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June 2020, No. 94


Foreign Trade

India and Fixing the Employment Crisis!


According to data released on September 2018, India had the largest number of Internet users (560 million) after China.


How could the second most populous country solve the employment problem? A number of international institutions believe that India has overcome the problem of unemployment by developing the Internet and digitizing it. Although India’s population has grown by more than 100 million since 2010, the unemployment rate has not changed much. Of course, there are some doubts about the definition of unemployment in India. Therefore, another indicator that can show the labor market situation in the country is the per capita income, which has grown by 77 percent from 2009 to 2017. One of the reasons for this favorable performance has been the increasing share of IT. The IT share from GDP has grown from about 1 percent in 1998 to 7.5 percent in 2012.

The employment generating pace in this sector has been remarkable. The IT department and outsourcing processes alone have created 550,000 to 600,000 jobs over the three-year period leading up to 2017. Realizing this figure in other industries required more costs and more time. India provided its young population with the use of the Internet and communication technologies. This experience can be useful for countries looking to solve the employment equation.

The job market in this century is rapidly evolving. The advent of the Internet and virtual platforms has now made a big difference in creating value added for companies. Today, the world’s leading companies are expanding their businesses based on commerce and Internet business. It goes without saying that nations and countries that are left behind and continue to insist on creating old-fashioned jobs may be far behind the economy of other countries. Creating Internet jobs based on what is known as E-Commerce requires the establishment of Internet networks and easy and cheap Internet access for people. One of the countries that have made great strides in creating Internet employment over the past decade is India: A country that was faced with widespread and deep poverty in the not too distant past. But today, economic observers see a different image of India. According to IMF projections India will become the world’s fifth economic power by 2019. But how could India create an E-Commerce platform in a country with a closed culture and deep poverty?

 

Digital India: Infrastructure Preparation

With different metrics and measuring standards, India is fast becoming a leading digital country. Conditions are set for a sharp drop in Internet costs, increased access to smartphones, and high-speed Internet connectivity. This has led India to be seen as the fastest growing digital and Internet platform, a country that is digitizing faster than many developed and emerging economies.

According to data released on September 2018, India had the largest number of Internet users (560 million) after China.

The advances in Internet access and the growth of Internet users have also had its economic impact. The share of Indian adults with at least one digital financial account has more than doubled since 2011 to about 80%.

An analysis of 17 mature and emerging economies finds India is digitizing faster than any other country in the study save Indonesia—and there is plenty of room to grow: just over 40 percent of the populace has an Internet subscription.

The list of these countries includes developed countries including Sweden, UK, USA, Canada, Japan, Germany and France. The Country Digital Adoption Index covers three elements: 1. digital foundation, or the cost, speed, and reliability of Internet connections; 2. digital reach, or the number of mobile devices, app downloads, and data consumption; and 3. digital value, the extent to which consumers engage online by chatting, tweeting, shopping, or streaming. India’s score rose by 90 percent between 2014 and 2017, second only to Indonesia’s improvement, at 99 percent, over the same period. In absolute terms, India’s score is low, at 32 out of a maximum 100, comparable to Indonesia’s at 40, but significantly lagging behind the four most- digitised economies of the 17: South Korea, Sweden, Singapore, and the United Kingdom.


With more than half a billion Internet subscribers, India is one of the largest and fastest- growing markets for digital consumers, and the rapid growth has been propelled by public and private sector alike.



60-65 Million Jobs by 2025

With more than half a billion Internet subscribers, India is one of the largest and fastest- growing markets for digital consumers, and the rapid growth has been propelled by public and private sector alike. India’s lower-income states are bridging the digital divide, and the country has the potential to be a truly connected nation by 2025. Much more growth is possible. As India’s digital transformation unfolds, it could create significant economic value for consumers, businesses, microenterprises, farmers, government, workers, and other stakeholders.

Digital adoption by India’s businesses has so far been uneven, but new digital business models could proliferate across most sectors. We find that core digital sectors such as IT and business process management (IT-BPM), digital communication services, and electronics manufacturing could double their GDP level to $355 billion to $435 billion by 2025, while newly digitising sectors (including agriculture, education, energy, financial services, healthcare, logistics, and retail) as well as digital applications in government services and labor markets could each create $10 billion to $150 billion of incremental economic value in the same period. Some 60 million to 65 million jobs could be created by the productivity surge by 2025, although redeployment will be essential to help the 40 million to 45 million workers whose jobs will likely be displaced or transformed by digital technologies, based on our estimates.

In India’s new and emerging digital ecosystems of the future—already visible in areas such as precision agriculture, digital logistics management, and digital healthcare consultations—business will have to find a new way to engage with customers. All Indian stakeholders will need to gear up to capture the opportunities and manage the challenges of being a connected nation.

 

Digital Leap Well Under Way

By many measures, India is on its way to becoming a digitally advanced nation. Just over 40 percent of the populace has an Internet subscription, but India is already home to one of the world’s largest and most rapidly growing bases of digital consumers. It is digitising activities at a faster pace than many mature and emerging economies.

India’s Internet user base has grown rapidly in recent years, propelled by the decreasing cost and increasing availability of smartphones and high-speed connectivity, and is now one of the largest in the world.

Digital services are growing in parallel. Indians now download more apps—12.3 billion in 2018—than residents of any other country except China.

The average Indian social media user spends 17 hours on the platforms each week, more than social media users in China and the United States. The share of Indian adults with at least one digital financial account has more than doubled since 2011, to 80 percent, thanks in large part to the more than 332 million people who opened mobile phone–based accounts under the government’s Jan-Dhan Yojana mass financial-inclusion programme.

India’s digital surge is well under way on the consumer side, even as its businesses show uneven adoption and a gap opens between digital leaders and other firms. This report examines the opportunities for India’s future digital growth and the challenges that will need to be managed as it continues to embrace the digital economy.

Indian mobile data users consume 8.3 gigabits (GB) of data each month on average, compared with 5.5 GB for mobile users in China and somewhere in the range of 8.0 to 8.5 GB in South Korea, an advanced digital economy. Indians have 1.2 billion mobile phone subscriptions and downloaded more than 12 billion apps in 2018.

The public and private sectors are both propelling digital consumption growth. The government has enrolled more than 1.2 billion Indians in its biometric digital identity programme, Aadhaar, and brought more than 10 million businesses onto a common digital platform through a goods and services tax.

Competitive offerings by telecommunications firms have turbocharged Internet subscriptions and data consumption, which quadrupled in both 2017 and 2018 and helped bridge a digital divide; India’s lower-income states are growing faster than higher-income ones in Internet infrastructure and subscriptions. Based on current trends, we estimate that India will increase the number of Internet users by about 40 percent to between 750 million and 800 million and double the number of smartphones to between 650 million and 700 million by 2023.

The public sector has been one strong catalyst for India’s rapid digitisation. The government’s effort to ramp up Aadhaar, the national biometric digital identity programme, has played a major role. The Goods and Services Tax Network, established in 2013, brings all transactions involving about 10.3 million indirect taxpaying businesses onto one digital platform, creating a powerful incentive for businesses to digitise their operations.

At the same time, private-sector innovation has helped bring Internet-enabled services to millions of consumers and made online usage more accessible. For example, Reliance Jio’s strategy of bundling virtually free smartphones with subscriptions to its mobile service has spurred innovation and competitive pricing across the sector. Overall, data costs have dropped by more than 95 percent since 2013: the cost of one gigabyte fell from 9.8 percent of per capita monthly GDP in 2013 (roughly $12.45) to 0.37 percent in 2017 (the equivalent of a few cents). Average fixed-line download speed quadrupled between 2014 and 2017. As a result, monthly mobile data consumption per user is growing at 152 percent annually—more than twice the rates in the United States and China.

 Private-sector competition has helped bring down digital costs, thereby boosting usage. One consequence of the competition and growing private-sector service offerings is that data costs in India have plummeted by more than 95 percent since 2013, providing a major impetus for continued growth in Internet access and usage. Digital marketplaces, or online platforms that enable the sale of goods and services, are changing labour market dynamics by creating new value chains of workers linked to organised, digitally enabled businesses. E-Commerce in India generates close to $20 billion in merchandise value annually and employs between 150,000 and 200,000 people, mostly in goods delivery and logistics.

In line with expected Internet penetration for India by 2025, McKinsey has estimated that E-Commerce is likely to become four to six times its current size and could create 500,000 jobs, based on today’s job intensity. Similarly, cab aggregators such as Uber and Ola book three million to five million rides daily, providing work for 600,000 to 700,000 drivers.

With the biggest 30 cities accounting for more than 90 percent of their business, there is ample room to expand. In China, the biggest cab operator, DiDi, books around 25 million rides per day and says it provides flexible job opportunities for 21 million drivers.

Measuring the value that digital technologies can create across sectors is at best an approximate science, based on a wide range of variables. Nonetheless, the range of potential value that we find across India’s economy from a full-on embrace of digital is significant.

While this value cannot be added up and translated into GDP, the boost to growth that digital potentially offers is substantial, and millions of jobs are at stake. Managing the transitions will be challenging, especially in the labour market. One imperative for policy makers and business leaders will be to retrain workers on an unprecedented scale. But the accompanying opportunities may allow India to make a step change in its economy, improving productivity, offering innovative solutions, and enabling millions of ordinary Indians to find more fulfilling and higher-paying work.

With both private- and public-sector action promoting digital usage, India’s states have started bridging the digital divide. Lower-income states are showing the fastest growth in Internet infrastructure, such as base tower stations and the penetration of Internet services to new customers. While low- and moderate-income states as a group accounted for 43 percent of all base tower stations in India in 2013, they accounted for 52 percent of the incremental towers installed between 2013 and 2017. Low-income states like Uttar Pradesh, Madhya Pradesh, and Jharkhand were among the five fastest-growing states in Internet penetration between 2014 and 2018; Uttar Pradesh alone added more than 36 million Internet subscribers in that period.

 

Boosting Women Employment

The wave of digital transformation has also empowered women in India by helping them find gainful employment, one area where they lag behind women in poor countries. For example, 54,800 women have become village-level entrepreneurs at government-run Common Service Centers, providing digital services to the local population. In fiscal 2016, the Babajob portal recorded a sevenfold increase in openings for female cab drivers and an increase of more than 150 percent in women’s applications for driver jobs. The business process outsourcing (BPO) industry in India employs approximately 4 million workers, about 30 percent of them women.

A three-year awareness programme in rural India on opportunities in the BPO industry enhanced women’s enrolment in training programmes and increased school enrolment among girls by three to five percentage points.

 

Prospects of Growth

India’s digital transformation is under way and accelerating. The growth prospects that this brings to the economy are potentially very substantial. To realise that potential will require an embrace of digital and fleetness of foot among companies, especially those lagging behind their peers. Even digital leaders have room to grow. India’s government is trying to open a clear development path with its Digital India initiative, which, among many other things, is actively promoting the spread of digital infrastructure and the harnessing of data and working to make broadband connectivity available in the poorest states and most remote gram panchayats. Individual Indians have already signalled their embrace of all things digital, as shown by the rapid growth in data consumption over the past few years. Digital India is already a reality, but an unfinished one. New efforts, new investment, and new imaginative feats will be needed for the country to move to the next level of digital adoption and secure a dynamic, technology-driven, and prosperous future.

 

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