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Globalization is not a recent phenomenon. Jeffrey D. Sachs, in his book The Ages of Globalization, presents seven distinct ages of globalization since pre-historical times, driven by interplays of geography, technology and institutions. The present age of globalization, commencing from 2000, is described as the Digital Age, characterized by nations, businesses and individuals connected across the globe through flows of data, information, ideas and knowledge, and through flows of goods, services, investment and capital that are digitally enabled or supported.

Economic progress and globalization have undergone three industrial revolutions, with Industrialization 4.0 currently underway. Globalization marched ahead in the 19th century supported by mechanization resulting from the use of steam and coal, which lowered the cost of transport across the world. The second revolution saw trade and commerce expand manifold with mass production complemented by the use of electricity and railroads. The advent of computers and the emergence of low-cost manufacturing and global supply chains marked the third phase. The fourth revolution that rides on digital technology is set to disrupt almost every industry in every country. New technologies, materials and processes are blurring the lines between physical, digital and biological spheres and presenting us with extraordinary policy challenges to maintain growth and development.

The economic prospects of digitization: How is it changing the economics of globalization? Our shift to a more digital form of the phenomenon has brought about changes in business participants, the way international business is done and recipients of its economic benefits. As digital platforms become global in scope, they are driving down the cost of cross-border communications and transactions, allowing businesses to connect with customers and suppliers globally. Globalization was once for large multinational corporations, but digital platforms have enabled small businesses and entrepreneurs around the world to participate in global trade. This is particularly significant for countries in Asia, where small businesses comprise a large share of employment and overall output. In India, the Micro, Small and Medium Enterprises (MSMEs) contribute over 28% of gross domestic product, 45% of our manufacturing output and more than 40% of exports, while employing about 111 million people. However, the sector continues to face challenges in going digital. Pandemic-time digitization strengthened MSMEs, with many realizing its importance.

The other side of digital globalization: While the digital age of globalization has lowered transaction costs, allowed firms from across the world to join global values chains and improved market access for MSMEs, technical and infrastructural challenges are preventing developing countries from using the digital economy as a potential growth engine. More than 20% of the population in the developing world does not have access to a mobile broadband network, with internet speeds about 8 time lower in these countries. The data driven digital economy is evolving amid huge digital divides in terms of digital readiness, according to the United Nations Conference on Trade and Development’s (UNCTAD) Digital Economy Report, 2021. The US and China are frontrunners in harnessing data, according to it. They account for 50% of the world’s hyperscale data centres, the world’s highest rates of 5G adoption, 70% of the world’s top artificial intelligence (AI) researchers and 94% of all funding for AI startups. The two countries also make up about 90% of the market capitalization of the world’s largest digital platforms. These platforms increasingly control all stages of global data value chains.

This reflects the inequity in the digital economy as it stands today. Most developing countries will have it difficult trying to transform their economies through digitization and risk being left on the periphery of an evolving globalization paradigm.

Data is the new oil: A major aspect of the digital economy is data. We must fully comprehend the issues surrounding data as a new resource. Technological progress has facilitated an exponential increase in the capacity to collect, transmit, process and analyse data. Global Internet Protocol traffic, a proxy for data flows, grew from about 100 gigabytes per day in 1992 to more than 45,000 gigabytes per second in 2017. According to the UNCTAD report, traffic in 2022 will exceed all the internet traffic up to 2016. Regulating data/information flows and setting rules so that all participants prosper is a huge challenge. There is a need to arrive at a regulatory framework for the digital economy, as this would reduce uncertainties associated with conducting transactions in the digital world. Issues of consumer protection, data privacy, ease of transactions and cyber security all need attention. At the World Trade Organization, a group of countries under the Joint Statement Initiative has been discussing many of these aspects, but a consensus remains elusive.

This age of digital globalization is characterized by large imbalances, digital divides between haves and have-nots and development challenges. The Indian government has taken a number of initiatives for Digital India, with a vision to transform India into a digitally empowered economy and help everyone reap its benefits. We have: (i) stable and secure digital infrastructure provided by Aadhaar, CERT-In, etc; (ii) digitally delivered government services through the Agrimarket App, Bhim, Digital AIIMS, etc; and (iii) citizens empowered by a universal digital literacy programme, widely accessible digital resources and collaborative digital platforms for participative governance. These initiatives will help narrow the digital divide in India as more economic value is created in the digital ecosystem. India is poised to leapfrog into an era of digital globalization with more than half a billion internet users and a plethora of inhouse platforms, applications and digital services. This is our opportunity to harness the potential of the digital age of globalization for the greatest good of the largest number.

These are the authors’ personal views.

Anuradha Guru & Sonia Pant are officers of the Indian Economic Service

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