Platform Economy

A platform economy is a business model in which a digital platform acts as an intermediary between buyers and sellers, facilitating the exchange of goods, services, or information.

The platform owner creates value in this model by facilitating connections and transactions between users and collecting fees or commissions on these transactions.

Ride-sharing services like Uber, online marketplaces like Amazon and eBay, and freelance platforms like Upwork and Fiverr are all examples of platform economy businesses.

Traditional business models have been disrupted by the platform economy, which has created new opportunities for entrepreneurs, workers, and consumers.

Platform Economy: India’s potential

According to a report published by the Indian government and the World Bank, India’s digital economy, including the platform economy, is expected to reach $1 trillion by 2025, accounting for nearly 20% of the country’s GDP. The following are some key data points about India’s platform economy:

• E- Commerce:
  • The Indian e-commerce market is expected to grow significantly in the coming years, reaching $200 billion by 2026.
  • Amazon, Flipkart, and Snapdeal are among the market’s leading players, with Amazon and Flipkart being India’s two largest e-commerce companies.
  • These companies have made significant investments in the Indian market, expanding their offerings and infrastructure to reach more customers throughout the country.
• Ride-hailing market:
  • Between 2020 and 2025, the Indian ride-hailing market is expected to grow rapidly at a CAGR of 19.6%, reaching a value of $22.4 billion.
  • Uber and Ola are the market’s two dominant players, with Uber having a slightly larger market share.
  • The Indian ride-hailing market has grown steadily in recent years, owing to factors such as rising urbanisation, rising disposable incomes, and increased consumer awareness of ride-hailing services.
• Digital payment:
  • As per RBI, Digital payment transactions have increased significantly from 2,071 crore transactions in FY 2017-18 to 8,840 crore transactions in FY 2021-22.
  • Along with government initiatives private players such as Paytm, Google Pay, PhonePe, and Amazon Pay dominate the market, having invested heavily in expanding their reach across the country and improving the user experience.

Platform Economy: Growth

• Technology: The development of new technologies such as cloud computing, mobile devices, and big data analytics has made creating and managing digital platforms easier and more efficient.
• Connectivity: With the widespread availability of high-speed internet and mobile devices, people can now access and use digital platforms from virtually any location.
• Data storage: Massive amounts of data on user behaviour, preferences, and transactions are generated by digital platforms. This information can be used to improve the platform, personalise user interactions, and inform business decisions.
• Innovation driven: The platform economy has fostered an innovation culture, with entrepreneurs and businesses constantly looking for new ways to create value and disrupt traditional industries.
• Regulatory framework: Platform economy regulation varies greatly across jurisdictions and industries. Some jurisdictions have enacted stringent rules regarding labour rights and data privacy, whereas others have taken a more laissez-faire approach.

Platform Economy: Benefits

• Livelihood creation through platform work:
  • Platforms create job opportunities for people who have internet-enabled smartphones and an asset, such as a skill or a product to sell.
  • Anyone, including students, homemakers, shopkeepers, and informal sector workers, can become a platform worker.
  • These platforms have low entry barriers, which means that anyone can join, and they can hold multiple jobs at the same time, which makes them very flexible.
  • The platform economy has great potential in India, as there are more than 400 million millennials who can benefit from it.
• Increasing women workforces:
  • Platforms also enables women to enter male-dominated industries. In India, for example, platforms like Ola and Uber specifically support the onboarding of women as driver-partners in their services.
• Rise of new outsourcing model:
  • Digital technologies have also resulted in new outsourcing models via digital labour platforms.
  • With a large proportion of work originating in the Global North such as Australia, Canada, Germany, New Zealand, the United Kingdom, and the United States being performed by workers in developing countries, particularly India, which accounts for nearly 20% of the total market, followed by the Philippines and Ukraine.

• Rise of start-up ecosystem:
  • The Indian start-up ecosystem is rapidly expanding. Hiring full-time employees results in high fixed costs for start-ups, so contractual freelancers are hired for non-core activities.
  • Startups are also considering hiring skilled technology freelancers (on a project basis) in areas such as engineering, product, data science, and machine learning (ML) to supplement their tech platforms.

Platform Economy: Challenges

• Rating mechanism:
  • Platform algorithms have also been criticised for undermining labour quality and dignity.
  • Some platform algorithms give customers excessive control over workers, resulting in unfair penalties based on customer feedback.
  • Workers are also subject to rating-based reputation systems, which can be unfair and put their livelihoods at risk.
• Informalization of the economy:
  • As platforms have grown in popularity, there has been an increase in concern about the informalization of the economy and temporary work.
  • Workers on the platforms frequently work long hours for low pay and diminishing incentives.
  • The platform economy also reproduces exploitative labour practises and structural inequities of the unorganized-informal economy.
• Job and Income Insecurity:
  • Platform workers in India are typically classified as “independent contractors” or “driver/delivery partners” and are paid on a piece rate.
  • As a result, workers are not protected by labour laws governing wages, hours, working conditions, and the right to collective bargaining.
• Issue of accessibility due to digital divide:
  • Access to internet services and digital technology can be a restrictive factor especially for those residing in rural and remote areas and this has made the platform economy largely an “urban phenomenon”.
  • The digital divide has made it challenging for rural and remote workers to access platform economy opportunities.
• Skill Mismatch:
  • Due to rise of unemployment, workers with higher educational qualification are less likely to find work that matches their skills.
  • Many online web-based platforms reported having employees with more skills than what was required for the tasks.
  • The skills mismatch is especially visible on microtask platforms, where most workers (57% as per ILO) have a university degree and a specialisation in STEM (science, technology, engineering, and medicine).
  • However, these workers frequently perform tasks that do not require specific skills, such as responding to surveys and experiments, content access, and data collection.

Platform Economy: A way ahead

• e-SHRAM portal:
  • It has been launched by the Government of India’s Ministry of Labour and Employment.
  • The portal is the nation’s first national database of unorganised workers, including construction workers, gig and platform workers, and migrant workers.
  • The Aadhaar-enabled centralised database will provide registered workers with access to an Accidental Insurance cover of INR 2 lakhs under the Pradhan Mantri Suraksha Bima Yojana (PMSBY).
• Digitalisation:
  • Government has adopted various initiates to encourage digital economy and inclusive development.
  • Measure such as digital payment, easy credit availability, digital literacy helps in constructing favourable environment for platform economy.
• Five-pronged RAISE approach to be adopted by government while framing schemes for platform economy to ensure realisation of full access to social security for all platform workers:
  • Recognise the varied nature of platform work to design equitable schemes.
  • Allow augmentation of social security through innovative financing mechanisms
  • Incorporate the specific interests of platforms, factoring the impact on job creation, platform businesses and workers while designing schemes.
  • Support workers to subscribe to government schemes and welfare programmes through widespread awareness campaigns.
  • Ensure benefits are readily accessible to workers.
• Leveraging the Platform Economy for Recovery and Resilience:
  • Several governments are taking an active approach to utilising and expanding the services of gig workers, making them an integral part of crisis management.
  • For e.g., During pandemic, to reduce the need for movement, the Union Health Ministry of the Government of India authorised doorstep delivery of essential medicines.
  • Many states also took this approach to large-scale immunisation.