The Current Status of Digital Economy Development in India

Digital India "is a flagship initiative launched by the Modi government in 2015, aimed at transforming India into a digital society and developing a knowledge economy. The plan is led by the Ministry of Electronics and Information Technology, with multiple government departments working together. It starts from nine aspects: high-speed broadband, mobile access, public access, e-government, electronic services, national information, electronic manufacturing, IT industry, and early projects. From top to bottom, numerous small projects that can be implemented have been formed, thus comprehensively developing the digital economy and e-government.

（1） Development History

Under the influence of the COVID-19 and multiple national blockades, teleworking and digital payment are increasingly popular, which further promotes the development of India's digital economy. Although the size of India's digital economy is not large on a global scale, it is one of the countries with the fastest digital transformation speed. Under the joint promotion of national strategies such as India's Digital Economy Plan, E-Government Plan, and Made in India 4.0, India has made significant progress in digital and financial inclusion, as well as in the fintech and electronic manufacturing industries. Start up companies in related industries have emerged like mushrooms after rain, and the IT industry has become a hot spot for global investment.

The takeoff of India's digital economy began with the National e-Governance Plan launched in 2006, which aimed to improve and simplify the provision and access to public services. This plan has continued to this day and continues to expand and deepen, laying a solid foundation for the integration of digital technology with the economy and society in the future.

In 2006, the Indian government launched an important initiative, the Unique Identity Project (UID), which grants each citizen a 12 digit UID number (also known as Aadhaar) associated with biometric and demographic information, serving as the underlying foundation of India's digital stack. The Adhar number, PMJDY inclusive finance program, and mobile phone form a "trinity" jam program (JAM), allowing the government to directly distribute subsidies to citizens' bank accounts. As of November 2022, 1.349 billion people have applied for the Adhar number. Based on the Adhar numbering system, the government has begun a comprehensive deployment of e-government and electronic transactions. Many government online services are associated with Adhar numbers, such as Electronic Customer Identity Check (eKYC), National Authentication Service (e-Parmaan), Electronic Signature (e-sign), Secure Document Wallet Service (DigiLocker), etc.

In 2016, the National Payment Commission of India (NPCI) launched the Unified Payment Interface (UPI), further accelerating the development of digital transactions in India. UPI integrates multiple bank accounts into a mobile application, allowing users to transfer/request payments to others anytime, anywhere. As of October 2022, 365 banks have adopted UPI, with a total transaction volume of 7.305 billion. NPCI has signed agreements with payment companies in multiple countries such as the UK and France to launch an overseas version of UPI, making it convenient for overseas Indians to use UPI for cross-border settlement.

After 2019, "Digital India" entered the 2.0 era. The government will upgrade the digital service delivery platform on the basis of existing platforms, enhance the digital literacy of the people, strengthen the development of the digital economy mainly based on electronic manufacturing and artificial intelligence, further build infrastructure such as supercomputing and public Wi Fi, and improve laws on network security. India's goal is to achieve a digital economy scale of $1 trillion by 2024.

（2） Scale of digital economy

With the increasing popularity of the internet and per capita income in India, the scale of its digital economy continues to expand, accounting for 9% of India's GDP in fiscal year 2022. Thanks to the development of digital technology, Indian companies were able to continue operating normally during the pandemic, shifting their work mode from offline to online, and their products and services were able to adapt to new demands in the changing environment. In the fiscal year 2022, India's technology industry, excluding e-commerce, achieved a record breaking 15.5% growth, with revenue reaching $227 billion. Among them, domestic revenue increased by 10% to reach 49 billion US dollars, export revenue increased by 17.2% to 178 billion US dollars, and the direct labor force exceeded 5 million, with a net increase of 445000, the highest increment in history. In the e-commerce sector, revenue surged from $57 billion in fiscal year 2021 to $79 billion in fiscal year 2022. Nowadays, the digital business of Indian enterprises accounts for 30% to 32% of total revenue, and one out of every three employees has digital skills, which has increased India's market share in the global procurement market to 59%.

The 2022 fiscal year is also a milestone year for Indian technology companies, with 78 new unicorn companies and a total of over 25000 startups, forming a diverse and dynamic digital ecosystem. These companies have created 450000 new job opportunities, making India the world's third-largest center for technology startups.

（3） Current situation of infrastructure

In the digital economy, mobile devices, networks, and electronic payments are the foundation for conducting digital transactions. The total number of telecommunications users in India is large, but the proportion of digital transactions conducted through mobile phones is relatively low, and there is a significant urban-rural gap. In recent years, the government has focused on expanding financial inclusion in rural areas through digital finance, providing a continuous stream of new impetus for India's economic development.

1. Fundamentals of Telecommunications Networks

India's digital economy has a huge telecommunications user base. In terms of telephone penetration, India has the world's second-largest group of telephone users. As of August 2022, the total number of telephone connections in India reached 1.17 billion. Mobile phone users account for 98% of telecommunications users. There is a significant difference in telephone density between urban and rural areas, with the former reaching 135% and the latter only 58.3%.

In terms of network popularity, the Indian government attaches great importance to the development of Internet and broadband, and has written it into the "Digital India" plan. The main medium of Internet access is mobile phones. With the advantages of wide coverage and low cost, mobile phones help to increase the popularity of the internet and narrow the digital divide. In recent years, the number of internet users in India has continued to rise. By the end of March 2022, India has 820 million Internet users, of which 800 million use mobile devices to access the Internet. The network density (number of internet users per 100 people) in rural areas is relatively low, only 37.25%, but it has increased by 7.66 percentage points compared to 2020. The network density in urban areas is 103.95%. 4G network accounts for 98.03% of the total usage data.

In recent years, the demand for networks among Indian users has continued to increase, with the total wireless data usage in 2021 increasing by 31.04% compared to 2020. On average, each user spends 834 minutes per month looking at their phone and consumes 14.04GB of wireless data data per month. At the same time, mobile broadband tariffs in India have been decreasing year by year. The proportion of internet tariffs to gross national income has decreased from 13% in 2013 to 1.1% in 2021, with only $0.086 per GB of mobile data.

Although India's mobile devices and network coverage have improved several times in the past few years, its network quality is still at a medium to low level worldwide, and there is still a lot of room for improvement in network infrastructure. According to the Digital Quality of Life Index released by VPN service company Surfshark, India ranks 59th globally, with electronic infrastructure being its weakest link. In addition, according to the global internet speed ranking provided by Speedtest Global Index in September 2022, India ranks 118th out of 139 economies, behind Maldives, Nepal, Pakistan, and Sri Lanka among South Asian countries. A survey by private company Local Circles shows that two-thirds of people experience at least one interruption in digital transactions per month due to poor 3G or 4G network quality, and over 90% of mobile phone users complain about poor wireless network connectivity.

Therefore, the Indian government is vigorously building telecommunications infrastructure. As of January 2022, the number of mobile base station transceivers in India reached 2.313 million, a year-on-year increase of 2.53%; The number of mobile signal towers reached 698000, a year-on-year increase of 9.04%.

India has made significant progress in the field of network technology. According to the "2021 Network Readiness Index" released by Portulans Institute in December 2021, India ranked 67th out of 130 economies, rising 21 places. India ranks third among low - and middle-income countries. In the Global Cybersecurity Index released by the International Telecommunication Union in June 2021, India ranked in the top 10.

2. Fundamentals of Digital Payment

The development of digital payments in India is still in its early stages. In fact, there are still a large number of Indians who are accustomed to cash transactions and do not have bank accounts. According to the 2021 global Findex database, 77.53% of people in India have bank accounts, while only 9.87% of the population can conduct transactions independently using their mobile phones without assistance, and even fewer in rural areas, at only 7.03%.

In 2021, digital transactions in India accounted for approximately 40% of all transactions, with a total amount of $3 trillion. Among them, the number of transactions conducted through UPI continues to increase. As of September 2022, 358 banks have joined UPI, achieving approximately 6.8 billion transactions with a total value exceeding $135 billion. The use of QR codes has played an important role in the popularization of digital payments. Currently, over 30 million merchants in India accept QR code payments. This has led to a continuous increase in the proportion of P2M transactions conducted through UPI, which is expected to grow to 65% by 2026. However, KYC standards, fraud, and UPI transaction failures are the three major bottlenecks hindering the development of digital payments. About 1.4% of UPI transactions face system failures and network issues.

To expand India's financial inclusiveness, the government has introduced a central bank digital currency (CBDC) and started piloting it in some retail industries in November 2022. This currency is the digital form of legal tender, which can be stored in central bank accounts or used as electronic tokens in mobile devices, prepaid cards, or other forms of digital wallets. The central bank's launch of CBDC is partly due to its cautious attitude towards cryptocurrencies, and partly to regulate the flow of funds.

In addition, the government has also launched a digital pilot for the widely used Kisan credit card (KCC) in rural areas, in order to shorten turnover time, improve process efficiency, and enable any farmer with a mobile phone to verify transactions through messaging services.

Development of the secondary industry

In terms of market size, fintech, telecommunications, electronic system design and manufacturing, IT and business process management (IT-BPM), and e-commerce are the fastest-growing sub sectors in India's digital economy, and are also areas of focus for the government and investors.

（1） Financial Technology

Due to the relatively low penetration rate of formal bank credit among Indian citizens and businesses, financial technology has become a powerful tool to expand financial inclusiveness and improve loan convenience in India. India is the fastest-growing emerging fintech market in the world and the third-largest fintech ecosystem in the world. This ecosystem covers a wide range, including payments, lending, wealth technology, personal financial management, insurance technology, regulatory technology, and more. The adoption rate of financial technology in India has reached 87%, far exceeding the world average of 64%. By 2030, the Indian fintech market is expected to reach an asset management scale of $1 trillion and a revenue level of $200 billion.

Most startups in India are involved in fintech. In 2022, India will have 6300 fintech companies with a value of $100 billion, of which 28% will focus on investment technology, 27% on payment technology, 16% on lending technology, 9% on banking infrastructure, and the remaining 20% on other technology fields. According to Indian Finance Minister Sitharaman's estimation, India's digital economy is expected to expand to $800 billion by 2030, with the total valuation of the fintech industry rising to $150 billion in the next three years.

This industry allows 100% foreign direct investment (FDI) under automated pathways. The large amount of funds invested by venture capital, private equity, and institutional investors has driven innovation in the industry. In 2021, the size of India's fintech market reached $50 billion and is expected to reach $150 billion by 2025. From January 2017 to July 2022, the Indian fintech market attracted a total of $29 billion in financing, accounting for 14% of the global financing total. In the fiscal year 2022, the industry achieved $8.53 billion in financing through 278 transactions. In the third quarter of fiscal year 2022, Wealth Technology was the most active investment sector with 15 transactions, accounting for 23% of the total trading volume. Following closely behind is the market lending department, with 12 transactions. As of July 2022, a total of 23 startups in the industry have become unicorn companies with valuations exceeding $1 billion. Among the 20 new unicorn companies in 2022, 4 are fintech companies, namely CredAvenue (lending), Oxyzo (lending), Open (payment), and OneCard (credit card).

The largest fintech company in India is Paytm in the payment sector, with a total financing of $5 billion (see Table 1). This enterprise is India's first and most popular mobile payment and financial services company, providing payment, banking, lending, insurance and other services to consumers and merchants. Its parent company, OCL, was listed on the Indian Stock Exchange in November 2021.

表1 印度前五大金融科技公司

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Table 1 Top Five Fintech Companies in India

With the rapid development of fintech companies, the central bank has begun to increase regulatory efforts in this field. In early 2022, the central bank allowed fintech companies registered and controlled by Indians to access residents' credit data. In June 2022, the central bank announced that Prepaid Payment Instruments (PPIs) cannot be used to make payments through credit lines of non bank lending institutions, in order to avoid generating a large number of unsecured credit lines and reduce risks in the financial system. In August 2022, the central bank issued guidelines for digital lending platforms. This policy establishes a principle that loan business can only be conducted by entities regulated by the central bank or other entities permitted by law. The new regulations will strengthen consumer protection in the field of digital lending. In the field of cryptocurrency, the government will impose a 30% tax on the proceeds from the sale of virtual digital assets starting from April 2022, and a 1% source deduction tax on the transfer of such assets exceeding a certain threshold, but the valuation of such assets is difficult to determine. In 2021, 7.3% of Indians owned cryptocurrency assets, but India has yet to introduce regulations regarding cryptocurrency.

（2） Telecommunications industry

The telecommunications industry in India includes telecommunications infrastructure, telecommunications equipment, mobile virtual networks, white space spectrum, 5G, telephone, and broadband services. The information network provided by the telecommunications industry is the foundation for the operation of the digital economy. Telecommunications can reduce the cost of obtaining information, thereby lowering transaction costs, creating new trading opportunities, and making important contributions to India's economic growth. Higher economic growth has put forward more requirements for existing telecommunications services and brought more investment to the telecommunications industry. In the fiscal year 2021, the revenue of India's telecommunications industry reached 37.36 billion US dollars, a decrease of 2.05% compared to 2020. Its revenue for the first quarter of 2022 was $8.74 billion.

Meanwhile, the telecommunications industry is the third largest sector for foreign investment inflows in India, accounting for 6.43% of the total foreign investment inflows. To encourage private capital to enter the telecommunications market, the Indian government has raised restrictions on foreign direct investment from 74% to 100%, creating a thriving and competitive situation.

1. Current situation of telecommunications industry operation

There are 8 mobile service operators in India, of which 4 account for over 99% of users, namely Jio (market share 35.73%), Bharti Airtel Ltd. (market share 30.66%), Vodafone Idea Ltd. (market share 22.58%), and BSNL (market share 10.25%) under the Reliance Group. The cellular phone services of the top three companies cover the entire India.

In terms of online services, 99% of users in India are monopolized by 10 operators. Jio has the largest market share at 50.68%, followed by Bharti Telecom (27.81%) and Vodafone India (16.43%). In the field of wireless networks, Jio occupies half of the market with 416 million users and a market share of 51.79%, followed by Bharti Telecom (28.21%) (see Figure 1). In terms of wired network services, Jio also dominates with a market share of 17.18%, followed by Bharti Telecom (15.8%), Bharat Sanchar Nigam (15.32%), Atria Convergence (7.55%), and Hathway (4.05%). The vast majority of wireless networks use LTE/FW_LTE technology, followed by GPRS/EDGE; The mainstream technology for wired networks is fiber optic, followed by Ethernet/LAN and DSL. India introduced 4G technology in 2016, and now 4G has become the mainstream of wireless networks, accounting for 97.9% of total data usage.

Figure 1 Market share of wireless network operators in India

Since 2016, the usage of wireless networks in India has doubled several times, with year-on-year growth of over 30% in 2020 and 2021, and has now stabilized. The revenue brought by wireless networks to operators has also increased several times, reaching 1351.75 billion rupees in 2021, a year-on-year increase of 19.46%.

There is still significant room for improvement in telecommunications revenue in rural India. Regardless of which telecom operator, the market share of rural telecom users is much lower than their user share, indicating that the telecom consumption of rural users is very low.

Since all telecom operators raised their tariffs in 2021, there has been a trend towards integrating SIM cards, and some users have cancelled their excess phone access. In addition, the operator has also cleaned up inactive users. Therefore, the number of telephone connections and network access will slightly decrease in 2022 (see Table 2).

表2 印度电信数据概览

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Table 2 Overview of Telecom Data in India

The development of 2.5G

According to DSMA Intelligence, 5G is expected to contribute approximately $455 billion to the Indian economy over the next 20 years, accounting for over 0.6% of GDP by 2040. The sector that benefits the most from 5G is manufacturing, accounting for 20% of the total benefits, followed by retail, information and communication technology, and agriculture.

The Indian government plans to achieve nationwide 5G coverage within two years. Mobile and network testing company Ookla has found that the download speed of India's 5G testing network has reached 500Mbps, with a maximum speed exceeding 800Mbps. The 5G speed of telecom networks varies greatly among operators, ranging from 16.27Mbps to 809.94Mbps. The operator is still in the process of network debugging, and it is expected that the network speed will be more stable after entering the commercial stage.

In the auction of a 20-year 5G spectrum usage license held by the Indian government in August 2022, four participating companies - Reliance Jio, Bharti Telecom, Vodafone India, and Adani Group - spent a total of INR 150 million (USD 19 billion) to purchase spectrum in the 700MHz, 800MHz, 900MHz, 1800MHz, 2100MHz, 3300MHz, and 26GHz frequency bands. Jio obtained the largest share, acquiring over one-third of the available spectrum for $881 billion, including the C-band spectrum with good coverage and network speed, and Jio is the only operator to obtain the 700MHz frequency band. 700MHz, as a low-frequency spectrum, has better penetration and can better cover rural areas; Secondly, Battier Telecom acquired over a quarter of the spectrum for $431 billion, while Vodafone India acquired nearly 9% of the spectrum. Adani Group has also acquired 2 billion rupees of spectrum, but only for industrial sectors such as electricity and manufacturing, not for consumer mobile networks. In this auction, only 71% of the available 72GHz radio waves were sold, and most of them were sold at the lowest price.

In October 2022, Ericsson announced the signing of a long-term 5G strategic contract with Jio to launch independently developed 5G in India. Ericsson Wireless Systems' energy-efficient 5G Radio Access Network (RAN) products and solutions, as well as E-band microwave mobile transmission solutions, will be deployed in Jio's 5G network. Jio announced that it will launch high-speed 5G telecommunications services in major cities such as Delhi, Mumbai, Kolkata, and Chennai before the 2022 Lantern Festival. Subsequently, the 5G network will be expanded to every town, tesil or talukas across the country by December 2023.

Battier Telecom has also signed contracts with Ericsson, Nokia, and Samsung to deploy 5G services in August 2022. As of now, Bharti Telecom has launched "Airtel 5G+" services in 8 cities including Delhi, Mumbai, Chennai, Bangalore, Hyderabad, Siliguri, Nagpur, and Varanasi, and will cover all cities in India by 2023.

Ookla compared the median download speed of 5G in four cities covered by Jio and Bharti Telecom's 5G services since June, and overall, Jio's download speed is higher than Bharti Telecom's. In Delhi, Bharti Telecom achieved a median download speed of nearly 200Mbps, while Jio almost surpassed 600Mbps. In Kolkata, the median download speed of Bharti Telecom is 33.83Mbps, while Jio is much faster, reaching 482.02Mbps. In the most densely populated city of Mumbai, Bharti Telecom's median download speed reaches 271.07 Mbps, while Jio's is 515.38 Mbps. In Varanasi, Jio and Battier Telecom have similar speeds, with median speeds of 485.22 Mbps and 516.57 Mbps, respectively.

From the perspective of consumer readiness, the market share of 5G smartphones in India in 2021 was only 18%, with the rest being 4G smartphones. Counterpoint Research predicts that by the end of 2022, the share of 5G smartphones in India will reach 40%. By the first quarter of 2023, the shipment volume of 5G smartphones may exceed 100 million units. Since 2021, the number of devices supporting 5G has been continuously increasing, with Jio experiencing the largest increase in 5G devices (67.4%), followed by Bharti Telecom (61.6%) and Vodafone India (56%). According to Ookla's research, 51% of respondents in India already support 5G on their mobile phones. The largest brand in the Indian mobile phone market share is Samsung (31%), followed by Xiaomi (23%), Realme, and Vivo.

Although the Indian government has auctioned off spectrum to telecom companies, allowing private enterprises to lease telecom companies' spectrum and develop exclusive non-public networks (CNPNs) will stimulate a new wave of innovation in the application areas of Industry 4.0, such as machine to machine communication, the Internet of Things, artificial intelligence in the automotive sector, healthcare, agriculture, energy, and other sectors. Telecom operators are dissatisfied with the government's move. The overall financial situation of the Indian telecommunications industry is relatively fragile. The lower average revenue per unit user and higher regulatory costs have had a negative impact on the ability of operators to invest in upgrading their networks. The launch of 5G networks requires intensive capital investment. Therefore, the government's move may limit the 5G revenue of operators.

However, from a different perspective, operators can attract manufacturing companies' interest in digital transformation through CNPN. By utilizing existing qualifications and establishing partnerships with suppliers, operators can create new competitiveness and open up new markets. For example, Bharti Telecom has partnered with Mahindra Technologies to establish a joint 5G innovation laboratory to develop "Made in India" cases for local and global markets, including customized enterprise and private networks; Vodafone India also cooperates with A5G Network to realize Industry 4.0 and intelligent mobile edge computing.

（3） Electronic System Design and Manufacturing

The electronic market in India can be roughly divided into electronic systems and electronic design, with the latter accounting for the vast majority with a share of 78% and the former accounting for 22%. The largest sub sector of India's electronics manufacturing industry is mobile phones, followed by industrial electronics and consumer electronics (see Table 3).

表3 2020～2021年印度电子制造业各细分领域的产值

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Table 3 Output value of various sub sectors of India's electronic manufacturing industry from 2020 to 2021

The Indian government attaches great importance to electronic hardware manufacturing, which is one of the important pillars of the "Make in India" and "Digital India" plans issued by the Indian government. The government hopes to break free from dependence on imports, increase domestic manufacturing, and reduce India's dependence on the service industry. The Indian government hopes to establish a $300 billion electronics manufacturing industry by 2025-2026. At present, the industry has a scale of only 75 billion US dollars, mainly based on imports. In the fiscal year 2021-2022, the industry exported 15.67 billion US dollars and imported 73.3 billion US dollars. Its largest source of imports is China, accounting for 27.8% of the total imports.

With the support of the National Electronic Policy (NPE 2012) in 2012, India's electronic system design and manufacturing value chain has been able to solidify its foundation and leverage its advantages. At the same time, due to considerations of national security, India has begun to focus on electronic hardware manufacturing at the level of integrated circuits or chips. The NPE 2019, introduced in 2019, positions India as a global hub for electronic system design and manufacturing, by encouraging and promoting the development of core components (including chipsets), expanding production, and driving exports, creating a favorable environment for building global competitiveness. Under multiple government measures, the domestic output value of electronic products has significantly increased from 37 billion US dollars in 2015-2016 to 74.7 billion US dollars in 2021, with a compound annual growth rate of 17.9% in 2020-2021.

The largest segmented market in the electronics manufacturing industry is mobile phones. India is the world's second-largest mobile phone manufacturer, with a production of 290 million units in 2020-2021. Domestic manufacturing of cellular phones and their components has become an important part of "Made in India". Most mainstream brands both domestically and internationally have established manufacturing factories in India or subcontracted their manufacturing operations to Indian electronics manufacturing service companies. In the second quarter of 2021, India shipped 33 million smartphones, led by Xiaomi with a market share of 28.4%, followed by Samsung with 17.7%. The shipment volume of 5G devices is expected to increase by 129% from 28 million units in fiscal year 2021 to approximately 64 million units in fiscal year 2022. India's goal is to produce 1 billion mobile phones by 2025, of which 600 million will be exported.

Industrial electronics is the second largest sector of India's electronics manufacturing industry, including power electronics, DC/AC converters, material handling, and industrial robots. Its key application areas are process control equipment, testing and measurement equipment, power electronics equipment, automation and analytical instruments. With the advent of the Industry 4.0 era, the application of digitalization and robotics technology continues to increase. In addition, smart cities and the Internet of Things will drive the development of intelligent and automated electronic products. Due to the huge demand and low penetration rate, power electronics technology still has significant development potential in India, especially in the fields of electric vehicles and consumer electronics. In addition, inverters, UPS, solar photovoltaics, and related equipment also have great market potential.

One of the biggest incentive measures introduced by the government in the field of electronic manufacturing is the Production Related Incentive Scheme (PLI), which includes promoting domestic manufacturing of mobile phones and their components (including assembly, testing, labeling, and packaging). Approximately $5.7 billion will be used to provide a 4% to 6% incentive for incremental sales of locally manufactured goods for a period of 5 years (up to fiscal year 2024-2025). At the same time, PLI will also promote the production of local IT hardware (including laptops, tablets, all-in-one computers, and servers), providing a 1% to 4% incentive for net sales growth for a period of 4 years (up to fiscal year 2024-2025).

In the field of consumer electronics, the government has increased the basic tariffs on concentrated consumer electronics products, allowed 100% FDI to enter the market through direct channels, and provided capital expenditure subsidies to promote import substitution and encourage foreign companies to set up factories domestically.

In the field of electronic components, semiconductors and optoelectronic displays are important areas promoted by the Indian government. The government launched the Program for Promoting Electronic Component and Semiconductor Production (SPECS) in April 2020, which identified a list of electronic products in the downstream value chain and provided a 25% financial incentive for capital expenditures on these products. The government has also introduced policies such as tariff rationalization, phased manufacturing plan (PMP), and prioritizing Indian manufacturing in public procurement. In 2022, India revised a comprehensive plan (EMC) for developing India's semiconductor and display manufacturing ecosystem, providing financial support of 50% of the construction cost and encouraging the establishment of high-tech clusters. At the same time, the government has launched a 5-year Design Linked Incentive (DLI) program to support 100 domestic integrated circuit, chipset, system on chip, system and IP core, and semiconductor related design companies, and has released the "India Semiconductor Mission" long-term strategy to build a sustainable semiconductor and display ecosystem. In 2022, the government allocated $9.48 billion to promote the establishment of a semiconductor ecosystem plan. As of December 2021, 19 electronic cluster manufacturing projects and 3 Common Facility Centre projects have been approved. The incentive measures for the Indian electronics manufacturing sector are shown in Table 4.

表4 印度电子制造领域激励措施

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Table 4 Incentive Measures in the Indian Electronics Manufacturing Sector

（4） IT and Business Process Management (IT-BPM)

IT and business process management (excluding e-commerce) are traditional key industries in India, including IT services, business process management, software products and engineering services, and hardware (see Figure 2). This industry is mainly focused on exports, with export revenue increasing year by year, and its business accounts for 55% of the global outsourcing market. In the fiscal year 2022, the industry's revenue reached $227 billion, a year-on-year increase of 15.5%, with over half of the revenue coming from exports. Meanwhile, over half of India's service industry's export revenue comes from this sector. In terms of business process management, the revenue in this field reached 44 billion US dollars in fiscal year 2022, a year-on-year increase of over 14%. In terms of software products in India, the revenue of this department reached 13.3 billion US dollars in fiscal year 2022, with the increase mainly coming from Software as a Service (SaaS), enterprise digitization, and small and medium-sized enterprises.

This industry is also the largest labor force sector in the entire private sector. As of the fiscal year 2022, there are a total of 5 million people employed in the IT industry, with 445000 new job opportunities added in 2022. In 2021, employees who have received digital training accounted for 12% of the total labor force in the country.

Figure 2 Revenue Proportion of Segmented Industries in the IT-BPM Field

India's IT-BPM exports are known for their high quality and affordable prices. The United States has always been the largest destination for India's IT exports, accounting for 61.73% of India's IT-BPM exports in the 2021 fiscal year, and together with the United Kingdom, accounting for nearly 79%. Non UK and US countries only account for 21.38% of exports.

From the perspective of FDI inflows, computer software and hardware are the second largest areas in India that attract foreign investment. Allow 100% foreign direct investment under automatic pathways in data processing, software development and computer consulting services, software supply services, enterprise management consulting services, market research services, technology testing and analysis services. In the 2021-2022 fiscal year, the sector with the highest inflow of FDI capital in India is computer software and hardware, accounting for 24.6% of the total inflow.

The key sub sectors of the IT-BPM industry are banking, financial services, and insurance, which constitute the main revenue streams for the IT department. These segmented fields are mainly controlled by the six giants, with Infosys having the highest revenue share (31.3%), followed by Wipro (29.77%), L&T Infotech (27.6%), Mindtree (20.46%), and Tech Mahindra (15.3%).

Large and medium-sized enterprises are the mainstay of India's IT industry. 11 large enterprises account for 47% to 50% of the total export revenue in the IT-BPM field and 35% to 38% of the total number of employees in the industry. The business scope of large enterprises continues to expand, evolving from simple maintenance suppliers to full-service suppliers, providing infrastructure, system integration, and consulting services, with business coverage in over 60 countries worldwide. Representative large enterprises include Tata Consultancy Services, Infosys, HCL, etc.

Nowadays, IT-BPM in India is no longer the industry known for call centers 20 years ago, but rather prioritizes helping businesses achieve digital transformation. Disruptive technologies such as cloud computing, social media, and data analytics are bringing new increments to IT companies. With the popularization of these technologies, the cloud market size in India is expected to triple by 2022, reaching $7.1 billion. Nowadays, over one-third of the revenue from BPM business in India comes from artificial intelligence operations and analysis, as well as advanced intelligent systems.

An important component of India's IT industry is the Global Competence Center (GCC), which provides operational support (including backend functions, call centers, etc.) and IT support (including application development and maintenance, remote IT infrastructure, help desk, etc.) to multinational corporations. GCC has advantages such as low operating costs, high productivity, and complete infrastructure. By June 2022, India has over 1500 GCC with a market size of 35.9 billion US dollars. In the second quarter of 2022, most of the newly established GCC will focus on artificial intelligence, natural language processing, data science, Web 3.0, and robotics.

Under the influence of the COVID-19, GCC has been adopted by more and more enterprises and gradually evolved into a center of excellence providing innovative solutions. The scale of newly established GCC in various industries in India is rapidly growing. Bangalore and Hyderabad are the most common locations in GCC. In September 2022, real estate consulting firm JLL partnered with Aeka Consulting to assist global entities in establishing their own GCC in India. It is expected that in the next 3-4 years, various industries in India will establish GCC, and the area of GCC will increase from the current 145 million square feet to 195 million square feet, providing employment opportunities for over 2 million people.

Under the influence of the COVID-19 epidemic, the global demand for online work has increased, and the Internet has become the lifeline of people's work and life. This demand has accelerated investment in ultra large scale data centers. The main data centers in India are located in Mumbai, Chennai, Bangalore, Hyderabad, and Delhi.

In terms of urban layout, in addition to traditional central cities, the government is promoting second - and third tier cities to become new IT development centers. In the 1990s, the Indian government began developing software technology parks and has now established 57 centers nationwide, providing single window procedures and infrastructure. In addition, the government also encourages the establishment of IT economic zones, with the aim of setting up dedicated areas to promote infrastructure construction, exports, and employment. As of November 2021, a total of 425 economic zones have been approved nationwide, of which 276 are IT and ETES zones and 145 are export economic zones. Both software technology parks and IT economic zones exempt enterprises from tariffs and consumption taxes.

This industry is increasingly becoming a "hot commodity" in the eyes of investors. In 2021, IT-BPM was the second largest industry in India to receive private equity investment, attracting $23.4 billion in investment, far exceeding 2019 and 2020. The IT startup ecosystem has received a record breaking investment of nearly $36 billion in private companies, far exceeding the $11 billion in 2020. Investments in artificial intelligence/machine learning capabilities, business intelligence and analytics, and digital business solutions are increasing; New vertical sectors including retail, healthcare, and utilities are driving new growth in the industry.

（5） E-commerce

1. Development of E-commerce Market

In 2022, it is expected that the total retail sales in India will be 1.072 trillion US dollars, of which electronic retail will only account for 7.8%, and physical vendors will still make up the vast majority. However, thanks to the growth of Internet penetration and mobile phone users, the scale of e-commerce in India continues to expand, with the number of sellers growing at an annual rate of 35%. In 2021, the number of online buyers in India increased by 4-5 million, reaching 190 million, making it the third largest group of online buyers after the United States and China. Most of these new buyers come from third tier and below cities, mainly purchasing fashion products. Nowadays, small cities have become the mainstay of online retail, with nearly half of buyers coming from second - and third tier cities. In 2020, the revenue of this field was 50 billion US dollars, making India the eighth largest e-commerce market in the world. In 2022, the Indian e-commerce market is expected to grow by 21.5% to $74.8 billion. According to the government's "Digital India" strategy, its goal is to achieve a $1 trillion online economy by 2025. The traditional products of Indian e-commerce are electronics and clothing, accounting for 70% of the total market value. The newly added sub sectors include educational technology, hyperlocal, and food technology.

The e-commerce industry in India is divided into two forms: market model and inventory oriented model. The market model is similar to Taobao, providing a digital platform for consumers and merchants to buy and sell goods without being responsible for inventory. The representative company is Amazon India. The inventory oriented model includes the products available on the website and provides the entire process service from purchase, warehousing to shipment, represented by the company Yepme. In October 2020, the Indian government released the Consolidated FDI Circular of 2020 on e-commerce, which only allows 100% foreign direct investment in the market mode under the automatic path, and does not allow FDI investment in inventory oriented e-commerce.

The main companies in the e-commerce field include Flipkart, Amazon India, Sanpdeal, Nykaa.com, Myntra, PaytmMall, Shopclues, and 1mg. Among them, Flipkart and Amazon India are the two major e-commerce platforms in India, accounting for two-thirds of the e-commerce industry. Flipkart, founded in 2007, is the largest local e-commerce company in India. Its largest shareholder is Wal Mart (82.1%), followed by Tencent (5.1%). In competition with Amazon, Flipkart has heavily invested in logistics and delivery, owning its own logistics company eKart. In 2021, it reached an agreement with logistics giant Adani Group to build a 534000 square foot warehouse and data center that can accommodate up to 10 million pieces of inventory, which will be put into operation in 2022.

Flipkart has formed a competitive advantage in the fields of clothing, fashion, and electronics, and continues to consolidate its market. It acquired companies such as e-commerce platform Yaatra and fashion platform Myntra, and began to increase its grocery business to compete with other large enterprises such as Amazon. According to PGA Labs, Flipkart accounted for over 60% of the revenue in 2021's Diwali sales, while Amazon accounted for 32%.

The Indian government has been continuously rectifying the e-commerce industry in the past few years. From October 2020 to July 2022, a total of 448 violation notices were issued to e-commerce platforms, and fines totaling 7.73 million rupees were imposed for failing to display seller details, manufacturer name, country of origin, maximum retail price (MRP), net content, as well as selling defective products, false reviews, product safety issues, etc. in accordance with regulations.

2. Digital Business Open Network

In order to end the monopoly of Amazon and Flipkart in the market and provide opportunities for physical small vendors who account for 80% of India's retail industry, the Indian government established a revolutionary non-profit decentralized open e-commerce network, the Open Network for Digital Commerce (ONDC), on December 31, 2021. ONDC is not a program or intermediary, but a set of open specifications and protocols aimed at promoting open communication and connection between buyers, technology platforms, and retailers, breaking down data silos formed by different platforms, and is known as the "next-generation UPI" (Unified Payment Interface). Sellers can showcase their products on all applications and e-commerce platforms on ONDC, while buyers can choose any platform for settlement and freely select logistics. In other words, as long as the platform is connected to ONDC, buyers and sellers can use their respective applications for transactions. Through ONDC, buyers can see the prices of the same product/logistics on different platforms and select the best one. At the same time, you can discover the nearest merchants and choose faster services. The commission charged by ONDC is 8% to 10% of the product's selling price, while Amazon and Flipkart charge 8% to 40%.

ONDC is not only aimed at the retail industry, but also at all digital transactions related to goods and services between buyers and sellers, including wholesale, taxi, takeaway, logistics, travel, city services, etc. In addition, it will also cover B2B transactions.

In April 2022, the Department of Industry and Domestic Trade Promotion (DPIIT) of India conducted a pilot program in five cities: Delhi Capital Region, Bangalore, Coimbatore, Bhopal, and Silom. In August of the same year, ONDC began providing services to 100 cities and was launched nationwide by the end of the year. ONDC's goal is to increase the penetration rate of e-commerce from less than 8% to 25% within the next two years, and to attract 900 million buyers and 1.2 million sellers in the next five years, increasing the total product value to $48 billion.

ONDC requires the platform to establish its own buyer and seller interfaces that can intervene in ONDC. At present, 24 e-commerce platforms and 3 logistics platforms are active on ONDC, which has launched its own buyer/seller ONDC interface. There are 13 e-commerce and logistics platforms under deep development, and 490 merchants are preparing to join.

Three Future Prospects

Since the Indian government launched the "Digital India" plan in 2015, after 6 years of development, India has taken a large number of measures in the fields of e-government, digital infrastructure, and talent cultivation, which have had a significant impact on industry development.

1. The demand for digital talents has surged, and freelance work has become a new trend

Since the outbreak of the COVID-19, the digitalization of Indian enterprise processes has accelerated, leading to a substantial increase in the demand of enterprises for big data analysis, financial technology and risk analysis, artificial intelligence, network security, product design and engineering. The data for the first quarter of the 2022-2023 fiscal year shows that the industries with the highest number of job vacancies are IT (21%), BFSI (16%, with banking and financial services accounting for 9% and insurance accounting for 7%), and business process outsourcing/call center (10%). Due to the high turnover rate of personnel in the IT service industry, it is expected that the recruitment demand for IT talents will continue to be hot in the 2022-2023 fiscal year. In the automotive industry, there is a high demand for technical talents in the ACES field (autonomous driving, connectivity, electric, and sharing). In the consumer electronics industry, there is an increasing demand for technical talents in the field of artificial intelligence.

Driven by demand, the salaries of digital talents have significantly increased. In 2022, four out of the five industries with the largest salary increases in India are related to the technology industry. The industry with the largest growth rate is e-commerce (12.8%), followed by startups (12.7%), high-tech/information technology and related services (11.3%), and financial institutions (10.7%).

In addition, under the continued impact of the pandemic, remote work models are becoming increasingly common, and India's job market is undergoing a transformation. Gigs have become an important component of the IT industry workforce. In 2022, the level of talent loss in IT service companies reached a historical high of over 20%, and freelancers and part-time employees have become necessary choices for companies to expand their talent pool. According to a report released by the Indian Chamber of Commerce in June 2022, there are currently over 15 million freelancers employed in technology projects in India. For example, Mahindra Technologies specializes in hiring gig workers with niche skills and has established an external market called BeGig, allowing employers to hire employees from these freelance laborers.

The Indian government has taken a series of measures to cultivate specialized technical talents and enhance the digital literacy of its citizens.

Visvesvaraya PhD Program in Electronics and IT: This program aims to increase the number of PhDs in the electronic design and manufacturing, IT, and related service industries. The government has allocated 1076 full-time and 746 part-time doctoral degrees in higher education institutions. Currently, 466 full-time and 263 part-time doctoral researchers are pursuing doctoral degrees, and 66 patents have been applied for.

IT Human Resources Retraining Program (Future Skills Prime): Organized by the Ministry of Telecommunications and NASSCOM, it provides B2C practitioners with skills retraining opportunities in 10 emerging technologies, namely the Internet of Things, big data analytics, artificial intelligence, robotic process automation, additive manufacturing/3D printing, cloud computing, social and mobile, cybersecurity, augmented reality/virtual reality, and blockchain. The plan aims to benefit 412000 people. Currently, over 100000 candidates have completed the course.

Rural Family Digital Literacy Enhancement Program (PMGDISHA): This program covers 250000 Panchayat villages across the country, cultivating the abilities of rural people to operate computers, send and receive emails, browse web pages, search for information, access government websites, and engage in cashless transactions, enabling them to actively participate in the country's digital construction.

The government has also taken a series of measures at the local level to help enterprises achieve digital transformation, and has cooperated with multiple universities and research institutions to cultivate digital talents.

2. Emerging technologies continue to lead the digital market

The resource investment of enterprises is shifting at an unprecedented speed from traditional businesses to digital businesses, such as automation, cloud computing, network security, mobile internet, artificial intelligence, 3D printing, Internet of Things, big data analytics, and social media. More than 4500 new technology startups have been recognized by the Indian Ministry of Industry and Domestic Trade Promotion, covering fields such as the Internet of Things, robotics, artificial intelligence, and big data analysis. The Software Technology Park (STPI), Indian Startup Seed Fund, and NASSCOM Industry Partnership Project (NIPP) initiative in India will all vigorously promote the development of technology startups in India. From April to June 2022, social platforms, Internet priority media, payment, B2B e-commerce and e-commerce support services are the main industries attracting the largest amount of investment.

The Indian government is making large-scale investments in the field of quantum computing, ranking fifth in the world in terms of investment amount. The federal budget for 2020-2021 allocates approximately $1.2 billion for the National Quantum Technology and Applications Mission. Nowadays, India's quantum ecosystem is accelerating its development. India plans to develop a quantum computer with approximately 50 qubits by 2026. In addition, India has a quantum simulator platform established by the Indian Academy of Sciences (IISc), Bangalore, the Indian Institute of Technology (IIT) - Roorkee, and the Centre for Advanced Computing Development (C-DAC).

The IT service industry has also begun to enter the quantum field: Infosys plans to establish multiple quantum centers both domestically and internationally to explore applications in telecommunications, 5G, energy, and healthcare; Tata Consultancy Services focuses on the application of quantum algorithms in fields such as investment portfolios, logistics, and communications; Zensar focuses on areas such as drug discovery, genomic analysis, fraud detection, advanced materials, credit risk optimization, and supply chain optimization. By 2030, the adoption of quantum technology across the entire industry could add $280 billion to $310 billion in value to the Indian economy, with manufacturing, high-tech, banking, and defense sectors at the forefront of quantum led innovation.

In the field of AI, although the growth rate of AI technology application in India is relatively slow, India has become the world's largest gathering place for AI talents. Although India only accounts for 1% of the global AI market, it cultivates 16% of the world's AI talent, ranking third in the world. Many enterprises are in the early stages of applying artificial intelligence, obtaining AI services from technology companies and deploying them across departments. Small and medium-sized enterprises seeking AI contractors, as well as large enterprises seeking AI and machine learning talents for digital transformation, all require AI talent. The telecommunications, financial services, and retail industries have driven the application of AI technology in the industry.

To strengthen industrial development and talent reserves in emerging technology fields, the Indian government has established 26 centers of excellence for building emerging technology capabilities across the country, and provided direct assistance for enterprise technological innovation through the construction of Atal Incubation Centers (AICs). In December 2021, the Department of Electronics and Information Technology launched the Chips to Startup program to strengthen the manufacturing of semiconductor and display devices, with plans to train 85000 highly skilled engineers in the field of large-scale integration and embedded system design. Indian universities have also partnered with businesses to offer multiple emerging technology courses and experimental projects.

3. Digital devices are shifting towards local manufacturing

The government's "Made in India" plan, "Digital India" plan, and the 2019 National Electronic Policy all aim to develop India's domestic manufacturing industry and reduce dependence on imports. In recent years, the growth rate of India's electronic product imports has significantly slowed down.

According to the 2019 National Electronic Policy, the government will intervene in fields such as the Internet of Things, 5G devices, sensors, drones, 3D printing, and robots to promote research and manufacturing in these areas. Among them, medical electronic equipment, strategic electronic products, and automotive and power electronic products are defined as special categories with great growth potential. This policy will also extend the preferential policies provided by the Periodic Manufacturing Plan (PMP) from the mobile phone field to other fields, in order to improve the relatively weak position of these fields compared to other fields. India's goal is to produce $400 billion worth of electronic products by 2025.

Under the framework of the national electronic policy in 2019, the government also issued the Production Related Incentive Plan (PLI) in 2020 to encourage local manufacturing and entrepreneurship. Eligible companies will receive a reward of 4% to 6%. The 10 key industries covered by this plan include large-scale electronic manufacturing, telecommunications and network products, electronic/technology products, automobiles, and automotive components. The manufacturing of products such as mobile phones, specific electronic components, computers, servers, core transmission equipment, 4G/5G and wireless devices, routers, etc. will attract significant investment.