Digital India Campaign to Boost GDP by $1 Trillion

01
Three Pillars to Sustainable Growth and Development in India
Pillar II: Digital India: Road to Boosting GDP by USD 1 Trillion
Chacko Jacob and Dharish David - Partner Team
“Around 400 million people in the last year got a smartphone. If you think that’s a big deal, imagine
the impact on that person in the developing world”. Eric Schmidt, Davos 2015
The impact that Eric Schmidt refers to above is what we would like to try and highlight in this series on
the digital infrastructure in India. Digital India is a campaign by the Government of India to ensure that
services are made available electronically to all the people in the country. The Government aims to
achieve this by improving online infrastructure and increasing internet connectivity in urban as well as
rural areas. The campaign launched on 2nd
July 2015 consists of three core components:
 Creation of digital infrastructure
 Delivery of services digitally
 Digital literacy
Digital India intertwines together a number of ideas and thoughts into a single, comprehensive vision
that can be implemented as part of a larger goal of digital literacy. The Department of Electronics and
Information Technology (DeitY) has been tasked with coordinating the overall implementation of the
programme which aims to provide the much needed thrust to the nine pillars of growth.
20161208

02
Source: digitalindia.gov.in
Pillars That Will Power to Empower
Digital India is an umbrella programme with numerous repositories that is spread across multiple
departments and ministries. Below are some of the more important pillars and our view on the same.
Broadband Highways
The NDA government has allocated INR 5 billion to build high speed broadband highways to connect
every corner of the country. Under the National Optical Fibre Network project, 250,000 villages are
expected to be covered by December 2016. BSNL, RAILTEL and PowerGrid Corporation of India are the
PSUs (Public Sector Undertaking) responsible for this INR 200 billion project. A National Information
Infrastructure (NII) department has been established with the with the primary purpose of integrating
the network and cloud infrastructure in the country to provide high speed connectivity and cloud
platform to various government departments up to the panchayat level (GP).

03
Source: www.igovernment.in
The components of the NII will include various networks such as State Wide Area Network (SWAN),
National Knowledge Network (NKN), National Optical Fibre Network (NOFN), Government User
Network (GUN) and the MeghRaj Cloud (GI Cloud). The program will have provision for horizontal
connectivity to 100, 50, 20 and 5 government offices at state, district, block and panchayat levels
respectively. The figure above provides an idea on how the system would be connected.
National Association of Software and Services Companies (NASSCOM) believes that this is an
opportunity for private companies such as system integrators to take advantage of the PPP structure
and play a big role in operating and maintaining cloud operations for a certain period of time. Large
international companies have faced flak in providing the services mentioned above, thereby throwing
the door open to domestic companies to be a part of this project. The cost of the whole project is
estimated to be INR 200 billion and will be funded by the Universal Service Obligation Fund (USOF),
which is also tasked with designing the bidding process and carrying out tendering. The fund currently
has a balance of INR 418 billion.
Source: USOF, compiled by Uzabase

04
Evidently, the PSUs tasked with laying the pipes and cables were behind their yearly targets at the end
of 2015. On a cumulative basis though, the companies have met 72% of the target and should not face
any difficulty in completing the remaining 68,000 grama panchayats by the end of 2016.
Universal Access to Mobile Connectivity
The government has apportioned INR 160 billion to improve the mobile network penetration in the
country. There are still 55,619 villages that do not have mobile coverage. The plan has already been
initiated in the North East while the remaining villages in the rest of the country will be provided with
internet connectivity in a phased manner. There is no doubt that this pillar is the backbone of the
whole campaign. Rural mobile phone users have grown at 128% CAGR from 2011 to 2016. This growth
has catapulted India as the second largest smartphone market in the world after China.
Source: IAMAI, Feb 2016, TRAI projections, compiled by Uzabase (rate for 2016 estimated using the previous year’s population)
Public Internet Access Programme
The two main components of this pillar are:
- Common Services Centre (CSC)
CSC is considered to be the strategic cornerstone of Digital India. These centres are access points for
delivery of various electronic services to villages in India, thereby contributing to a digitally and
financially inclusive society. CSCs also promote entrepreneurship and improvement of rural livelihoods
to promote community participation for the collective engendering of social change.
- Post Offices as multi service centres
India has a total of 150,000 post offices of which 90% of them are located in rural areas. On average,
each post office serves an area of 21.21 square km and a population of 7175. In addition to its primary
service, post offices also provide financial, insurance and retail services. The Gramin Dak Sewak scheme
has been allocated INR 49 billion to digitise all post offices by March 2017.

05
The plan will include training of postmen in using solar powered handheld devices that will give rural
consumers access to financial remittances and saving account through biometric scanning.
Telecommunication Consultant of India (TCIL) along with RICOH India will provide the hardware while
Infosys will ensure connectivity.
Source: Internet in India 2015 by IAMAI and IMRB International
As mobile penetration improves, more rural users are switching to smartphones from other mediums.
This is certainly an opportunity for smaller smartphone companies to tap the market with low end
products which at the same time does not compromise on the applications necessary to use the e-
services introduced by the government. App developers have already started making applications
tailored to the needs of farmers who make up a large composition of the rural population. Apps like
SmartAgri communicates with underground sensors to deliver easy to understand data such as soil
moisture and mineral levels to farmers. mPower Social helps cattle owners with simple and quick
veterinary advise.
Source: Counterpoint Research

06
Domestic companies, together, dominate the shipment and smartphone share as they are produced
locally and cost about half the price of a Samsung. Since the government is focused on “Make in India”
we can expect their share to rise in the next few years. The phones are likely to be bought directly from
producers and distributed at subsidised prices in the rural areas, much like how laptops from HCL were
distributed for free to students in Tamil Nadu.
e-Kranti – Electronic Delivery of Services
The National e-Governance Plan (NeGP), which was introduced in 2006 has been revamped by the NDA
government with the vision of “Transforming e-governance for transforming governance”. All new and
existing projects will now have to follow the key principles of e-Kranti, which include:
- Transformation and not translation
- Integrated services and not individual services
- Government process re-engineering (GPR) to be mandatory in every mission mode projects
There are currently 44 mission mode projects under e-Kranti at various stages of implementation.
This pillar will also include initiatives to revamp the technology in the below sectors:
 Technology for Education – e-education
Free wifi to be provided in all secondary and higher secondary schools (250,000 schools).
 Technology for Health – e-Healthcare
This would cover online medical consultation, online medicine supply etc. Full coverage is
expected to be provided by 2018.
 Technology for Farmers
Farmers will now be able to obtain real time price information and be able to make and receive
payments through mobile banking.
 Technology for Security
Emergency and disaster related services will be provided to citizens on real time basis to minimise
loss of lives and property.
 Technology for Justice
E-Courts, e-Police, e-Jails and e-Prosecution are some of the services that will be provided through
this initiative.

07
Electronics Manufacturing
This ambitious pillar aims at Net Zero imports of electronics by 2020. At present, India’s electronic
import accounts for more than 27% of the country’s deficit. While the below chart may question the
rhetoric, a reverse in the trend is clearly evident from the latest data available. India’s electronic
imports contracted in January 2016 for the first time in 2 years. At the same time, exports increased
7.8% to USD 0.5 billion during the same period. Television and communication equipment production,
which form a part of the Index of Industrial Production (IIP) grew by an impressive 82% in December
2015.
Source: UNComtrade
As per estimates by Deloitte Touche Tohmatsu India, India’s electronics demand is expected to rise to
USD 400 billion by 2020. At the current rate, domestic production will account for only USD 104 billion,
leaving a gap of USD 296 billion to be filled through imports. This is an opportunity for manufacturers
to set up shop in India to cater to the domestic and international masses. Companies like Lenovo,
Flextronics and Xiaomi have already opened assembly and manufacturing units in country. This has
ensured that at least one in two smartphones sold in India are manufactured domestically. Some of
the schemes under this pillar that are drawing investors include:
- Modified Special Incentive Package Scheme (MSIPs) subsidy of 25% of CAPEX is reimbursed.
- Electronic Manufacturing Cluster Scheme provides 50% of the cost for development in greenfield
clusters and 75% in brownfield. The government is targeting 170 additional clusters by 2020 from
the 30 currently.
- Preference to domestically manufactured goods in government procurement.
- Government to provide 75% to 100% of the training cost for industry specific skills for workers.
Some of the big ticket items that the government seeks to focus on includes FABS, fab-less design, set
top boxes, VSAT, mobiles, consumer and medical electronics, smart cards and micro-ATMs. All of these
products are core to creating a Digital India.

08
IT for Jobs
The Indian IT sector is one of the largest employers in the country, directly employing 3.5 million
professionals. NASSCOM expects the IT sector revenue to grow to USD 225 billion by 2020 from USD
119.1 billion in 2015.
Source: Statista, NASSCOM
Most of the IT jobs are currently in big cities like Bangalore, Chennai, Hyderabad and Mumbai. Under
this scheme, the government aims to incentivise BPO establishments in the North Eastern Region of
India. The North East BPO Promotion Scheme (NEBPS) takes into consideration the recurring
manpower cost to BPO companies in the above mentioned Tier I cities and has suggested that it would
be prudent for these companies to migrate to smaller cities in the North East. The key concerns of
companies in moving are the lack of reliable internet connectivity and power supply in these regions,
which the government hopes to address in the next few years. Manpower cost is a key determinant in
the BPO sector as countries like the Philippines continue to poach companies from India by offering
lower salaries to help reduce operating costs. Apart from the cost factor, a survey conducted in 2009
concluded that nearly 60-65% of the literate youth in North East India are below the age of 30. This
will serve as the backbone of the IT industry in North East India.

09
Impact of Redefining the Paradigms of Service Delivery
By extending the campaign to every corner of the country, the government expects to reap huge
rewards in different sectors.
Economic Impact
According to a report by Mckinsey, the Digital India campaign is expected to boost India’s GDP by USD
550 billion to USD 1 trillion by 2025. The nine pillars are bound to expedite GDP growth, employment,
productivity and plug revenue leakages. Taking the IT sector as an example, at present the revenue per
employee is about USD 37,771. Keeping this amount constant the number of direct employees needed
to achieve the target revenue of USD 225 billion by 2020 is around 6-6.5 million, which is double the
current number.
As per a WorldBank report, a 10% increase in mobile and broadband penetration is expected to
increase the GDP per capita by 0.81% and 1.38% respectively in developing countries. To break this
down, out of the total population of 1.25 billion, 69% (860 million) live in rural areas. We have
established in the chart above that the total number of internet users in rural India is 153 million,
leaving 83% of the market untapped. The median of mobile and internet penetration rate in rural India
for the past 5 years has been 38%. But with the new campaign we think it is safe to assume that the
rate will increase to 50%, which is what have used in our chart below.
Source: compiled by Uzabase
Theoretically, the above penetration rate would represent an increase in GDP by USD 4.8 trillion,
though a highly optimistic figure, it does represent the country’s potential if it is able to overcome the
issues that plague it at a fundamental level. With tele-density in urban areas saturated, the future
growth of telecommunications is expected to come from those represented in the above chart.

10
Social Impact
In 2012, the digital literacy rate in India was a meagre 6.5%. The Modi government aims to achieve
100% literacy by 2021. Again, as ambitious as it may seem, it may not be completely impossible. The
poor literacy rate is primarily due to the lack of physical infrastructure. With schemes like broadband
highways, public internet access and universal access to mobile connectivity the physical infrastructure
is expected to be in place before 2020. Once this is addressed, mobile and internet banking can
improve financial inclusion and create win-win situations for all players. Internet operators will see
their revenue rise with an expanding subscriber base and banks are able to service new customers at
low operating costs. Developers have already begun filling in the technology gap in agriculture by
creating applications that inform a farmer on everything from soil density to weather estimates.
Farmers are now privy to real time market data that helps them decide on how to sell, when to sell
and where to sell. The plight of hospitals and clinics in rural India was well highlighted in the book Poor
Economics. Though the authors broke down the issue to identify the reasons why nurses never turned
up to work or why people preferred to go to private clinics hundreds of miles away, they never looked
at it from a technology standpoint. The e-Healthcare scheme will now ensure that people can gain
medical expertise from their homes. Applications like Superdoc, VISIT and Inguin have already serviced
thousands of patients in rural areas.
Environmental Impact
India is the world’s third largest carbon emitter, behind the US and China. Along with various
campaigns including Digital India, India hopes to reduce carbon emissions relative to its GDP by 33%-
35% by 2030. Cloud computing helps minimise carbon emission by decreasing energy consumption.
Energy consumption is expected to decrease by 28% from 201.8 Twh to 139.8 Twh by 2020 with the
adoption of cloud computing technology. Using technology, employees now have the opportunity to
work remotely from their homes rather than commute to work. A study in the US found that nearly
50% of Americans have telecommute-compatible jobs. If these people were to work from home at
least 2.5 days a week, it would reduce carbon emissions by 54 million metric tons. This is the equivalent
of taking 10 million cars off the road.

11
Challenges to Implementing Digital India
On paper the scheme does look attractive but the truth is there is still a number of obstacles that the
government needs to overcome to ensure the success of the programme.
Though the National Optical Fibre Network project was introduced in 2006, it remains stagnant with
only about 15 million wire line broadband users. While at the same time mobile broadband has
expanded to nearly 85 million users. The primary reason for this is the availability of content. Mobile
applications like Facebook and Whatsapp have spurred the demand for mobile technology. At the
moment, the government does not hold any expertise at manufacturing content and so the networks
laid out by them are nothing more than empty pipes. New content and service partnerships with the
government will ensure the efficient use of these resources.
Source: Compiled by Uzabase
A phenomenon called “call drops” now plagues the second largest mobile user market in the world.
Call drop is a service provider’s incapability to maintain a call. This mostly results from the lack of
infrastructure in the form of telecom towers. If the service providers are unable to maintain a call for
more than 15 seconds in urban areas, it will indeed be interesting to see how they can support the
government in digitalisation.
Considering the whole campaign is an umbrella project involving several repositories, there is a call for
improved coordination between different departments spread across the country. Not surprisingly,
private participation in the campaign has been poor because players are wary of the long and complex
regulatory processes that come with every government project.

12
India at the Inflection Point
Sectors in Need of Disruption
Regardless of the challenges that lie ahead, India has certainly reached an inflection point in technology
adoption with social, mobile, cloud and analytics driving disruption in the country. According to Cisco,
India will add, on average, 5 million internet users and 8.3 million networked devices every month,
taking the country to the next phase of the web – Internet of Everything (IoE) which is the intelligent
connection of people, processes and data. If a typical bank becomes digitised along with its customers,
the upside for the bank could be a 5.6% increase in bottom-line. This translates to an annual profit of
USD 392 million for a bank with USD 10 billion in annual revenue. More importantly, as the country
digitises there will tremendous opportunity for entrepreneurs, industries and communities. A common
trait of an inflection point is disruption. Disruption in certain sectors in India is inevitable and we think
the following three will witness the biggest changes:
Retail
Indian retail industry accounts for over 10% of the country’s GDP and 8% of total employment.
According to a BCG report, the Indian retail sector is posed to double by 2020 to USD 1.3 trillion from
USD 600 billion in 2015. The disruption in the industry involves retailers working with a dual mandate
to drive not just efficiencies but also greater innovation to stay above the competitors. Growth in IT
expenditure in retail in the past 5 years averaged 26%. Using the same figure, IT spending in retail is
set to go past USD 10 billion by 2020. This would represent 12.5% of total Indian IT enterprise spending.
Source: BCG Retail 2020, E&Y, Deloitte, IBEF, Gartner, compiled by Uzabase

13
Some of the technologies gaining traction in retail include:
- Omni-Channel Platform
These platforms provide retailers with basic information regarding customer behaviour and
preferences and help create relevant local retail information and organisational structures to
support an omni-channel strategy. For example, Shoppers Stop, the Indian retail giant, has
invested heavily in warehouse management and master data management to enable multi-
channel commerce.
- Big Data/Analytics
A survey by The Economist Intelligence Unit concluded that 78% of respondents have seen a
positive economic return from investments in data analysis. In India, Trent, the retail arm of the
Tata Group is the first such company to build an in-house analytics team to understand customers
better.
- Mobility
Mobile adoption leads the pack. Mobile applications launched by retailers are giving retailers with
websites a run for their money. Retailers are also using this technology to improve the payment
processes by making them more agile with mobile PoS, mobile wallet, mobile money to money
transfers etc.
It is obvious the services above are now widely used by the urban population, but with the spread of
broadband into rural areas, we can certainly expect a paradigm shift in retail services.
Insurance
A popular insurance advertisement running on Indian televisions is that of a mother advising her son
and his work colleagues to be more cautious when buying insurance. She suggests that they use a
particular application to compare offerings from different companies and the amount they will have
to pay in premium. This will make obsolete the age old practise of insurance agents knocking on doors
and selling insurance. The insurance sector faces one of the toughest tasks in adopting to digital
technology. As the digital age catches up in India, similar trends from around the world will also come
into play:
- 71% of consumers use digital research before buying insurance.
- 26% of consumers buy their insurance policies online.
- 50% would hand over personal data to their insurer to find the best deal.
Insurance companies in India have now started to adapt to the digital world by using social media for
brand building, mobile applications to help customers connect to agents and in-vehicle telematics to
asses driver risk.

14
Banking
Banking in India has traditionally been a conventional sector. However with changes in consumer
demographics and behaviour, banks are forced to change the way services are offered and consumed.
As internet and mobile penetration grows in India, tremendous opportunities are being created for
banks to offer cutting edge services. There is a two-fold advantage to using technology, one, it helps
to reach customers where they are and two, it allows banks to save on physical infrastructure. In the
past 4 years, European banks have closed around 20,000 branches. But by transforming services to the
digital realm banks have benefitted by being able to service 250,000 customers using 1 branch from
20,000 customers previously. The Pradhan Mantri Jan Dhan Yojana programme, under which 130
million bank accounts were opened is a good example of where digital disruption would favour
financial inclusion. Instead of opening branches to service these customers, the bank can reach out to
them directly on their internet enabled mobile phones.
Source:www.financialexpress.com
An example of digitalisation among Indian banks is the State Bank of India (SBI) InTouch. The InTouch
service includes automated kiosks that deliver instant services such as account opening and facilities
that offer remote expert advisory through high definition video. Backend systems collect data and
analyse them in real time to enable the bank to improve their services to the new age customer. Once
the infrastructure is in place such services will definitely ensure that most of the 130 million accounts
opened will not remain dormant.
In order to ensure that these disruptions take place successfully private participation is imperative. As
stated earlier, the government need content and service manufacturers to put the former’s resources
into efficient use.

15
Drawing Out The e-Entrepreneurs
Start-up India to Drive Disruptions in the Digital Economy
Launched in January 2016, the ‘Start-up India, Stand-up India’ initiative seeks to help boost digital
entrepreneurship and job creation through start-up ventures in India. The government seeks to create
an empowering environment by providing incentives and improving the ease of doing business. The
initiative will provide three year income tax exemptions, concessions on capital gains tax to start-up
ventures, improve the regulatory environment and waive patent filing fees. Through the Department
of Industrial Policy and Promotion (DIPP), the government has established the ‘Start-up India Action
Plan’. The plan proposes to create a ‘Fund of Funds’ worth INR 100 billion (USD 1.5 billion) to fund new
ventures. The fund will recur every 4 years with INR 25 billion being paid out every year.
Similar to the ‘Make in India’ initiative, the start-up initiative will also feature a Start-up India Hub
which will act as a single point of contact for interaction between the government and budding
entrepreneurs. It also includes the establishment of the Atal Innovation Mission for the promotion of
R&D including 500 tinkering labs, 35 public-private sector incubators, 31 innovation centres at national
institutes, 7 new research parks and 5 new bio clusters.
As of 2015, India had a total of 4200 tech start-ups, making it the third largest market in the world.
Source: Nasscom & Zinnov
As evident, large number of entrepreneurs are vested in e-commerce platforms. In order to heed to
the needs of Digital India campaign, the country would need additional start-ups in the payment and
health sectors.

16
Investor Confidence Rises With New Government
According to data from YourStory, a business media content provider that covers start-ups, capital
worth $11 billion was invested in Indian start-ups in 2015 by PEs alone. A NASSCOM report highlights
that active investors in India have increased from 220 in 2014 to 490 in 2015.
Source: VCCEdge
One primary reason investors have attributed to their interest in India is the tax regime rationalisation.
The Goods and Services Tax is expected to unify India into one single economy unlike the current
taxation system that creates borders within borders and is therefore unable to provide tax credits for
interstate transactions, leading to distortion in the allocation of resources. Investors looking for the
next opening will not be influenced by tax benefits but rather by core business efficiency. Within the
start-up space, GST will bring uniformity in process and centralised registration that will make starting
and expanding a business much simpler.
A different kind of investor making their presence felt in the market are angel investors, both foreign
and domestic. Media coverage of start-ups in India have grown steadily enough to give these
companies international exposure. The Indian Angel Network (IAN) estimates that nearly 20% of the
investors on its platform are bas overseas. It is no surprise that angel investment deals saw a rise of
80.5% in 2015 to 632 from 350 in 2014.
Source: VCCEdge

17
According to the report “Expert Committee on Innovation and Entrepreneurship”, constituted by NITI
Aayog, Indian entrepreneurs spend much more effort and time raising funds compared to their
American counterparts. The report cites that early stage funding has been the biggest challenge, with
angel investments in India being much more limited vis-à-vis the US. The report concluded that
investors in India are keener towards later-stage funding, betting large sums of money in companies,
which are already generating revenues. Plus, eight out of ten Venture Capital and Private Equity firms
are foreign-based. This trend certainly needs to buckle as most of new start-ups servicing rural areas
are bound to be small scale operations. Fortunately platforms like IAN (Indian Angel Network) can
help curate and vet early stage start-ups for investments by angel investors. With the likely increase in
start-ups in tech in the next few years, platforms such as IAN will play a pivotal role in providing
exposure to these nascent companies that hope to make a change.

18
Tokyo
Uzabase, Inc.
Ebisu First Square. 10F 1-18-14 Ebisu, Shibuya-ku, Tokyo 150-0013, Japan
+81-3-4574-6552
+81-3-4574-6553
customer@uzabase.com
Singapore
20 Collyer Quay, #23-01, Singapore 049319
+65-6653-8314
Hong Kong
30/F Entertainment Building, 30 Queen's
Road Central, Central, Hong Kong
+852-5808-3148 +852-3103-1011
Sri Lanka
48/4/1, Parkway building, Park Street,
Colombo 2. Sri Lanka.
+94-114-232-622
Shanghai
606, No.1440 Yan’An Rd.(M), Shanghai,
China
+86-21-6103-1677
©2016 UZABASE, Inc.
About US

Digital India Campaign to Boost GDP by $1 Trillion

Empfohlen

Empfohlen

Weitere ähnliche Inhalte

Was ist angesagt?

Was ist angesagt? (19)

Ähnlich wie Digital India Campaign to Boost GDP by $1 Trillion

Ähnlich wie Digital India Campaign to Boost GDP by $1 Trillion (20)

Mehr von Kyna Tsai

Mehr von Kyna Tsai (20)

Kürzlich hochgeladen

Kürzlich hochgeladen (20)

Digital India Campaign to Boost GDP by $1 Trillion