Will India Seize the Digital Revolution? Summary.

Will India Seize Digital Revolution Opportunity?

Policy Reforms for a Digitalised Indian Economy

SUBHASH CHANDRA GARG

Economy, Finance and Fiscal Policy Strategist and Former Finance and Economic Affairs Secretary, Government of India

SUMMARY

India led the agricultural transformation and became rich for many millennia. India, however, resisted industrial transformation and missed it massively by coming on the bandwagon quite late. The world is now undergoing the third transformation- digitalisation of production of all goods and services. Shall we be able to seize this digital revolution opportunity?

The combination of the chip (integrated circuits in the hardware) and the code (coded programming or the software) or the Information Technology and the internet (communication technology using electro-magnetic forces), together referred as Information and Communications Technology or ICT, is the foundation and flourish of ICT revolution.

Digital technologies have enormous potential to transform all the constituents of economy- whether in agriculture, industries or services- by digitalising the manual and mechanical production processes of goods and services. The digital technologies have multiple advantages over the manual and industrial processes.

There are three sweepstakes in the race for digitalising the economy which will decide the ultimate winners of the digital era. First, the development of digital hardware industry- production of chips, electronics and digital content transmission equipment. Second, the development of digital software services- the ability to write the best codes to use data and information to digitalise the production and consumption processes. Third, the digital infrastructure and skills to enable production of hardware, software and digitalisation of economies.

Size of digital economy of India is quite small for the present. Total gross value added in 2017-18 was Rs. 154.83 lakh crores. The GVA of the digital goods and services, both hardware and software, was Rs. 7.92 lakh crores or 5.12%. The digital economy GDP of India makes up approximately 5% of the total economy. India has a long way to go despite our proven prowess in producing and delivering digital business services and also in writing software programmes.

UNCTAD publishes an annual Digital Economy Report. The last available edition is the 2019 edition. The world is fast digitalising but the ‘world is only in the early days of the data-driven economy’, concludes the Report, despite stellar progress. India is relatively a minor player still.

India’s National Electronics Policies 2012 and 2019 did not achieve its objectives though share of India in global electronics manufacture went up from 1.3% in 2012 to about 3.0% in 2018. Domestic electronics industry size is still of only about $75 billion, whereas the goal set in 2012 was $400 billion by 2020 which has now been pushed to 2025. Electronics imports exceeded $50 billion in 2019-20 with 40% of it coming from China. There has been notable progress only in mobile handset manufacturing.

The Government recognised the limitations of the NPE-2013 and 2019 in incentivising establishment of real large-scale manufacturing of electronic products. The new Scheme ‘Production Linked Incentive Scheme (PLI) for Large Scale Electronics Manufacturing’ is a much better targeted scheme. The PLI scheme offers incentive of 4% to 6% on incremental sales of mobile phones and eight specified electronics components. The PLI scheme is likely to perform much better, especially for the manufacture of mobile sets in India.

India has strong Information Technology Companies. India is the largest exporter of IT services in the world. However, when it comes to software products, India’s performance is as bad as electronic products manufacturing. The National Policy on Software Products (NSP-2019), a first policy targeting software products as such, adopted in 2019, makes a telling statement that contribution of software products in the Indian IT and IT enabled Services was only $7.1 billion out of total estimated revenue of $168 billion. The export of software products was still bad at only $2.3 billion out of total exports of $126 billion, giving India a share of only .5% of the global software market. The worst part was that India imported software products of $10 billion, which made India a net importer of software products.

Software or the coding is the second pillar of the digital revolution. Indian are considered geniuses in coding. Most of the companies in Silicon Valley have Indian engineers to do the coding. Indian companies have also developed a few world scale software products. Yet, when it comes to top 10 or 25 software companies of the world, Indian companies do not figure anywhere. The NSP-2019 applies hackneyed formula of promoting industrialisation in India by customising it to the software industry- nurturing 10000 technology start-ups, creating a talent pool of 1 million IT professionals, setting up a single window platform for facilitation of Indian software product industry, allowing set off of tax payment on the investment made etc. This policy is unlikely to make any major impact.

Information technology or IT services are business services performed from an away-location or by stationing the personnel of IT services company in the premises of the services outsourcing company. India captured the opportunity offered by fast and cheaper data transmission over distances which allowed the business services to be delivered in the US and other countries by IT companies located in India. India’s cheaper and educated workforce provided the killer advantage. Lot of new technocrat entrepreneurs helped seize this moment for India.

Government created right policy environment. Software Technology Parks were set up which provided faster data transmission facility, the most differentiating factor for establishing successful enterprises and also other technological infrastructural services like data storage facilities. The Government gave one big fiscal concession- income tax profits exemption. These policies were adequate to set Indian entrepreneurs set up world class companies and capture one third of global business for India.

The Government has adopted National Digital Communications Policy 2018 (NDCP-2018) recognising quite well that ‘digital infrastructure and services are increasingly emerging as key enablers and critical determinants of a country’s growth and well-being.’  The digital communications policy is extremely important to achieve two big goals- transforming Indian economy into a digital economy by digitalising production and distribution of goods and services and second, by transforming individuals and households, the society, into a digital society.  The NDCP-2018 focuses on second objective and by and large ignores the first objective.

The whole NDCP-2018 is welfare oriented and not business oriented. The global enterprises which have developed and own digital technologies are making enormous amount of money. Indian corporates do not have these digital technologies. The policy should have focussed on how to get these technology majors to bring their technologies by investing in India to create the most advanced and functional digital infrastructure in the country. There is mention of goal of attracting $100 billion of foreign investment. The requirement is possibly manifold and merely making such general statement do not get the FDI. We need to create customised solutions like the PLI initiative to get digital technological chips and equipment manufactured in India.  

Market Analysis Group, IDATE conducted a survey in 2019 ranking the countries on the basis of homes and buildings connected to the fibre (FTTH &FTTB) with cut-off criterion of minimum 1% of homes and buildings connected to Fibre. 64 countries met this minimum threshold. These countries had 1.2% to 95.7% homes and buildings connected to fibre. UAE, Qatar, Singapore, China, South Korea, Hongkong, Japan, Mauritius and New Zealand were top 10 countries with fibre penetration exceeding 53%. India, unfortunately, was found not to have even 1% homes and buildings connected to fibre which shows the pathetic state of optical fibre penetration in India.

Binary bites ‘0 and 1’ or ‘off and on’ in electronic current converted every digit, every letter, every picture, every sound and almost every way in which the humans thought, expressed and communicated. All the numbers, words, pictures, sound bites, information, expressions and everything else constructed in bites are data. For digital economy, data is everything- it is the input, it is the process of production and it is the output. Economy- the production, distribution and consumption of goods and services- cannot be digitalised without extensive creation and use of data.

In India, unfortunately, the value and critical advantage of data for digitalisation of the economy did not get much appreciation. Protection of personal data, instead, got all the policy attention, most specifically after 2016.

The Government constituted a Committee of Experts under the Chairmanship of Justice B N Srikrishna in July 2017 ‘to deliberate on a data protection framework for India’ with the objective of ‘keeping personal data of citizens secure and protected’. The two specific ToRs, which controlled the Committee’s work were ‘to study various issues relating to data protection in India’ and ‘to make specific suggestions for consideration of the Central Government on principles to be considered for data protection in India and suggest a draft data protection bill.’  No wonder the Report of the Srikrishna Committee did not make a single recommendation on how to seize the opportunity to digitalise Indian economy by using data as the critical advantage. All the recommendations related on how to define and deal with the personal data. The Committee recommended only a ‘Personal Data Protection Bill 2018’.

There are four major issues the way Indian Government has chosen to deal with the issue of data. First, the world of data is being looked only from a very narrow lens of personal data. Second, all the energy and efforts are focused only on protection of personal data and there is no thought and strategy for using data as a matter of critical advantage for building a competitive and rich digital economy for seizing the opportunity offered by digitalisation of production of goods and services. Third, the fundamental construct of Constitution for protecting privacy of citizens from the Government, which is part of the fundamental rights, is being sought to be turned its head by seeking to exclude private businesses from use of personal data while giving overriding access to the government to not only have personal data of persons but also non-personal data of businesses. Fourth, in the virtual world of today, there are no national boundaries for storage and access to the stored data, however there is excessive preference for data localisation.

The Bill propose a massive administrative machinery and elaborate procedures for obtaining consent/permission of ‘data principal’ for use of personal data. The bill, if enacted would usher in India a regime worse than the licence permit raj which destroyed private enterprise in industrialisation process of India. There should be more liberal and easier process of obtaining consent of person concerned for use of personal data. A willingly provided information while filling up an application or interacting otherwise should suffice and it should be required to obtain a consent which is ‘free, informed, specific, clear and capable of being withdrawn’. Misuse of privacy data must be as punishable as breach of privacy is punishable today.

The whole exercise of enacting a personal data protection bill should be replaced by a holistic data use policy or law for facilitating digitalisation of Indian economy protecting legitimate privacy concerns from harm.

Trade and Commerce is, like any other service sector- accounting and finance, banking, transportation etc.- is an economic service. Trade and Commerce is, like many other services- banking or accounting- extremely amenable to digitalisation. Trade and Commerce, transacted digitally- the e-commerce- has enormous advantages- cost, time, distance etc.- which is the world over, disrupting the traditional trade and commerce industry. There is no legitimate rationale for having a separate law or policy for e-commerce as there is no legitimate rationale for having any separate law or policy for e-banking or e-accounting or business process outsourcing and the like.

For no good reason, the DPIIT decided to take over the mantle of controlling digital aspects of e-commerce, most notably data. In Feb. 2019, it came up with a Draft National E-Commerce Policy with the theme ‘India’s Data for India’s Development’. The Policy is hardly an e-commerce policy. It is out and out a trade data control and regulation policy.

The proposed e-commerce policy transgresses the domain of Ministry of Electronics and Information Technology (MeiTy) heavily as data regulation, irrespective of sector, is their domain. The policy is so excessively restrictive that it amounts to very bad form of protectionism in trade and commerce. The inherent contractions and excessive protectionism proposed in the Draft e-commerce policy 2019 have not allowed it to progress much.

There is an absolutely no need for the Government to frame any e-commerce policy to regulate data and digitalisation of trade and commerce services. The policy draft should be simply scrapped.

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