Having missed the first and second industrial revolution of 19th century and early 20th century respectively [courtesy subjugation of India to colonial rulers of those times] and even the third technology-driven revolution [this one was primarily due to the ‘protectionist’ and ‘inward looking’ policies which were not conducive to embracing technology], India is now in the forefront of the fourth industrial revolution – a digitally driven.
The digital revolution is the shift from mechanical and analogue electronic technology to digital electronics which began anywhere from the late 50s to the late 1970s with the adoption and proliferation of digital-computers and digital record keeping that continues to the present day. The last five years have seen massive proliferation of affordable mobile phones, increasing penetration of internet and explosion of data use from a mere 0.2 GB a month to 11 GB.
This was due to mammoth investment in telecom infrastructure, exponential growth of mobile factories within India, expansion of telecom services [with prime focus on data services] and adoption of new technologies – those are many times more efficient and cost effective. This in turn, was helped by an enabling policy environment which included ‘changing horses midstream’. For instance, under the New Telecom Policy (NTP) [1999], the service providers were allowed to switch over to payment of license fee as percentage of the adjusted gross revenue [AGR] from the subsisting regime of paying exorbitant fee bid at the time of granting license.
The digital infrastructure is the bedrock of unprecedented growth of start-ups in sunrise industries viz. online retail commerce, retail brokering, food delivery, ride-hailing, digital aggregation of service providers such as plumbers, cleaners, painters etc [India is now the third largest start-up ecosystem in the world]. They offer huge scope for increasing employment and income.
The success of Modi government ‘financial inclusion’ program is predicated on use of the JAM [Jan Dhan – Aadhaar – mobile phone]. This platform is used for direct transfer of subsidy and other benefits to the account of beneficiaries. This has helped saved hundreds of thousand crore by plugging leakages. This would not have been possible but for a robust digital architecture.
The government has also used technology for empowering farmers by distributing digitally enabled 140 million soil health cards [these cards have all the information on nutrient status of the soil and what fertilizers and other inputs to use] as also for linking with electronic–national agriculture markets or e-NAM. It is also used for making payments under MGNREGA to rural workers.
For tens of million consumers and traders, the digital architecture has helped in enhancing ease of payments and business. The government has also given a boost to indigenous digital payment mechanism. The Bharat Interface for Money-Unified Payment Interface [BHIMUPI] with over 600 million transactions a month [January, 2019], is the inter-operable backbone connecting all banks and consumers.
True, India has seized the opportunity and taken a lead role in the digital revolution. However, given its huge size, vastness in terms of both demography and geography, tens of millions who are still unconnected as also ensuring quality services to those already connected, there are many challenges ahead. All stakeholders including the government and service providers must be prepared to address these.
First, economic growth which has slowed down to 5% and 4.5% during the first and second quarter of the current year needs to be revived and accelerated to 8% plus to reach the US$ 5 trillion GDP target by 2024. A ‘robust’ and ‘healthy’ digital infrastructure will be very crucial for achieving this growth. It is vital to realizing the equally vital goal of doubling farmers income.
Second, substantial augmentation of the existing infrastructure will be necessary for taking forward Modi’s ambitious financial inclusion program and ensuring effective implementation of welfare schemes. For instance, under PM – KISAN [started early this year], against the target of 140 million farmers, the government has so far not reached even the half-way mark.
The proposed direct benefit transfer [DBT] of fertilizer subsidy will require monumental efforts in terms of collecting farmers’ data viz. land size, crop grown, soil status, fertilizer use; putting it all in digitized record and creating technology-driven financial architecture for hassle free transfer of money to their accounts. Unfortunately, the exercise has not even begun.
Third, India will need to have at least 3-4 telecom service providers to maintain delivery of ‘quality’ services at ‘affordable’ price [considering the growing needs, we should be aiming at 6]. Unfortunately, today the industry is at the brink with one major player having already hinted at closing the shop if government does not give relief. There is an urgent need to pull it back.
A lot needs to be done by the service providers themselves. They have begun well by pledging to avoid predatory tariff cuts. This should be sustained [the regulator will have to play a role expected from it; it has not done so far]. The government may provide some relief by way of cut in spectrum usage charge [SUC] from existing 8% to say, 5% and reduction in GST. However, it must not go for a complete bail out as that could destabilize its budget.
Fourth, while implementing revival plans for BSNL and MTNL, effort should be made to ensure that these are self-financing and impact on the budget is minimal. It can be done if only the sale plan of their land and other assets is vigorously carried forward. Apart from reaching out to remote areas where private firms may not go, their continuation is necessary from ‘security’ and ‘strategic’ perspective.
Fifth, the government should have a comprehensive policy on ‘subsidizing’ digital services under its welfare schemes for empowering farmers, self-help groups [SHGs], village panchayats etc. The money should come from the state or central budget ensuring that the service providers [including BSNL] are not made to foot the bill.
Sixth, in the process of conducting their businesses, digital companies generate data on millions of customers. This raises three major concerns viz. (i) protection of data; (ii) rights of citizens to privacy and (iii) national security. Considering that the landscape is dominated by multinationals such as Amazon, Walmart etc, the concerns are heightened due to cross-border movement and sharing of ‘sensitive’ data with third parties [including foreign governments].
The government is addressing these concerns in a variety of ways viz. executive orders [e.g. last year, the RBI ordered all payment companies to transfer data to India within six months]; enactment of a law on data protection; policy on FDI in e-commerce market-place and regulations for conduct of MNCs on these platforms. While, taking it forward, care must be taken to ensure that our digital initiatives and innovation [especially, the start-up ecosystem] are not hemorrhaged.
We also need to remember that if India goes too far insisting on ‘data localization’, ‘setting up local office’ ‘handing over the data key to regulators’ etc then this can trigger retaliation from USA, EU countries and others affecting tens of billion dollars exports from Indian IT and IT-enabled service companies.
Finally, India needs to carefully develop its approach to taxation of digital transactions [and how the government can make OECD agree to our ideas on the subject] as in the years to come, this will be a major source of revenue.