Digital Future of the Indian Economy

Sy BanerjeeAssociate Professor Marketing,

University of Michigan Flint

2

CONTENTS

Digitization – Beyond iPhone and Online Shopping The Two Narratives • A: The Shades of Dark and Light (Indian Economy 101)• B: Digitization- Global Patterns Current Day• C. Demonetization, Digitization and Financial Inclusion• D. State of Digitization within India• E. Regulations/ Policy Issues for Future Developments

3

A. THE SHADES OF LIGHT AND DARK Population : 1.32 Billion, GDP : $ 2 Trillion +101 Billionaires, 4th highest among nationsFast growing Middle class, Potential $1 Trillion Digital Economy

BUT Only 3.81% pay income taxes

Missing 500 Million?

4

The Tax Decline (2008-2016)

APRIL 29,2016

5

INCOME DISTRIBUTION &POVERTY

Gross Enrolment RatioMalnutrition age<5

Lack of access to Capital

Cognitive Impairment

Productivity

Sanitation/ Hygiene

6

NEED OF THE HOUR:SOCIO-ECONOMIC and FINANCIAL INCLUSION

7

B.DIGITIZATION-GLOBAL PATTERNS

8

M-POWERING ECONOMIC GROWTH

10% substitution from 2G to 3G -> GDP per capita growth by 0.15 %

100% in mobile data use -> GDP per capita growth by 0.5 %

10% mobile penetration -> GDP per capita growth by 0.15 %

9

M-PESA:VOLUNTARY DEMONETIZATIONMobile MoneySending money to a relative in the villageSelling livestock at village marketOr crops after the rainy season Extended financial inclusion to 20 million KenyansClue: Airtime as currencyStarted in 2007 by Vodafone (Funded by DFID, UK)In 2013, 43% of Kenya’s GDP flowed through itWith 237 million person to person transactions

10

M-POWERMENT: APPLICATIONSFunction Where, When

Activism and Crisis Management

Tahir Square uprising against Mubarak regime. January 28, 2011 mobile phone networks in Egypt went dead. Ushahidi: Crisis Monitoring Visualizer

Education Nokia + Mxit = MoMath : Mathematics teaching tool in South Africa

Healthcare MAMA, South AfricamUbuzima, RwandaMaternal and child health care

iCow Kenya: SMS and voice service that allows dairy farmers to track their cows gestation, acting in effect as a veterinary midwife. Farmers are also given tips on breeding and nutrition.

11

ENABLING DEVELOPMENT & EQUALITY

12

C. Demonetization, Digitization and Financial Inclusion

Black-Already digitized for disclosed income sources-Few Key Players, Large Amount of Undisclosed Income-Hold 5-7% of wealth as Working Capital/ Cash Inventory, Rest invested in sectors, offshore Few motives for further digital conversion

Informal Economy -92% of working people (2000)-Distressed categories like Toddy Tappers, Carrier of head loads, - scavengers, drivers of animal driven vehicles, loaders unloaders- Contributes To almost 50% of the GDP

Trade-offs for digitization and Financial DisclosureCost Burden of Govt Regulations,Loss of freedom of operations Lack of financial inclusion, access to capitalDebt Traps – 300,000 Farmer Suicides in 20 yearsAbuse, exploitation and lack of labor regulation/standards(Caste based discrimination)

13

D. DIGITIZATION IN INDIAMixed Effects

Demonetization

Formal Sector

(-) (substitution of impulse purchases)

(+) Necessary items(-) Cash on Delivery (almost 70%

of e-commerce in India, 80-90% in

tier II towns

Informal SectorLoss of business and livelihood

Embrace financial disclosure and inclusion

Digital Payments

eMarketer cut growth estimates from 75% to 55%

14

VISION OF DIGITAL INDIA

15

Rural M-Apps

Disintermediation of Agricultural Produce Trade

Pregnancy/ Maternal health tracking and improvement

16

DETERMINANTS OF M-PAYMENT READINESS

17

DIGITAL PAY ECOSYSTEM AVATARS

BPCL +ICICI

18

E. REGULATORY AND POLICY ISSUES

Medium Term Recommendations to Strengthen Digital Payments Ecosystem, Page 142, GOI-Committee on Digital Payments December (2016)

What are the Govt’s data governance/ sharing terms with private players?- (Example: Cyber Security Law passed by Standing Committee, National

People’s Congress, PRC, November 7, 2016).

What are the relevant Privacy laws?- 43A, IT Act (2000)-Article 21- Implies under Life and Liberty (Kharak Singh vs State of UP)-2015- Centre Attorney General Mukul Rohatgi’s statement: that privacy is not a fundamental right- Sectoral Privacy Laws- RBI

How do we identify and Protect sensitive personal data or information (SPDI)?(SPDI- 72a, IT Act 2008)-Deep history of socio-cultural-religious divides- Future entrant wireless devices: IOT- Lifestyle Data- Health Data

19

THANK YOU !