India’s Digital Economy

Posted 22 Feb 2025

4 min read

Why in the News?

The Ministry of Electronics and Information Technology (MeitY) has released a comprehensive study titled Estimation and Measurement of India's Digital Economy.

About Study

The study has been done by the Indian Council for Research on International Economic Relations.
It is based on an internationally accepted framework developed by the Organisation for Economic Co-operation and Development (OECD) and the Asian Development Bank (ADB).
- India will be first among developing countries, to have used the OECD framework to estimate the size of its digital economy.
- The study goes beyond the OECD approach to also include the digital share of traditional industries like trade, banking, financial services, and insurance (BFSI), and education.

What is the Digital Economy?

It generally refers to the information and communication technology (ICT) sector, including telecommunications, the Internet, ICT services, hardware and software.
- Its broad definition includes both the ICT sector and parts of traditional sectors that have been integrated with digital technology (International Monetary Fund (IMF)).

Benefits/Significance of Digital Economy

Enhances Exports: India is the 2nd highest ICT services exporter in the world, behind Ireland (2023)

Global Capability Centers (GCCs) are offshore units of multinational corporations providing services like R&D, IT support, and business process management.

Enhanced Service Delivery: E.g., e-Hospital and e-Sanjeevani (National Telemedicine Service) have made healthcare facilities more accessible.
Increases Global Competitiveness/Promotes Ease of doing Business: E.g., GST (Goods and Services Tax) filing is largely online, reducing delays and fostering a more predictable business environment.
Boost to Startups and Innovation:
- India has the third-largest number of homegrown unicorns in the world (2024).
- Also, hosts about 55% of the world's Global Capability Centers (GCCs).
Reducing Inequality/Promoting Rural Development: E.g., the National Agriculture Market (e-NAM) enables transparent price discovery for farmers for their produce through a competitive online bidding system.
Other: Empowering people by fostering Financial Inclusion, Environmental Sustainability (e.g. e-tickets), etc.

Major Initiatives/Drivers for/of Digital Economy?

Digital Infrastructure Development: E.g., Digital India Mission (2015) and BharatNet (National Optical Fiber Network - NOFN)
Digital Identity & Inclusion: E.g., Aadhaar (Unique Identification Number), etc.
Digital Literacy: E.g., Pradhan Mantri Gramin Digital Saksharta Abhiyan (PMGDISHA), implemented only in rural areas.
Digital Payments & Financial Services: E.g., Unified Payments Interface (UPI), BHIM App, Bharat QR, RuPay & e-RUPI and Direct Benefit Transfer (DBT)
E-Governance & Digital Services: E.g., UMANG App (Unified Mobile Application for New-age Governance)
Cybersecurity & Data Protection: E.g., Indian Cybercrime Coordination Centre (I4C) and Digital Personal Data Protection Act (DPDP Act 2023)
Other:
- India Stack, a set of digital public infrastructures (DPIs) that provide access to public services.
- BHASHINI (BHASHa INterface for India), democratizing access to digital content and services across India's linguistic spectrum.
- Open Network for Digital Commerce (ONDC), democratizing digital commerce.
- Start-Up India, etc.

Key Challenges faced by the digital economy?

Universal Definition: The increasingly cross-cutting and integrated nature of digital technologies makes the concept of a distinct digital economy difficult to define.
Lack of Reliable Data: Scarcity of appropriate and granular data poses a potential trade-off between accuracy and completeness in capturing the digital economy.
Cyberattacks and cybercrimes: E.g., Digital arrest and cyber slavery
Privacy violation and related Concerns: E.g., misuse of personal data, misinformation, monopolisation, etc.
Poor digital Literacy: 70% of Indian youth aged between 15 and 29 years cannot send emails with files attached, and nearly 60% cannot copy and move a file or folder (NSSO's Multiple Indicator Survey published in 2023)
Other: The off-take on semiconductors in India is slow and value addition in mobile phones is low, Telecom is yet to unleash competitive forces, etc.

Way Forward

Reliable Data Collection:
- Produce periodic updates and expanding estimates for the digital economy
- Move beyond the estimation of size to measure impact, MeitY should undertake a separate study on estimating the productivity gains from digitalisation
Promoting digital literacy and skilling: Incorporate digital literacy in the schools.
Minimise regulatory uncertainty: Bring regulatory clarity on the use of emerging technologies such as cryptocurrencies, and generative AI, and remove frictions in the operation of digital platforms.
Make high-quality broadband universal: Building resilient fixed-line broadband networks to supplement mobile coverage.
Enhance cybersecurity and trust: Build cross-country collaboration to identify and mitigate cybercrimes.
Improve the ease of doing business: Review and re-evaluate business laws, including labour laws (e.g., extending work hours in the ICT sector, etc.) to create a balance between labour rights and compliance cost.