2017: A Year of Promise for India 2.0

With inputs from Shradha Sharma

2017 was a year that saw a lot of plumbing happening in the Indian economy which has paved way for a promising 2018. We saw Indian venture-funded companies raising a record-breaking $10 billion in the capital, we saw India’s digital infrastructure evolve rapidly, and among other things, we saw positive policy and regulatory impetus from the government. For the first time in a long time, the India narrative began evolving from one of promise to a one of commitment. We are eternal optimists but we were particularly happy to see these changes.

Nobody will disagree with the statement that the last decade of digital disruption in India was for the people that sit at the top of the income pyramid. As a result, the businesses that emerged were focused on a small subset of 50–60 million consumers that look and behave a lot like people in the West. The real India promise — stemming from the depth of an expanding middle class — of the next 400–500 million consumers, was largely under-penetrated due to lack of physical and digital infrastructure. This is changing, thanks to the combined efforts of the Government, industry, and academia. Indian startups and businesses are finally building for people who belong to this group, aptly called India 2.0. A lot that happened in 2017 laid the foundation to unlock this growth.

1. GST

Eighteen long years after then Prime Minister Atal Bihari Vajpayee first set up a committee of experts to design a Goods and Services Tax (GST) model in 1999, the tax was actually rolled out in 2017. We’ve seen short-term hiccups, medium-term resistance from the trader community, and long-term resentment on the execution of the roll-out from the Opposition. All said and done, GST implementation is a very positive move towards a structural improvement of our economy, and consequently building for inclusion.

We believe that the biggest beneficiary of the GST will be the small and medium enterprises (SMEs) and consequently, India 2.0. In addition to providing millions of jobs, the SME sector is the epicenter for spurring innovation and competition across a range of sectors. In the US, small businesses employ ~50% of the workforce. Believe which dataset you want (here, and here), the crux of the matter is that Indian SMEs contribute far less to the country’s GDP than their counterparts in other economies do. So there is quite a bit of headroom to grow and GST could catalyze this growth.

There are only 8 million registered SMEs in India and as GST registration climbs, this number may go as high as 20 million. The increased digital data on these SMEs through the GST platform will help bring them under the ambit of formal financial services, lines of credit, loans, insurance and more. The more formally banked they are, the better they can grow. The data will also help the government to design important regulations and policies focused towards the SME segment, creating an upward spiral of growth.

2. IndiaStack’s coming of age

There was a lot of talks, mostly in intellectual circles, last year about the IndiaStack and its implications. 2017, however, saw IndiaStack becoming a core part of our lives. The government. has relentlessly pursued linking bank accounts, PAN cards, EPF accounts, private mobile connections, and many other functional identities we own to Aadhaar.

Aadhaar-based identifications and eKYCs have become a mainstream step in business process flows. According to the IndiaStack website, ~3 billion Aadhaar-based identifications and 150M+ eKYCs have been done. RBI data says that the Aadhaar-based United Payments Interface (UPI) is processing nearly 80 million transactions a month.

The digilocker platform has more than 40 issuers, including the Ministry of Transport and the school education board, CBSE. These issuers can provide users a digitally signed copy of your driving license, class 10 and 12 passing certificates, etc. Over 2 billion documents have been uploaded on the digilocker platform to date. Countless ones are added every day.

IndiaStack will further provide a digital consent architecture which will enable real-time exchange of these documents within seconds. Imagine providing a digital consent to a potential health insurer to pull your health records from Digilocker, which were pushed there by your doctors. Fascinating, isn’t it, not to mention seamless?

According to Nandan Nilekani, Chairman of the UIDAI, which issues Aadhaar, “This is India’s single most important innovation to formalize India’s domestic economy through digital services.”

These interventions are paving way for a unique digital infrastructure that will spur the growth of India’s digital economy. We like to think of these as digital Lego blocks that are available for startups, corporate, and the government to build completely digital, low-cost solutions.

The India 2.0 story will be based on high volumes and low prices. This will enable market creation in industries such as financial services, healthcare, etc., which have traditionally suffered the high service cost syndrome when transaction values are small. This article captures this world-view very succinctly if you’d like to read more.

3. Cost of digital adoption

In years to come when the digital economy of India will come into its own, 2017 will find a special mention for changing how Indians were introduced to ‘reliable, fast, yet affordable’ Internet.

Little over a year ago, the cost of 1GB of 3G data in India averaged $2, but today the same data can be accessed for ~20 cents. What changed that? Well, price slashing by one private provider, which in turn forced others in the industry to follow suit. According to a KPCB report, the monthly consumption of wireless data was up more than 6x to1.3 billion GB per month in March 2017 from just 200 million GB per month in June 2016. Indians are consuming more and more digital content in form of videos, audio, and text.

For India 2.0, the opportunity is unprecedented. In addition to accessing digital products and services, the data will, most importantly, democratize education and information. It will help India become a more connected and informed society where not only its elite but also its common citizens use the Internet participate in the debate, satisfy their curiosity and become online citizens.

4. Focus on Indian languages

Most of the India 2.0 does not consume English the way we (the readers of this article) do and the Internet in India has largely been an English phenomenon. If digital is the way to go, then the way India 2.0 consumes the Internet has to change, for good. A KPMG study estimates that by 2021, 75% of Indian Internet users will consume content in Indian languages.

The advancements in 2017 in the area of Artificial Intelligence, more specifically Natural Language Processing (NLP), has prompted developers in India to take transliteration from non-commercial Ph.D. projects to the mainstream end-user Internet. The number of content creators in Indian languages has also increased (think government, corporates, startups) as a greater number of Indians take to the Internet enabled by lower cost data. Just imagine the scale that online content and tools in Indian languages can bring to sectors like digital content, e-commerce, digital payments, social media, and of course, government services.

5. India 2.0 startups

2017 saw a surge of many India 2.0-focused startups. These startups are in the area of B2B supply chain, financial services, logistics, content, last-mile delivery, etc. There are some who have achieved reasonable scale and went on to raise large rounds of institutional money. Many are scaling well and enjoying the same success as their predecessors. Increasingly, we are seeing fundraising pitches contain words such as vernacular, SMEs, IndiaStack, etc.

Jumbotail, a startup focussed on empowering millions of mom-and-pop retail stores in India, raised its Series B this year. ElasticRun, a variable capacity logistic network that aims at making supply chains in Tier 2 cities and beyond, raised its Series B round this year as well. Many logistics companies across shipping, rail, and technology platforms came up to a scale that shall enable reaching to India 2.0 more effectively.

Thanks to increased data adoption, startups using Indian language content are seeing monthly and daily active users (MAUs and DAUs) go through the roof. There are several, like ShareChat, ClipApp, Pratilipi, and Juggernaut, operating or focusing heavily in this space.YourStory, which has a presence in several Indian languages, also raised Series B funding in 2017.

Within the fintech space, areas such as credit scoring, trade finance for SMEs, consumer lending, which will serve as a key to building India 2.0 economy, saw great traction. Alternate data bureau Creditvidya, which scores new to credit and thin file consumers, raised its Series B earlier this year. Paytm`s allowing one to buy gold for as low as 1-Rupee is their experimenting with micro-transactions. We shall see more from them in 2018.

Any ending is the beginning of something new, and in 2018, we are hoping that we will see India’s digital economy take even bigger strides and create an impact where it is most needed.