At first glance, India looks like a digital star, with inexpensive bandwidth, rising enthusiasm for e-commerce, and a fast-growing cluster of innovative companies. Our public digital infrastructure is getting broader and deeper by the day, and the number of internet users is fast approaching 900 million, more than double the figure of 2016.
And yet, we still have a lot of catching up to do. Only one out of every 10 Indians, or 140 million people (compared to 710 million in China), is a regular online shopper; e-commerce penetration is just 19%. Venture capital funding dropped two-thirds in 2023, making it more difficult for digital startups to get the capital they need.
How can India turn its enormous potential into growth that fosters both equity and economic competitiveness? Four opportunities come to mind.
Focus on inclusion as well as profitability: Earlier this year, McKinsey estimated that about three-quarters of Indians fall short of full economic empowerment (estimated at a per capita income of about $5 a day), and that faster growth and business innovation could lift 700 million to that level by 2030. The digital economy, which has grown 2.5 times faster than the overall economy since 2016, could be a powerful force for sustainable and inclusive growth, not only through greater productivity, but as a way of delivering social goods, as the success of the Aadhaar and the CoWin and U-Win vaccination platforms have proven.
Much more could be done. For example, telemedicine could improve access and health outcomes by offering lower-cost prevention and treatment programmes. Such consultations cost 30% less than in-person visits and could unlock $40-$60 billion in value by 2030. In education, digital learning modules could be used to train many of the 70 million new entrants to the labour force each year and also deliver new content to schools at all levels. Financial inclusion is already a success story, thanks to India’s Unified Payments Interface (UPI) and similar efforts. But more can be done to make credit accessible to India’s 64 million micro, small and medium-sized enterprises.
Activate the entire value chain: Consumer-oriented startups dominate funding and digital consumption has grown 18-fold over the last five years. For India to fully benefit from the potential of digital technology, however, it’s important to look at everything from product development to procurement, manufacturing and logistics. In life sciences, for example, the product-development cycle can be speeded up through use of digital and advanced analytics, including generative artificial intelligence (Gen AI). Manufacturing plants in industries such as steel, aluminium, pulp and paper, tyres and batteries have seen efficiency improvements of 10% to 20% through the use of advanced analytics. These transformations not only release resources needed for broader digital adoption, but also enable the creation of new products, services and business models.
Harness the power of AI to build frugal customer acquisition and engagement capabilities: Due to the high costs of customer acquisition and engagement, many companies have seen excessive cash burn or margin dilution in their digital investments. It is possible to reduce these costs significantly by using smart AI tools and techniques. Over 60% of today’s customer interaction reach-outs could be automated using AI in the next five years, including by means of AI-generated outbound marketing messages for customer engagement. Digital companies could deploy a weekly marketing sprint rhythm, enabled by a content engine, an influencer network and the use of assisted selling and offline activation support.
Build for the world: From 2020 to 2022, the Indian software-as-a-service (SaaS) segment grew 65% a year, twice as fast as the rest of the world, and private investment reached $15 billion. Given structural advantages of talent, cost and expertise, India is well positioned to do more. By 2030, the SaaS market could be worth $50-70 billion and account for more than 500,000 jobs in India. Success will require concerted efforts by the government (regulatory support and open-source assets), businesses (by way of partnerships to develop products) and the industry at large (which could identify best practices). India’s digital expertise could be both a positive example to other countries and a significant export opportunity. Our UPI platform has already been adapted in Oman, Nepal, Singapore and the UAE.
And one more thing: Across the board, more needs to be done to develop the talent required to make all this happen through on-the-job skilling programmes that accelerate apprenticeship, industry-oriented education curricula and exchanges. India has the third-largest AI talent pool in the world, but there is still a sizable shortage of data scientists, data architects and machine-learning engineers. Venture capital is important, no doubt, but it’s clear that human capital matters most of all.
So, no, India is not yet a digital star, but it is certainly a rising one. Accelerating its trajectory should be a matter of urgency.