India: From slumdog to startup

24 October 2017

For years, India was the IT and call-centre capital of the world. A vast pool of English-speaking, technologically literate, inexpensive and highly-educated graduates led international companies such as BT, Sky and Microsoft to adopt business process outsourcing (BPO) strategies during the 2000s.

What started as a way for multinationals to exploit Indian skills to save money has now enabled the country to skip a whole generation of structural development and enter the digital age, bypassing traditional forms of infrastructure and communications. 

Through technological advancement, the government has seized the opportunity to revolutionise the welfare system, through the collection of biometric data, the like and size of which is incomparable elsewhere globally. This lays the foundation for the digital revolution, which sprang to greater prominence following

Prime Minister Narendra Modi’s demonetisation announcement in November 2016. Cancelled currency drove people to use electronic payment platforms, while simultaneously having the significant effect of clamping down on illicit monies in the informal economy. With just 3% of Indians paying income tax, technology is now also being used as a tool to improve the fortunes of both state and central government treasuries. 

Since 2012, more than one billion Indians have signed up for biometric identity controls under the Aadhaar scheme, which consequently allowed for the rapid provision of more than 270 million ‘no-frills’ bank accounts. The shift to digitisation and extending bank accounts across the country enables smarter targeted distribution of subsidies, supported by a reduction in leakages, an issue which has plagued the system.

Upwardly mobile 
By skipping the introduction of traditional ‘landline’ technologies and moving directly to mobile phones, a massive uptake in users has been created by data, which is arguably the cheapest anywhere globally. 

At a company level, the entrepreneurial spirit, combined with embracing mobile in India, has led to resounding tech success stories. Paytm, India’s leading e-wallet provider, was founded in 2010 and benefitted hugely from 2016’s demonetisation experiment. The company went from urbanite convenience to a farming and rural community necessity as cash transactions dried up overnight, essentially making online payments the method of payment. In just a few weeks, 20 million new users were added to their user base of 150 million, resulting in Paytm processing more transactions per day than India’s combined credit and debit card users. 

The shift from cash to digital transactions is as much about having the facilities, as it is about leading cultural changes, and companies such as Paytm, which witnessed a transformational pick up in users, are enabling this move.

The entrepreneurial spirit, combined with embracing mobile in India, has led to resounding tech success stories.

Homeward bound 
A University of California, Berkeley study found that Indian-born entrepreneurs had founded 7% of all Silicon Valley startups between 1980 and 1998. By 2012 this had risen to 14%. But now a growing number are returning to India. 

The Silicon Valley of India, in Bangalore, is now home to more than 900 IT firms including global giants such as Oracle and Wipro, which operate alongside local innovators who have been facilitated by government initiatives since 1991. 

The government has committed to connect every village in India to a broadband network and, through schemes such as ‘Make in India’ and ‘Startup India’, have actively encouraged India’s home-grown leading electronic/tech players to develop products for the domestic market, rather than for export. Modi has also realised the role international technology firms can play in India’s technological revolution and, in 2015, he met with Mark Zuckerberg of Facebook, among others, with a promise to encourage more than a billion Indians to join the internet.

Tech to taxes 
Demonetisation was another stepping stone in the government’s clampdown on corruption, with a particular focus on tax evasion. Those objecting to the methods used to suffocate corrupt cash transactions were those who had not taken heed of the government’s warnings. Modi staked a significant piece of his political capital on this move which was well supported, even by those suffering directly. Corporate results for the latest quarter have demonstrated the resilience of the Indian economy, quietening those calling demonetisation a disaster. 

Technology is now being used to ensure that subsidies are paid via direct benefits transfer rather than in physical form, which is giving consumers choice and helping government to cut ‘leakage’. Estimates suggest a leakage of up to 40% in kerosene and cooking fuel (liquefied petroleum gas) subsidies was taking place. So, with approximately 2% of India’s US$8.7 billion GDP being spent on energy subsidies, these changes translate into significant savings for the government.