India is a traditional country that loves to stick to its cultural roots and ethics. But the country changed completely after the big launch of ‘Digital India’ in 2015. It gave businesses a new route to generate revenue and innumerable opportunities. Today, India is one of the largest and fastest-growing markets for digital consumers. Technology has radically changed every sector and created significant economic value for the country. With one single move of Digital India, it gave internet access to rural areas with high-speed internet networks. McKinsey in its report highlighted that the ‘Digital India’ initiative is expected to boost the country’s digital economy to US$ 1 trillion by 2025, up from about US$ 500 billion in 2021.
Even Covid-19 was one of the catalysts where everyone was on the internet. That single incident changed the dynamics of the digitization theme. Overnight we were dependent on our technology devices. Events in 2020 made it clear that a large-scale work-from-home model is feasible. Soon enough everyone was productive and the companies continued to run. This opened several doors to digitization that one could only dream earlier.
Triggers of Digital Growth
There are two big catalysts behind India’s rapid digitization theme- Aadhaar card and Reliance Jio. In 2009, Aadhaar card was introduced which is the single largest digital ID program in the world. The government’s efforts to ramp up Aadhaar card’s usage played a major role in spreading digital services. Soon enough, an Aadhaar card became your identity. The centralized database can help in nabbing criminals, avoiding fraudulent voting practices, examination frauds etc.
And then came Reliance Industries with a strategy that changed the very foundation of the telecom sector. Reliance Jio bundled virtually free smartphones with mobile-service subscriptions that was half the price of what other telecom companies were offering. This gave a major filip to the expansion of internet penetration in rural areas. People from small towns and rural areas could read news online, access social media or watch videos on YouTube. Reliance Jio is the biggest and the fastest telecom network provider, with an active user base of 379 million.
Massive Transformations
There was a time when investors sat under a tree to buy and sell company shares. Cut to the present scenario, all you need is one click to do the same. Not just that many online brokers open demat accounts within minutes and one can start trading/investing soon after. Access and knowledge to investment products has become more widespread today due to digitization. Technology helps with wider geographical reach and provides unbiased advisory and customer delight. In fact, digitization has become the backbone of the financial services industry. From customer engagement to customer fulfillment, we need constant technology backup. In fact, fintech startups have become a promising space for innovative entrepreneurs. It has unlocked various opportunities for tapping the wide substantial database.
For instance, Reliance Industries has diverted its focus from its oil and gas business to new-age businesses like green energy, digital services, retail etc. In fact, its FY21 revenue contribution from new businesses is at 40% and EBIT at 47%. Oil-to-chemical revenue has reduced to 52% as compared to 86% in FY17. India’s largest conglomerate has diversified its business and is now growing exponentially in the retail and telecom space.
Digital Loans and SIP Boom
In today’s age, anyone with a mobile phone and a bank account can get loans online within a few hours. Digital lending has emerged as an effective alternative to traditional lending (by financial institutions) for people who are new to credit or are underserved by the financial system. Today, we have access to the internet in remote areas which enables us the opportunity to access financial services digitally. There is an upsurge in the contactless process from diverse customers, which has resulted in a huge variety of digital lending models, each dealing with financial inclusion in unique ways. For instance, ICICI Bank recently had said that 50-60% of the loans they have disbursed is through digital loans. Digital is the new normal in the post-Covid world.
When we talk about systematic investment plan (SIP), it has a separate fanbase. SIPs have created immense wealth for investors who remain invested for the long term. It instills an investment discipline amongst retail investors which is important to achieve financial freedom and power of compounding.
According to the Association of Mutual Funds in India (AMFI), the number of SIP accounts stood at an all-time high of 5.54 crore as of June 30, 2022. It is interesting to see that rising interest rates, weakening rupee, mixed start of monsoon and retail inflation has not deterred small savers from continuing to patronize SIP mode of savings. Monthly SIP contribution holding at Rs 12,276 crore is an indicator of continued confidence in the mutual fund asset class.
Demat Boom
The stock market has become an interesting place ever since Covid-19. One of the reasons is that it attracted a lot of investors. The number of demat accounts has tripled in the last three years. Brokerage companies claimed to have opened over 2 million demat accounts since 2020, and 75% of the investors are below the age of 30 years. The Covid crash and the subsequent rally is the primary reason.
Moreover, e-KYC, work-from-home and attractive returns are other reasons why everyone wants to be a part of the stock market. This has helped CDSL become the 1st depository to achieve 6 crore active accounts. Guess what? New demat registrations are not from big cities but from Tier-II and Tier-III cities.
The influx of new investors has boosted trading volumes. In FY22, equity cash market turnover grew 9% and derivative volumes jumped 2.6 times. The number of demat accounts have jumped 63% in the past 12 months to 89.7 million in FY21-22. In the post-pandemic world, the number of demat accounts have jumped 2.2 times, while combined assets under custody (AUC) too has doubled.
Roadmap Ahead
The Industrial Revolution was a marathon runner, the digital revolution is turning out to be a race. The government is attempting big strides in the technology sector. For instance, the government wants to expand the Open Network for Digital Commerce (ONDC) initiative. The government is trying to create the largest interoperable open platform in a bid to break e-commerce monopolies and build a more democratized digital marketplace by bringing micro, small, and medium enterprise as well as small traders online. Imagine a single app where you can not only view but compare prices from Flipkart, Amazon etc. This will give small players an equal footing and buyers will get the best deals. This means there won’t be any barriers. Anyone can ride the crest of this wave of advancement, bolstering and stimulating the economy even more.
As per a McKinsey report, a digital economy is likely to create 60-65 million jobs by 2025. We are already well-aligned to tap this opportunity and create an economic value of US$ 1 trillion by 2025 from the digital economy.
