Digital Economy

A digital economy refers to an economy based on digital technologies connected through the internet.

Components of Digital Economy

The different technologies and economic aspects of the digital economy can be broken down into three broad components:

1. Core aspects of the digital economy: It comprises of fundamental innovations (semiconductors, processors), core technologies (computers, telecommunication devices) and enabling infrastructures (Internet and telecoms networks).

2. Digital and information technology (IT) sectors: It comprises sectors that produce key digital products or services ( e.g- digital platforms, mobile applications and payment services).

3. Digitizing sectors: These include sectors where digital products and services are being increasingly used (e.g. for e-commerce). It also comprises sectors such as finance, media, tourism and transportation, where digital technologies are transforming the way processes operate. Further, digitally literate workers, consumers and users are crucial for the growth of the digitized economy.

State of Digital Economy in India

• Digital Consumers: India is one of the top three global economies with respect to the number of digital consumers. As per Indian telecom services performance indicators released by TRAI, India had 560 million internet subscribers in 2018.
• Digital Adoption: India has the second-fastest rate of growth of digital adoption among mature and emerging digital economies( which includes Brazil, China, USA, Russia etc), as per TRAI. The adoption of public digital platforms like Aadhar, and UPI have led to faster digital adoption.
• Narrowing the digital divide : Indian telecom services performance indicators released by TRAI has also indicated the bridging of the regional digital divide by following findings :
  • India’s digital divide is narrowing fast as less affluent states are fast catching up with more affluent states.
  • Between 2014 and 2018, 7 out of the 10 states with the highest rate of growth in internet subscriptions had per capita GDP lower than India’s average.
  • Among the lower-income states, Uttar Pradesh alone added 36 million internet subscriptions.
• Digital economic value: A report released by the Ministry of Electronics and Information Technology, in partnership with McKinsey has pointed out that India can create over $1 trillion of economic value from the digital economy in 2025, with half the opportunity originating in new digital ecosystems that can spring up in diverse sectors.

Trends in Emerging Technologies

1. Blockchain Technologies: Blockchain technologies are a form of distributed ledger technologies that allow multiple parties to engage in secure, trusted transactions without any intermediary. Besides its use as cryptocurrency, it is also in use for digital identification, property rights and aid disbursement.

2. 3D Printing: Three-dimensional (3D) printing, also known as additive manufacturing, can disrupt manufacturing processes by boosting international trade in designs rather than in finished products. For example, in Africa, such ventures exist for medical supplies in Uganda and for filling import gaps in Nigeria.
3. Internet of Things:

1. Internet of Things (IOT) refers to the system of internet-connected devices that are embedded in various everyday objects enabling them to communicate with each other by data transfer.
2. Its applications vary from energy meters, RFID tagging of goods for manufacturing, logistics management, monitoring weather conditions in agriculture, etc.
3. As per a 2018 Ericsson report, there were more “things”(8.6 billion) connected to the Internet than people (5.7 billion mobile broadband subscriptions) in 2018. It has further forecasted that the number of IoT connections would grow by 17 per cent a year.

4. 5G Mobile Broadband : Fifth-generation (5G) wireless technology is critical for IoT due to its greater ability to handle massive volumes of data ( 5G networks can process around 1,000 times more data than today’s systems).

5. Cloud Computing: The cloud is transforming business models. It offers several benefits such as reducing the need of inhouse IT experts and offering flexibility for scaling and maintenance. Some cloud services provide office-like application tools. It is cost-efficient as it reduces the need of purchasing licensed software.

6. Automation and Robotics: Automation and robotics technology are being used widely in manufacturing processes. For instance, robots are mainly used in the automotive, electrical/electronics and metal industries.

7. Artificial Intelligence

1. Analysis of large volumes of digital data is propelling the developments in AI, including machine learning. For instance, AI is already in use in areas such as voice recognition and commercial products (such as IBM’s Watson).
2. As per ITU, such technologies can generate an additional global economic output of around $13 trillion by 2030, contributing an additional 1.2 per cent to annual GDP growth.

8. Big Data Analytics

1. A key technology that runs across all the emerging technologies in the digital economy is big data analytics. This refers to the capacity to analyse and process massive amounts of data.The amount of data generated in the evolving digital economy is constantly and rapidly increasing.
2. A white paper by IBM on Marketing Trends for 2017 noted that 2.5 quintillion bytes of data are created every day.

SWOT Analysis of the Digital Economy

Strengths

• Convenient Mode of Payment: Digital economy provides an ease of transaction to the customers. It further offers other benefits, such as reduction in transaction cost of carrying and doing transactions in cash.
• Lower Risk: With proper cybersecurity, online payment is relatively risk-free, whereas there are always safety issues with physical cash
• Reduction in the Cost of Printing Money: Printing of new currency notes and replacement of soiled and mutilated currency notes involves cost. For instance, in 2015, printing currency cost the RBI Rs 27 billion. Thus, the cost can be reduced if the economy moves towards a digital economy.
• Decrease in Crime Rate: Many illegal activities like drug trafficking, prostitution, financing of terrorism and money laundering are carried out only in cash. A digital economy will make it difficult to carry out such operations.
• Good for the Banking Sector: A digital economy will help the banking system. Once people get used to digital payment and transfers, there would be less demand for cash holding. Thus, this would leave more cash in the banking system and thereby enable more savings.
• Economies of Scale: Interconnected networks in the digital economy would allow information flows across and between the networks. This would enable economies of scale due to fixed infrastructure costs of installing the networks.
• Availability of e-services: Digital platforms that enable real-time data updates, would increase accountability and facilitate monitoring, quality checks and timely intervention by the higher administrative authorities.

Weakness

• Poor quality internet: Internet access is the backbone of a vibrant digital economy. However, it is plagued by issues related to quality and reliability, call drops and weak signals. Existing networks have been strained further by limited spectrum availability and usage, affecting the provision of quality services.
• Digital access and literacy: A vast number of Indian population does not have access to devices such as laptops, computers, smartphones, etc. As per the NITI Aayog Strategy document, digital literacy in India is estimated to be less than 10 percent of the population.
• Skill Gaps: Digital economy would require competent professionals with adequate skills to take the lead. However, India has been lacking in it.For instance, A NASSCOM report has pointed out an employee deficit of around 1.4 lakh jobs in the Artificial Intelligence (AI) and Big Data Analytics segment across various sectors in India, which is expected to increase to 2.3 lakh by 2021.
• Digital gender gap: According to a study released by LIRNE Asia, an information and communications technology (ICT) policy think tank, India has the highest gender gap in mobile phone and 3rd highest in access to the Internet.
• Access to power: Uninterrupted access to power is essential for a digital economy to function efficiently. For instance, blockchains require a substantial, reliable electricity supply for proper functioning. However, around 22% of rural households across the country still do not have access to electricity.
• Inequality: The influx of frontier technologies of the digital economy may create inequality within the various regions of India. For instance, the deployment of 5G may further increase the urban-rural digital divide, as setting up 5G networks in rural areas with lower demand will be commercially challenging.

Opportunities

• Improve the ease of operations: Transition to a digital economy has the potential to reduce the operational costs of businesses. For instance, adhering to the compliance requirements in a digital form would take minimal time.
• Data as a resource: Data is the driving force behind all technologies of the digital economy. The transformation of data into useful information would aid better decision making.
• Financial Inclusion: Digital economy provides scope to extend banking facilities to unserved and under-served areas through technologies such as mobile banking, common service centres etc.
• Tap the leakages: Use of technologies to transfer subsidies of welfare schemes would help in stopping the leakages by making the process more transparent. For instance, DBT of subsidies under the PAHAL scheme has helped identify and block around 3.34 crore duplicate accounts, helping save thousands of crores.
• Black Money: Digitisation of financial transactions helps in maintaining a digital record and trail of such transactions. Thus, it provides opportunity to the authorities to track and verify transactions in future.
• Tackle Tax Evasion: Digital Economy could help in tackling tax evasion. For instance, the Aadhaar-PAN linkage gives maximum disclosure about the individual to all authorities including the Income Tax Department. It helps the tax authorities to track transaction and check the income tax profile of the individual/entity.
• New job opportunities: As per a report released by the Ministry of Electronics and Information Technology, the value created by the digital economy has the potential to support 60-65 million jobs by 2025. Such job opportunities could include drivers of IoT enabled trucks, delivery agents in e-commerce companies.

Threats

• Effects on Job Markets
  • The growth of digital economy has further exacerbated the risks of job loss and unemployment. For instance, the influx of machine learning and artificial intelligence will make a number of low-skilled jobs redundant.
  • Emerging technologies, such as 3d printing may also allow developed economies to use robots to “reshore” manufacturing jobs. This would lead to a stream of back-migration and affect the remittance economy
• Disruption in Industries
  • The quality, speed and price of services are developing at a much faster rate due to better access to global digital platforms for research and development.
  • Many critics have raised concerns that it may lead to disruption in the existing industries as new ways of doing business would come up. Any dearth in the adoption of new technologies may hamper the business interests of several firms.
• Cybersecurity Concerns: The regulatory framework for cyber security is inadequate. Hacking and denial-of-service attacks have led to the disruption of services, both in the government and private sector banks.
• Data and Privacy: Digital economy depends on the availability of structured and unstructured datasets. The growth of digital economy will further raise the concerns of data security and privacy of individuals.

Way Forward

• Broadband connectivity: Proper implementation of the new National Digital Communications Policy, 2018 would provide universal broadband coverage at 50 Mbps to every citizen and enable 100 Mbps broadband on demand to all key development institutions (such as: educational institutions, hospitals etc).
• Promoting higher education as centre of innovation: The competitive advantage for a future digital economy lies in developing innovation skills in the workforce. Developing collaborations between higher education institutions and industry, and promoting new innovation clusters and tinkering labs would help in tapping the innovation potential.
• Content in Indian Languages: The state governments can play an important role in providing government e-services in Indian regional languages. The promotion of technologies such as Natural Language Processing in regional languages through machine learning can be explored.
• Government Procurement: The government is a large buyer of services. Thus, it can act as a market maker to create a scale for the country’s best innovations and technology applications. This would require suitable procurement policies by the government that help the startups to scale up their innovations.