Digital India
This article was published in the Q2 2019 edition of BDO India's The PEriodical, a Quarterly Private Equity Newsletter
Various estimates, including World Bank, IMF, ADB and a variety of rating agencies, peg India’s growth rate to be in the region of 7% per annum, over the foreseeable future. Prime Minister, Narendra Modi has set a target of making India a USD 05 trillion economy by 2024. This implies a near doubling of GDP from the current USD 2.8 trillion, at an in-built growth rate of about 12%. Whether it is achievable or not is a matter of conjecture at this time.
In my view, to achieve this number, two basic building blocks need to fall in place: overall infrastructure buildout and increased usage of technology across various business models, that adopt and embrace technology at its core. It has been made amply clear over the years, that building infrastructure, even basic roads, railways, etc., has been challenging. Over the same timeframe, it has been proven that technology enabled businesses have an edge in terms of demonstrating usage, adoption and consequently growth. Digital disruption is a structural change that has impacted businesses across industries and this divide between disruptors and disrupted will continue.
Over the last few years, India has been in the middle of this paradigm shift and we have seen a rapid rise in technological penetration in India in the form of mobile subscriptions and internet subscriptions.
With the advent of cheap handphones and cheaper data plans, rural India has seen a massive growth in mobile adoption. There is a whole generation of people that are mobile first and then there is a whole section of rural India that is getting introduced to telephony via the mobile device. A mobile internet subscription that was a luxury a mere five to six years ago, has now become a basic consumable for the average Indian.
Wireless data consumption has increased fivefold in two years with the entry of new age disruptor - Reliance Jio. This has sent shockwaves in the telecom market, leading to a price war that has greatly benefited the end consumer. Monthly data consumption per subscriber has increased nine-fold while the cost per GB has decreased from ~INR 19 to ~INR 8 in the same time frame. While the consumer has been the undisputed winner, telecom companies have clearly lost. Their balance sheets that were saddled with debt even otherwise, owing to their infrastructure and spectrum buying investments, have become unsustainable in some cases and unable to support growth for the rest.
This technological revolution in India has given rise to a multitude of business opportunities, by taking both society and commerce online. Social media giants like WhatsApp (serving 400 million monthly active users), YouTube (the top subscribed channel on YouTube hails from India: T-Series with 106 million subscribers) and Tik Tok (120 million monthly active users in India) have provided businesses in India with community engagement opportunities. Online commerce sites like Walmart- owned Flipkart and Amazon have found resounding acceptance due to the fact that most new internet users have come online through a transaction.
The Indian government has recognised that technology is the need of the hour. In 2009, they launched the Aadhaar program through the UIDAI. Aadhaar, a biometric based identification, was poised to be the largest national ID program to be utilised to receive all government benefits. Today, 1.2 billion Aadhaar cards have been issued, while over 35 billion authentications have been carried out. The Aadhaar program also boasts of having linked over 870 million bank accounts. This is quite a resounding success of our digitalisation and financial inclusion journey.
Demonetisation, which took place in 2016, will be remembered as a moment where India, its citizens and its businesses started transacting digitally. Technology supported the PrimeMinister’s JanDhan plan, which has been touted as the widest financial inclusion plan the world has experienced. It now boasts of 360 million bank accounts opened up with a cumulative deposit balance of US$14.5 billion. The move to GST provided tailwinds to this digital push and expanded the tax base to include 10.3 million indirect tax paying businesses onto one digital platform.
Businesses in India need to recognise these changes happening around them and need to plan their digital transformation accordingly. They need to appreciate that digital transformation is not another new age buzzword or an independent project to be assigned to a siloed team, but rather a necessary change to an organisation’s DNA.
The government seems to be cognizant of the challenges involved and their recent budget provided relief to many new age businesses and also kickstarted a new scheme called the Pradhan Mantri Gramin Digital Saksharta Abhiyan under the Digital India Program, which covers 60 million households in rural India and aims to provide digital literacy to them.
Public-Private Partnerships have been another driving force. For example, Bharti Airtel plans to roll out high speed fibre- based internet to the top 100 cities in India, while Reliance Jio, has ambitious plans to connect over 1100 cities through fibre.
With so many stakeholders working together to help India take the digital leap, we seem poised to become a digital superpower in the near future. Businesses that hold technology at their core stand to be leaders and succeed in this competitive world. Equanimity Investments is well poised to capitalise on this growth as we continue to build our portfolio backing such businesses. The future, from our standpoint, appears bright.