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India’s digital transformation

“India has not yet taken full advantage of the digital revolution.” Picture shows a rickshaw puller in Kolkata.  

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The country can only derive the digital dividend of faster growth, more jobs and better services by expanding affordable Internet access to all/

There is little doubt that China has stolen a march on India when it comes to leveraging the Internet. Of the top 20 Internet companies in the world, 13 are American, five are Chinese, with one each for Japan and the United Kingdom. Alibaba, China’s largest e-commerce company, has a market capitalisation that is 25 times higher than that of Flipkart, the largest e-commerce company in India.

Why did India, which has had the remarkable achievement of being the largest exporter of information technology services and skilled manpower among developing countries, fall behind China in digitally transforming its economy? Is it now making a comeback? The World Bank’s recently released World Development Report (WDR) ‘Digital Dividends’ provides some answers.

The WDR finds that digital technologies have spread rapidly throughout much of the world, but their digital dividends — the broader development benefits from using these technologies — have lagged behind. In many instances digital technologies have boosted growth, expanded opportunities, and improved service delivery. Yet their aggregate impact has fallen short and is unevenly distributed.

The report argues that for digital technologies to confer their full benefit on society, it is vital to close the digital divide, especially in Internet access. But greater digital adoption will not be enough. To get the most out of the digital revolution, countries also need to work on its “analogue complements” — by strengthening regulations that ensure competition among businesses, by adapting workers’ skills to the demands of the new economy, and by ensuring that government institutions and others are accountable.

Measuring the performance of India and China with the WDR metrics of connectivity and complements shows why India has not yet taken full advantage of the digital revolution.

The contrast with China

At the end of 2014, India had 227 million Internet users, compared to 665 million in China. Fewer than two out of every five Indian businesses had an online presence compared to almost two-thirds of firms in China.

The cost of a 1 Mbit/s residential broadband service in India is 6-10 times higher than in China. And by most accounts, the digital divide across age, gender, geography and income within India is significantly higher than in China. Thanks to its successful digital ID programme, Aadhaar, India scores higher than China in digital adoption by governments, but the need now is to use the platform that Aadhaar provides more widely and effectively.

Amartya Sen has written extensively on the idea of human ‘capability’. This concept has large applications in the digital world. Unfortunately, not only does India have a higher digital access gap, it also has a bigger digital capability gap. The capability gap, according to the WDR, arises from two main sources: the overall business climate and the quality of human capital.

Despite some commendable improvements in cutting bureaucratic costs faced by small and medium enterprises, India scores considerably below China in doing business indicators. It is important for India to create space for creativity and enterprise and to promote competition.

The slow pace of improvement of the quality of basic infrastructure — expressways, logistics, storage, postal delivery system and reliable supply of electricity — have also hampered the growth of e-commerce in India. And the excessively cautious approach of Indian regulators towards disruptive technological innovations such as mobile money or ride-sharing services has made it difficult for digital start-ups to enter new markets and achieve scale.

While Indian technology workers and entrepreneurs excel in Silicon Valley in the United States, the skills level of the average Indian worker remains significantly behind his or her Chinese counterpart. India has made considerable strides in improving its human capital, but a vast majority of its population still lacks the skills to meaningfully participate in the digital economy.

Around 25 per cent of India’s adult population cannot read and write compared to fewer than 5 per cent in China.

There is also major difference in quality of education: The latest Annual Status of Education Report (ASER) test scores in rural India show that 10 per cent of children aged 16 and below cannot identify single-digit numbers consistently. Fewer than one in five can do a subtraction, performing considerably below their grade level.

Clearly, India’s challenge to becoming a digital economy remains formidable. The government has announced a slew of new initiatives: Digital India; Make in India; Start-up India; and innovative applications of Aadhaar such as JAM (Jan-Dhan Yojana-Aadhaar-Mobile trinity) and Digital Lockers. Successful and accelerated implementation of these programmes can make up for some of the lost time. But India also needs to do more by strengthening the basic foundations of its digital economy.

Making the Internet accessible, open and safe for all Indians is an urgent priority. The cost of mobile phone access is already low by international standards. And with a supportive policy environment involving smart spectrum management, public-private partnerships, and intelligent regulations of Internet markets, the same can be achieved for Internet access. Zero-rated services for mobile data access have become controversial, though they could be an intermediate step to fully open and affordable Internet access for the poorest, provided that the choice of selecting services is transparent and inclusive.

Back to basics

Access, however, is only one part of the agenda. An important lesson from the WDR is that even the most sophisticated technologies are no substitute for tackling long-standing shortcomings in other areas — most importantly basic health, education and a regulatory ethos that encourages competition and enterprise.

When the World Bank adopted in 2013 “shared prosperity” as one of its mission goals, it was the first time that combating inequality was being set up as a target. There was a lot of initial opposition because while the battling of poverty seems like a fairly impersonal goal, the goal of “sharing” makes many uncomfortable.

Fortunately, the way the shared prosperity goal is formalised has deep conceptual roots. One of the best accounts is to be found in S. Subramanian’s ‘“Inclusive Development” and the Quintile Income Statistic’, in Economic and Political Weekly and this goal is now increasingly being recognised as vital for a better world. The aim of ending the digital divide discussed in our most recent WDR stems from this same basic idea and is an urgent need of our times.

India wrote one of the early success stories of the digital revolution when it became a global powerhouse for software development and information services. Its Aadhaar digital ID system has become a model for many other countries, helping governments to become more efficient and more inclusive in expanding services to those who had been left behind.

Whether the new initiatives will generate even greater and more widely shared digital dividends — faster growth, more jobs, and better services — depends not only on expanding affordable access to all, but also on making long overdue progress on the analogue complements of digital investments.

(Kaushik Basu is Chief Economist of the World Bank, and is a former Chief Economic Adviser to the Government of India.)

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Printable version | Jan 23, 2017 2:03:10 PM | http://www.thehindu.com/opinion/op-ed/indias-digital-transformation/article8224206.ece