Economy

How India’s Market Size And Growth Prospects Strengthen Its Case For Data Localisation

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Snapshot
  • Data mining is not only profitable for companies but also critical to their long-term growth and innovation plans.

    Digitisation could push India towards becoming the fastest growing economy in the world in the 2020s.

    India must use its market strength to push for data localisation norms.

When it comes to thought leadership around Information Technology (IT) and digitisation of services, India, even today, struggles to catch up with the West. The testament to this fact is the lack of a data protection law, even as the number of Internet users in India has crossed the 500 million mark.

It was in the first tenure of the Narendra Modi government that we saw a strong push towards digitisation of services via the JAM trinity (Jan Dhan accounts, Aadhar Cards, and Mobile) and the Direct Benefit Transfers (DBTs).

This move alone saved the Indian government more than Rs 100,000 crore through curbing of monetary leakages and elimination of middlemen. As of today, the 358 million Jan Dhan accounts hold close to Rs 100,000 crore.

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Finally, it appeared that the government had woken up to the reality of India’s growth potential on the digital front, and the importance of securing it.

Thus, when the Indian government first pushed for the idea of data localisation (explained here), it did not go down well with the foreign companies operating in India, like Amazon, Google, Visa, Mastercard, and many more.

Some went overboard and termed the move as a hurdle for the ease of doing business in India. Eventually, it went from being an issue of commerce to one that required elaborate diplomatic deliberations.

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Now, the United States Secretary of State, Mike Pompeo will find himself deliberating data localisation with his counterparts in India during his ongoing visit, along with other issues.

As the US and India find themselves navigating through a rough patch on multiple fronts, including trade, Russia, and Iran, it would be important for the Indian government to ensure they have their way on data localisation by virtue of their market size.

A Billion People, and Billions of Dollars at Stake

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Data is the new oil. Therefore, data mining is not only profitable for companies but also critical to their long-term growth and innovation plans.

As per a 2017 report by Morgan Stanley, digitisation could push India towards becoming the fastest growing economy in the world in the 2020s. By 2027, the report projects India’s GDP to hit the $6 trillion mark. The Indian government has also set its GDP aim at $5 trillion by 2024. One of the underlying forces behind these projections is India’s market size.

By 2026, India is projected to have over 900 million internet users. This is 2.5 times the population of the United States, more than twice the population of entire South America or the Middle East, and almost 1.25 times the population of Europe.

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Of these 900 million users, over 475 million are projected to be regular users of e-commerce websites by 2026-27. This alone would help the e-commerce sector in India drive sales of more than $200 billion by 2027, constituting 10-12 per cent of all retail sales in India.

Thus, between 2016 and 2026, the online shopper count could result in the creation of a digital market that shall have more users than the population of the United States.

Today, Amazon has around 160 million products listed on its Indian portal while for the US it has over 400 million products listed. This can be attributed to, one, the number of shoppers in India which is currently not as big as the US, and two, the lack of sellers.

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In 2016, when India had 60 million or 14 per cent of its Internet users shopping online, China had 64 per cent. The report attributed the lack of experience with online shopping in India as a reason. However, given how Jio has ushered a telecom revolution in India, most Indians will now find themselves familiar with the ways of online shopping and digital payments.

The government’s focus, for a while now, has been on micro, small, and medium enterprises via programmes like MUDRA (Micro Units Development and Refinance Agency Bank), easing GST regulations, and new e-commerce rules to enable a fair playing field for all sellers. Therefore, in the next ten years, more sellers will find their way online, enabling large inventories and growing revenues for e-commerce giants.

The buck does not stop at e-commerce. As per a report in the Financial Times, digital payments in India will grow from $64.8 billion in 2019 to $135.2 billion in 2023. Yet, these would account for only 2 per cent of the total global digital transactions. Thus, across the 2020s, the sky shall be the limit for market growth in India.

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Fintech, the love child of finance and technology, is the latest front for innovation in digital services in India. In the first three months of 2019 alone, India received $286 million in investments, more than China, for the fintech sector.

Companies — from offering a mechanism for digital payments or any online service — are now moving towards selling financial services.

Standalone micro-finance and loan companies are becoming common. These companies can be accessed via a mobile app and ensure minimal documentation process and instant loans.

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A set of APIs (Application Programming Interfaces) launched by India Stack is now being used by companies — MNCs and local — to cater to the credit and insurance needs of people with loans starting from Rs 10,000. The APIs are used to build digital products on the existing network, similar to that of the JAM trinity, and therefore, have opened up a whole new market for financial instruments and products.

The fintech will enable more people to have rapid access to credit, and thus, more consumption. This expenditure shall reflect on fronts like shopping, tourism, hospitality, and retail. Thus, Indians will be spending more online because of greater and easier access to short-term credit.

The market shall not restrict itself to e-commerce alone but spend on digital media websites, online news platforms, dating and other social networking sites, flights and trains, hotels, gaming portals, food and grocery outlets, and everything else that can be found online.

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Indispensable for the creation of data is a thriving market, and with such staggering numbers, this is where India holds the advantage on the negotiation table.

Jio showed what India could do with 4G, but the real surge in data creation and time spent online will be with 5G. Projected to start somewhere around 2020, 5G will see the emergence of the Internet of Things (IoT), and thus, increased data creation, attributed to a certain user.

Even though one cannot expect 500 million Indians to have access to 5G data by 2025, given the data plan costs, the decline in 4G prices will be a reason enough for more people to get online. Already, the price/GB for a 4G connection has gone from Rs. 400 in 2012 to Rs. 60 in 2016 to practically free in 2019.

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As of today, it is hard to quantify the amount of data creation 5G holds, but it is safe to assume that across the 2020s, India will be churning out a major chunk of it globally, plus with IoT playing a critical role, a wide range of new data forms is expected to emerge.

Clearly, for the likes of Google, Facebook, Apple, Amazon, Walt Disney, Flipkart, Uber, and countless others with a customer base that goes into millions, the market size and revenue potential alone are tempting enough to brave the data localisation norms. With China out of the question for many, and the West reaching its market size saturation, it is India where the opportunities beckon.

Therefore, India must use its market strength to push for data localisation norms. Failure to do so will not only leave the online users vulnerable but also reduce the biggest online market of the world to a mere cash cow for the likes of Google and Amazon, ushering a decade of digital drain.

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This is the first in a two-part article series on India’s push for data localisation.

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