Insights into Editorial: How digitisation can drive growth in India

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Insights into Editorial: How digitisation can drive growth in India


 

Context:

The central theme of the recent report on ‘Economic Outlook for Southeast Asia, China and India’, released by OECD development centre, is fostering growth through digitisation.

The report indicates that ICT (information and communication technology) services embodied in manufacturing and services account for a considerable share of the value of exports from China, India and other Asian nations.

 

Digital Economy and its necessity as of Today:

Improved telecom and Internet penetration, availability of skilled manpower for providing IT services, entrepreneurship exhibited in building ICT start-ups, along with government embracing ICT in its operations and services are enabling India to play a significant role in the digital economy.

The digitisation embodied in manufacturing and services improves efficiency, total factor productivity, spill-over effects, transparency and accountability.

For example, e-commerce has improved logistics and supply chains;

  • Digital payment services have provided flexibility and transparency;
  • Digital identification services have enabled de-duplication and prevention of fraud; and
  • Digital learning platforms have augmented literacy.

Though India pioneered offshore IT services to contribute to exports worth $150 billion, it is this wave of digitisation that has brought ICT services to the domestic market at large.

There have been many studies that analyse the impact of ICT stock variables such as mobile and broadband penetration, on economic development. However, there are not many studies that analyse digital data flows that characterise digital economy.

For example, when we use Ola app to hail a cab, there are data flows pertaining to: fetching map data on vehicle location; direction data that shows the cab driver the pick-up location; navigation data that shows the cab location in real time; and algorithmic data that gives the shortest path between source and the destination.

Global brokerage company Morgan Stanley said that India is expected to be a $6 trillion economy – the third largest in the world – in the next decade.

In the report, Morgan Stanley said India’s digitisation drive would provide a boost of 50-75 basis points to GDP growth in the coming decade.

 

Digital flows rising in recent time:

In one of the first studies, McKinsey Global Institute (MGI) pointed out in its report on ‘Global flows in a digital age’, how apart from goods and services, digital flows across countries do contribute to economic development. It points out that cross-border goods, services and financial flows contribute to about $30 trillion and about 40 per cent of world GDP, there is increasing trend in knowledge intensive data flows compared to capital and labour intensive flows.

These flows typically have high research and development (R&D) component and intellectual property, and enable exchange of ideas, thoughts and expressions, facilitated by the digital platforms.

Examples include: courses offered through digital platforms attended by students from around the world; global collaborative design of a 3D printing artefact; tele-medicine by expert doctors; and robotics programming done by AI programmers around the word.

Analysis of a panel data from 2000-2015 across all countries of the world, comprising goods, services, people, and digital flows. They found that a 10 per cent increase in digital flows increases country GDP by 0.2 per cent.

 

Policy implications:

Given this emerging potential of digital flows and economies, what are the policy implications?

  • First, the use of digital technologies requires higher-order cognitive, socio-emotional, and technical skills that help respond to fast-changing technologies and their adoption at scale. As per 2016 ‘World Development Report’, this multiplicity of skills has always been important, but it is now essential. It is time that our technical and management institutes revamp their curriculum to integrate all the above features instead of promoting rote learning.

 

  • Second, movement of information across borders is crucial to the operation of the digital economy, and thus to the producers of goods and services that rely on it. Any barriers to free information flow is likely to have adverse impacts. For example, recent initiatives by the government on “data localisation” is likely to inhibit digital flows in and out of India.

While security and data protection are of paramount importance, merely restricting digital flow is not likely to guarantee the same. Stricter data protection laws that govern such cross border digital flows is the answer.

 

  • Third, since the digital economy is heavily based on intellectual property, we should enforce strict protection to patents and copyrighted work, whether produced in India or elsewhere.

For example, the Indian Patent Act does not allow patenting “software per se”.

We also need to augment the infrastructure and capability at the patent offices in the country so that Indian inventors consider patenting in India seriously, before proceeding to file their patents in the US Patent and Trademark office. Since patents are jurisdictional in nature there are merits to encouraging and incentivising patent filing in India.

 

  • Fourth, digitisation is pervading from enterprises to the common man. The cognitive skills of people, especially in India, is quite varied due to varying literacy levels, Hence there should be conscious effort by product/service designers, developers and project managers to ensure that digitisation does not leave behind masses and create a massive digital divide.

 

At the same time Data protection laws to be act as Firewall for personal and Privacy issues:

Seven key principles

Justice B.N. Srikrishna Committee suggest that the seven key principles should guide the data protection framework in the country.

  1. Technology agnostic: The data protection law must take into account the continuous change in technology and standards of compliance.
  2. Holistic application: The law must cover both the private sector and the government sector, maybe with different obligations though.
  3. Informed consent: The consent should be not just consent but “informed and meaningful”.
  4. Data minimisation: The data collected or being processed should be minimal — only that data which is necessary for the purpose for which it is being sought.
  5. Controller accountability: The committee is clear on fixing accountability of data controllers. It says, “The data controller should be held accountable for any processing of data, whether by itself or entities with whom it may have shared the data for processing.”
  6. Structured enforcement: The committee proposes to set up “a high-powered statutory authority”, which “must co-exist with appropriately decentralised enforcement mechanisms.”

It envisions three main objectives of a data protection authority: monitor, investigate and enforce the laws; set the standards; and generate awareness in an increasingly digitised society.

  1. Deterrent penalties: It proposes for “adequate” penalties for “wrongful processing” to ensure deterrence.

 

Conclusion:

To some extent, start-ups such as Paytm, Ola and Flipkart have enabled inclusion of most sections of the society to participate in their digital products and services.

However, quality of digitisation of government services is sometimes pathetic. They are difficult to navigate even for digital-savvy urban users; not to mention, semi-literate or illiterate masses for whom it is supposed to be more beneficial.

It is time governments took notice of this and improved their services and programmes for digital inclusion of the society at large.

Instrumentally, a firm legal framework for data protection is the foundation on which data-driven innovation and entrepreneurship can flourish in India. Fostering such innovation and entrepreneurship is essential if India is to lead its citizens and the world into a digital future committed to empowerment, experiment and equal access.