functions if allowed. Shivam Vj, writing in ThePrint, wrote that “No one, not even a strongman leader like Narendra Modi, is able to get the Indian bureaucracy to reform its ways – reduce the number of unnecessary steps in their perfect SOPs and make life people easier. Bureaucracy seems to exist to make people’s lives more difficult because each cog is trying to be true only to its own desk. No one is looking at the bigger picture and there is little accountability. K Yatisj Rajawat, CEO, Center for Public Policy Innovation, wrote that “Without reforming the bureaucracy, it is unthinkable for India to achieve its goals… Power in the bureaucracy is highly centralized, leading to delayed decisions and subsequent project failures. Training is focused only on Grade A employees, while the rest of the rungs of a system that employs more than 20 million people are not seen as important enough to train.”

Fellows from the International Innovation Corps at the University of Chicago reported on their observations while consulting on a management information system (MIS) for a digital literacy program. They found that the civil service maintains strict job roles – senior officers delegate work such as drafting Word documents or checking emails to “clerks” – stenographers or typists. “It’s so embedded in the way government offices work that even when an employee is competent to check emails, draft Microsoft (MS) Word documents on their own, they will have stenographers/computer operators to do that work for them “

McKinsey, in a 2019 report, noted India’s rapidly changing digital scene: “Our analysis of 17 mature and emerging economies finds that India is digitizing faster than any other country in the survey, except Indonesia – and has a lot of room for growth: just over 40 percent of the population has an internet subscription.”

Internet subscriptions quadrupled in both 2017 and 2018, he added, “boosted” by competitive offerings from telecoms firms. Although India’s growth is second only to Indonesia’s, McKinsey added, it still lags well behind “the four most digitized economies of the 17: South Korea, Sweden, Singapore and the United Kingdom.”

McKinsey Global Institute remains optimistic and believes that the country can be truly connected by 2025. “We find that core digital sectors such as IT and Business Process Management (IT-BPM), digital communication services and electronics manufacturing can double the level of GDP to $355 billion to $435 billion by 2025, while new digitized sectors (including agriculture, education, energy, financial services, healthcare, logistics and retail) as well as digital applications in government services and labor markets could create $10 to $150 billion in additional economic value over the same period.”