Will the Union Budget 2021 catalyse India’s Digital Economy?

By Mihir Modi

2021 will be a landmark year for India in terms of taking definitive steps towards using the power of digital technologies. With the second largest internet consumer base (~700 million), the Indian government has set a benchmark for other countries on how digital connectivity and enablement can be done for 100s of millions.

The Indian government’s Atmanirbhar Bharat, Make in India and Digital India initiatives have been at the forefront of the overall socio-economic development of the nation. India’s digital journey has been defined very well by affordable, inclusive, and transformative technology. The government’s digital programmes, such as Aadhaar for providing digital identities to 1.23 billion Indians and Jandhan bank accounts for the poor, have been commendable. The digital payment platform BHIM-UPI has connected 134 banks to offer UPI services to their customers, whereas UMANG (Unified Mobile Application for New Age Governance) has given Indian citizens access to 339 government services. The government has brought affordable e-services to rural citizens through Common Services Centres (CSCs). Moreover, there has been a strong push by the government to digitally advance India through schemes like Bharatnet and Smart Cities.

The Indian government has set the ball rolling and with milestones like the above they are looking towards becoming a strong Digital Economy, a manufacturing destination and achieve the vision of a $5tn economy by 2025.

We are very optimistic about the upcoming budget for 2021 and here are our recommendations to achieve the aforementioned vision for India.

5 key recommendations for Union Budget 2021, for a truly Digital & Atmanirbhar India

1. Investment on digital infrastructure crucial for emerging economies – Investments in digital infrastructure is estimated to have a multiplier effect on GDP growth. According to McKinsey, the digital economy can contribute up to 20% or $1tn of the $5tn economy vision that India has. The Indian public spend on broadband fibre infrastructure is inadequate, a $13bn spend of which the government spends only $2bn. On the other hand, developed economies like the US and Europe have been spending ~1.2% of their GDP (>$5thn) on digital infrastructure. The Indian government too needs to recognize digital infra as a core transformational area and give it the same importance it gives to physical infrastructure, where 80% of its investment goes.

In line with the global peers, the government should consider increasing investment for broadband infrastructure, especially where private investment is not adequate. The initial size of the fund could be INR1.2 lakh crore. In the upcoming Union Budget, we propose a token budgetary allocation of INR5,000 crore towards building the broadband infrastructure. In the subsequent budgets, the government should increase allocation in this fund to meet global spending benchmark in digital infrastructure.
There is also a need to equally participate with the private sector for an all-inclusive socio-economic growth and use digital infra investment as a lever for online delivery of health and education.

2. Speeding up digital infra build – As we look forward to higher investments in smarter digital infrastructure in the country, the need of the hour is to accelerate the fibre network deployment across the country, enable high network capacities for managing the traffic load and better connectivity, thus easing the way further for business continuity in these uncertain times. There must be a dedicated and non-lapsable budget allocation for network build and modernisation, and more importantly, the government must incentivise (e.g. in the form of tax rebates) telecom infrastructure providers and other players to enable fast execution of digital infrastructure projects.

3. Extending the PLI scheme to existing high-tech telecom products: – The PLI scheme for telecom manufacturing will create a robust ecosystem for domestic components and will boost network equipment exports. Time-bound implementation and disbursal of PLI benefits will be the most crucial factor for ensuring success. Also, though the PLI scheme is primarily for new businesses, it should support the existing telecom and high-tech industries in areas where significant investments have already been made.

4. Ease of doing business for making India the next manufacturing destination – There are a few obstacles that need to be addressed so that the nation can realise its immense potential as a global manufacturing hub. The Indian government needs to work on RoW policies, basic infrastructure like continuous electric and water supply, mandatory for assembly lines of many products. Complex government regulations and red tape can also be critical challenges and there can be a lot of variance in central and state government jurisdictions. The new RoW policy which came out in Nov 2016 is yet to be fully implemented by all states and UTs in India. To fully realise the benefits of Digital India and programs like BharatNet, we need swift implementation of measures like single window clearance, uniform levies and a clear line of authority. Additionally, there is significant scope for improvement on certain fronts such as credit, registering property, protecting minority investors, paying taxes and enforcing contracts.

5. Tracking Network readiness as a metric, with an India specific Network Readiness Index – As we target to become a $5tn economy by 2025 and reap the benefits of a digital economy, we will have to make investments for building robust networks and digital infrastructure. Some of the significant and high-priority areas of investment are 5G readiness, Atmanirbharta and Bharatnet (connecting six lakh villages by 2024, Ghar Tak Fibre).

As India gets into the implementation phase in this Digital Infra journey, there will be a need to track the progress towards achieving this $5tn economy goal. An advanced indexing mechanism for networks and digital Infra will be required on the lines of global Network Readiness Index (NRI).

The Portulans Institute’s global Network Readiness Index (NRI) report provides a good example. It assesses how countries are leveraging information technologies to be future-ready. The NRI model recognizes the pervasiveness of digital technologies in today’s networked world. It is based on four fundamental dimensions: Technology, People, Governance and Impact. While India already has a broadband ranking system, with certain limitations, it needs to have its own Network Readiness Index with India-specific parameters and the right constitution. This needs to be instituted while we start the journey of Digital Infrastructure

This is the time to conceive and take massive steps towards digital infrastructure to transform India. Taking a streamlined approach for budget utilisation for enabling a Digital Economy will promote an all-inclusive socio-economic growth for all.

(Mihir Modi is Group CFO of STL (Sterlite Technologies Limited). Views expressed are the author’s own.)