The Narendra Modi government is expected to continue its push toward a digital economy in the upcoming national budget, an objective that’s been vigorously pursued in the wake of scrapping of 90 percent of India’s cash overnight on Nov 8.

A budget expectation report published by stock-broking firm Karvy on Jan 21 stated that tax incentives for companies and discounts for individuals who use digital mode of payments is expected to be announced in Feb 1’s budget to be delivered by Union Finance Minister Arun Jaitley.

Beside, here are a few more predictions of the upcoming budget that will take India’s economy further down the road of digitisation,

  1. Smartphones may become more cheaper in the wake of the upcoming budget, which could be an attempt toward pushing more Indians online.
  2. Tax sops for companies involved in building 4G infrastructure may well be announced too.
  3. Digital India may do better if rolled out with campaigns aimed at enhancing literacy among India’s masses.

Largely due to the traction that the term digital economy has gained in India since the demonetisation drive, we thought it was all but apt to put it out in detail as to what digital economy is and how well we are placed to embrace digitisation of our cash.

What is digital economy?

  • In layman’s terms, a digital economy is powered by transactions made through the use of internet rather than conventional cash payments. Cash doesn’t change hands in a digital economy, even though day-to-day business dealings are carried out in a perfectly normal manner. Transactions made through debit and credit cards, internet transfers and use of digital wallets such as PayTm all come under the ambit of digital economy.
  • Since there is no cash involved, chances of unscrupulous individuals hoarding money are greatly reduced. A major advantage of digital economy to the government is that it infuses greater transparency into the system. Every dealing made in a digital economy leaves a digital footprint, which serves as evidence as to the total value of the transaction. The scope of businesses avoiding tax on their earnings is greatly reduced too.
  • There is a consensus among major world governments that going digital is the way forward. The European commission has dubbed digital economy as the “single most important driver of innovation, competitiveness and growth”.
  • The Narendra Modi government in India officially launched the Digital India program on July 1, 2015, with connecting the whole of India through high speed internet forming a core objective of the program.

(Source: Youtube/BJP)

  • According to the Telecom Regulatory Authority of India (TRAI), “creating an infrastructure for digitisation, enabling quality software to run on that infrastructure and providing digital empowerment to citizens” are three different parts of Modi’s Digital India program.

Also read: Manmohan Singh attacks BJP ahead of Budget, says economy is not in good shape

  • The Modi government, in a bid to encourage more Indians to embrace digital economy, last month announced sops on products and services brought through digital platforms. Waving service tax on card transactions under Rs 2,000, and various discounts on paying digitally for petrol and insurance products are among some incentives in place to wean people off cash. Further incentives are expected to be announced for adopting digital mode of payments in the upcoming budget, according to several economic forecasts.

The potential of digital economy in India

  • A common and a largely accurate perception is that younger people tend to embrace internet more successfully than the older folk. With around 65 percent of India’s population under the age of 35 as of 2011, India is one of the youngest countries in the world as well as have great promise in going digital.
  • The success of digital economy directly depends on internet penetration. While India has 462 million internet users which is next only to China’s 731 million people who are online, just a third of Indians have access to internet. India’s internet penetration ratio is lesser than the global average of half. These findings were published by social media managing platform Hootsuite in the first week of 2017, and indicate potential for tremendous growth.
  • The Hootsuite study also found that 79 percent of India’s internet users go online through a smartphone, compared to the global average of 50 percent. The study was upbeat about growth of internet in India, which was predicted to grow by at least 10 percent annually. During 2016, the number of India’s internet users rose by 23 percent. Smartphones may become more cheaper in the wake of the upcoming budget, which could be an attempt toward pushing more Indians online.

Major challenges that stand in the way of India becoming a digital economy

  • India has one of the slowest internet speeds on earth. The average internet speed in India is 4.1 mbps, which is less than the global average of 6.3 mbps. According to an estimate, most of the time that Indians are on internet is wasted in loading pages due to excruciatingly low speeds. A report by consultancy firm Morgan Stanley in 2016 stated that building 4G technology infrastructure was critical to higher internet speeds in India. Several Indian telecom companies such as Reliance are presently involved in setting up 4G networks in India. Tax sops for companies involved in building 4G infrastructure may well be announced too.

Also read: Good news! Airtel launches 90 days free 4G data pack

  • Age-old mindsets toward cash presents another headwind to the idea of digital economy. Before the Indian government’s demonetisation drive, close to 90 percent of India’s economy relied on cash. There is a sense of stubbornness among many Indian business owners to adopt digital mode of payments, an attitude which hasn’t changed much since note ban.
  • India’s literacy rate, which stood at 74 percent in 2011, is another factor that would decide how successfully it could go digital. An educated person is more likely to go on internet and embrace digital. Digital India may do better if rolled out with campaigns aimed at enhancing literacy among India’s masses.