National Digital Development Strategy and Its Practice in India

Abstract

Globalization has produced a wide range of convergence effects. Digital strategies, popular in developed countries, have won a more durable favor among and followed by developing countries, and become the focus of their development, which is also determined by the fact that digital strategies serve as a tremendous impetus in promoting national economic growth and political governance. However, different from the digital development pattern adopted by developed countries, which is mainly based on the spontaneous growth of the market, the situation in developing countries often encounters more serious market malfunction, hence, government’s intervention and the role of transnational capital under open pattern are more needed. Therefore, the construction of a digital development strategy model for developing countries based on the supply side perspective is supposed to include at least the following elements: government, domestic private capital, and transnational capital as well as the interactions among them. Based on this framework, this paper also analyzes how the digital strategy was formulated and implemented in India. The development of India’s digital strategy suggests that a clear digital strategy can generate positive results, specifically, through establishing government-oriented public–private partnership, the construction of digital infrastructure can be strengthened, the leading industries in the digital field can get strong support, and the spillover effect of digital strategy can get enough attention from parties concerned. However, just as every coin has two sides, the other side of digital strategy shouldn’t be neglected. Digital strategy itself can only accelerate the development of a country, but it cannot fundamentally solve other internal problems existing in the economic and social development of a country, such as the limited role of the government rendered by national fiscal conditions, deep-rooted regional differentiation, improper policy-making orientation as well as conservatism, which will make it difficult for the government, private capital and transnational capital to achieve synergistic effect at a higher level, thus, restricting the realization of the national digital development strategy.

^☆同时感谢论文的评审专家对本文提出的宝贵修改意见.

Translated by Hao Yunhui.

1 Introduction

Digital technology has served as a main driving force leading the world into the Industrial Revolution 4.0 era, and meanwhile the cornerstone of digital economy and digital strategy development. Early studies on the role of digital technology as a catalyst for national economies focused on the information and communication technology (ICT) industry. According to classical economic growth theory, labor, capital investment, and technological progress are the key drivers of economic growth,¹ while the implementation of ICT is conducive to increasing capital and labor productivity, deepening the division of labor in society, streamlining production processes and boosting economic growth in certain countries and industries, thus there exists a positive circular relationship between the development of the ICT industry and economic growth.² Based on the role of the ICT industry in economic growth, many countries have developed and introduced strategies and policies to promote the development of their ICT industries. Yoon et al. found that both developed and developing countries regard “political leadership” and “information and communication infrastructure” as the two most important factors in determining a country’s digital strategy. Developing countries often refer to the models of developed countries for their digital strategies, but the results achieved are not significant.³ This is due to the fact that countries differ in their economic conditions, social backgrounds, cultural customs etc., and that the “strategic priorities” for the development of their ICT industry or the decisive factors for ensuring the success of the strategy also vary from country to country.⁴

As the ICT industry continues to grow and the digitalization process accelerates, a new round of digital development model mounts the historical arena. Digital economy under a new model and traditional industries continue to interpenetrate and integrate, developing into a new engine of economic growth in various countries,⁵ and the digital-driven economic development strategy has also aroused widespread concern.⁶ A research report divides the emerging digital economy into two segments: digital industrialization and industrial digitization. The former includes the software industry, telecommunications industry, electronic information manufacturing, and internet industry, while the latter refers to the industrial transformation and improvement of production efficiency resulting from digital technology empowering traditional industries, specifically including 5G, big data, artificial intelligence, smart manufacturing, and other related fields.⁷ Traditional digital model approximates digital industrialization, while the new digital economy model places more emphasis on the digital transformation of industries, such as the new digital infrastructure, e-commerce, and electronic media, all of which are the result of the development of digital technology in combination with traditional industries. Although the new round of digitalization seems overwhelming, it still is faced with certain obstacles. As what is pointed out in Harald’s study on European manufacturing, certain industrial sectors are reluctant to adopt digital technologies and adapt their production processes in order to prevent undermining the sustainability of the European welfare society model,⁸ and meanwhile some developing countries are concerned that their comparative advantages based on human and land resources will be replaced by smart production and smart manufacturing.⁹ In any case, however, digital strategies continue to get widespread attention at the national level.¹⁰ In particular, from a comparative perspective, the digital divide and imbalances in the development of the digital economy are still pronounced across countries, which are also revealed among different regions, as well as between rural and urban areas within a certain country.¹¹ In general, developed countries are the leaders in the ICT industry and digital economy, while developing countries serve the role of followers and are relatively lagging behind.¹² Therefore, studying how developing countries can learn from the experience of developed countries and catch up with them in the digital sector is fundamentally significant for understanding the future global dynamics of the digital economy, as well as predicting the future evolution of the international economic and political landscape. This paper aims to explore the practical experience and shortcomings of digital economy development in India, and to summarize what developing countries share in common while promoting digital strategies.

2 Analysis Framework

In the context of all-round opening, the development of the digital economy as an emerging industry is mainly influenced by the sectors of government, domestic investors, and foreign investors from the perspective of supply side. The interaction of regulations, policies, strategies, and behaviors among these three sectors determines how incentives and constraints of digital economy can evolve and how well they can perform.

2.1 Government’s Strategic Leadership and Policy Drive to Boost the Development of Digital Economy

Government serves as the maker of national strategies, as well as the guide and promoter of its policies. In the development of the digital economy, the task of the country is to make new policies for a digital strategy that integrates digital plans with national development strategies.¹³ Digital products are inherently public products, and public products are one of the causes of market failure. The durable and non-competitive nature of digital products is enough to push their prices to unsustainable levels and thus cause market failure.¹⁴ In addition, the development of the digital economy requires significant investment upfront to make sufficient traffic available and achieve economies of scale. According to Metcalfe’s Law, as technology develops, the value of a network grows as the number of users in that network grows.¹⁵ Thus, the interaction of economies of scale, economies of scope, and network externalities will lead to the emergence of oligopolies within the industry. As an emerging industry, the digital industry has positive externalities that lead to insufficient private investment in the early stages of the industry’s development, thus requiring public investment to replenish it.¹⁶ The emergence of oligopolies and insufficient investment in the private sector will lead to market failures that will slow down the formation of the digital economy as a whole. It is precisely because the digital economy is characterized by market failure that the government, the initiator of the digital strategy, needs to intervene in the market and formulate appropriate policies for the development of the digital industry to ensure the smooth implementation of the national digital strategy.

Industrial policy serves as the catalyst of realizing national digital strategies. Government makes use of industrial policy to narrow the digital divide, coordinate the imbalance in digital development among domestic regions, and promote digital applications. Due to different national conditions, two main models of industrial policy formulation have emerged: one is the model that applies to the more developed countries in the Internet and digital sectors. Most of these countries have relatively mature digital industry markets, and their digital policy-making process is often achieved in bottom-up pattern. For example, a study by Foster et al. on China’s digital industry policy found that the development of China’s digital economy was driven by the private sector, and that these companies emerged with a focus on the domestic market and were able to expand with the support of private capital.¹⁷ The other is a top-down implementation model applicable to most developing countries where the Internet and digital sectors are relatively lagging behind. This model is government-led and gives priority to the development of the domestic market. The government’s leading role is reflected in both the supply side and demand side of its digital economy,¹⁸ emphasizing both government policy output on the supply side of the digital strategy, such as encouraging digital infrastructure development, and policy promotion on the demand side of the digital strategy, such as encouraging national acceptance and use of the digital economy.

2.2 Private Sector Expands Financing to Unlock Demand for the Digital Economy

The private sector is widely regarded as tremendously catalytic in facilitating sustainable growth, and expanding the function of the private sector has become a central theme of national development.¹⁹ Due to the fact that a thriving private sector, which is usually highly competitive, is widely involved in the economic agenda, it can also contribute to government development strategies and goals through taxation, making international standards, and working with governments to expand infrastructure.²⁰ The private sector often has superb implementation capacity.²¹ Therefore, apart from promoting both strategy and policy, government should also focus on the role of their domestic private sector in boosting digital economy development, and thus gain a late-stage advantage in developing the digital economy.

There are two collaborative paths for the private sector to contribute to the national digital strategy: one is to use the private sector’s capital advantage to expand financing in the digital sector, and the other is to unleash digital dynamism by stimulating the demand side of domestic digital economy development through broad private sector participation. The implementation of a digital strategy requires a well-established digital infrastructure as a prerequisite for development, which requires considerable investment support, especially for areas that are less digitally developed, such as rural areas, where the investment gap is huge.²² Bringing in the private sector can expand the sources of financing for industrial development. Of course, the private sector’s investment behavior is highly profitable and therefore its risk appetite needs to be taken into account when undertaking investment activities. In addition, small and medium-sized private companies focus more on the digitization of internal processes, websites, and e-commerce to improve their competitiveness. Their market potential can be stimulated on the demand side by combining digital technologies with relevant business models and processes.²³

2.3 Multinational Capital Participation in the National Digital Strategy

At present, transnational capital flows are increasingly becoming one of the driving forces behind globalization and the growth of the world economy. In particular, Foreign Direct Investment (FDI) from developed countries has been the key to the economic growth of many developing countries. This is also the case in the digital sector. However, FDI is unevenly distributed. Countries that absorb more FDI undoubtedly have a greater development advantage and, as a result, digital strategies in developing countries also include strategies to attract foreign investment and play a crucial role in it. In his study on the factors influencing foreign direct investment in the ICT industry in developing countries, Pires found that technological factors, policies and regulations, and socio-economic factors are the key factors influencing FDI in the ICT industry in host countries. In general, multinational companies and others prefer to invest in countries with better economies because they are more technologically advanced and have good infrastructure conditions.²⁴ Policies, laws, and regulations reflect the business environment created by the host government to attract foreign investment, of which the degree of openness of the market is an important determinant of FDI.²⁵ In addition, the entry of foreign capital into the host market also involves the setting of standards, and whether the foreign investment and business model matches the local laws and regulations can also affect the entry of foreign capital to a certain extent. It is also important to note that the international capital transfers triggered by digitalization may lead to a greater concentration of productive investment in a few regions due to its network and economies of scale effects, demonstrating the importance of city clusters and industry clusters, and that FDI policies that do not attach importance to industry clusters will be inefficient.

For most developing countries, they are at a disadvantage position in attracting FDI because of the backward level of infrastructure investment and digital development.²⁶ This calls for improved economic management to compensate for other deficiencies, such as addressing problems not only in technical, scientific, and research aspects, but also in social, regional, economic, or international dimensions of the digital transition.²⁷ Foreign investment comes with two typical assets for the host country, the first being tangible assets such as capital,²⁸ and the second being a large number of intangible assets such as advanced technology and management tools.²⁹ However, due to the first-mover advantage of foreign capital, there also exists the risk of the formation of oligopolies in the industry, and therefore government also needs to be cautious in this aspect.

2.4 The Interaction of Government Policy, the Private Sector and Multinational Capital

Michael E. Porter, an American scholar, pointed out in his study of a country’s competitive advantage that what makes a country’s industry thriving lies in the combination of the following four factors, which form a diamond model on a country’s competitive advantage: first, the country’s factor conditions, i.e. basic factors such as human capital, technological capital and infrastructure development; second, the country’s demand conditions, which are mainly regulated by national macroeconomic policies; third, the consequences of business strategies and business competition, i.e. the impact of intense competition from domestic firms on the industry; and fourth, the dominant industry and the supporting industries associated with it.³⁰ However, British scholar Susan Strange argued that Porter’s analysis only dealt with domestic factors and ignored constant changes in the foreign and international system, especially the huge role that cross-border investment plays in shaping the competitive advantage of a particular country or a particular industry.³¹ Therefore, this paper attempts to establish a preliminary framework for the analysis of national digital economy strategies from the perspective of three main actors: government, private sector, and transnational capital, as shown in Fig. 1.

Fig. 1

Analysis framework of the national digital strategy. (Figure credit Author’s own production)

In the above figure, the government, the private sector and multinational capital are the main players in the national strategy to develop the digital economy, among which, the government is the main leader of the digital strategy, guiding the private sector to participate in the construction of the digital strategy through the introduction of a series of policies and laws and regulations (path ②), and guiding international capital such as foreign direct investment to enter the domestic market (path ④); the private sector provides funds for the national digital construction and actively bring into play their own advantages to further stimulate domestic digital demand (path ①); multinational capital, meanwhile, further satisfies the government’s financing needs and participates actively in standard-setting in the host country, using the advantages of technology, management and other intangible assets to participate in the domestic market for the digital economy (path ③); the entry of multinational companies into the domestic market will inevitably lead to fierce competition or cooperation with domestic enterprises, the impact of which may be beneficial, promoting the co-development of the private sector and multinational capital; but it may also have a negative impact, forming an oligopolistic market thereby limiting the development of domestic enterprises (path ⑤).

At the heart of the interaction between government and the private sector, and foreign investors lies a good public–private partnership. A large investment by the public sector, such as government, risks crowding out scarce physical and financial resources needed by the private sector, thereby discouraging private sector investment activity,³² and thus government should encourage, rather than replace, the private sector as an active partner in a national digital strategy. A solid foundation for the partnership between the two is based on complementary objectives and an enabling regulatory and political environment where the role of government can be extended from provider to facilitator and regulator.³³ Foreign investors, as well as the private sector alike, play the role of market players, conducting investment and marketing activities based primarily on market demand and commercial principles, thereby contributing to the growth of industry and the achievement of national industrial policy objectives. The government’s regulations and policies in the digital economy that are conducive to stimulating the private sector may also be applied to foreign investors under the principle of national treatment. However, there is also competition between foreign investors and the private sector, and effective government intervention is needed to ensure that competition will not become vicious or lead to a collusive monopoly situation, so that large multinational digital companies may better integrate into the digital economy market of developing countries and give full play to their demonstration and leadership role with their strong capital investment, technology input and advanced business models, ultimately contributing to the growth of the digital market and the promotion of digital development strategies in the host country.

3 Background and Content of India’s Digital Development Strategy

3.1 Background of India’s Digital Development Strategy

India’s digital development strategy has a long history and has been shaped and facilitated mainly by the combination of ever-changing international and domestic circumstances.

Internationally, global economic development in the twenty-first century has shifted from labor-intensive to capital-intensive and intelligence-intensive-driven model, with high-tech becoming the new engine of national economic growth and innovation as a booster becoming a key factor in social transformation and national economic development, and it is in this context that the digital transformation of national development has been proposed. Looking at developed countries, their digital development is generally more advanced. In order to maintain their leading position in the development of the world economy, developed countries, including the United States, the United Kingdom, and Australia, have issued policies and bills related to the development of the digital economy. For example, the United States issued a digital government strategy in 2012, and the United Kingdom issued a digital economy strategy and a digital strategy in 2015 and 2017, respectively, and Australia also put forward its national digital economy strategy in 2011.³⁴ The attention and action developed countries initiated on digital economy will inevitably draw the attention of developing countries and may evoke their sense of crisis. As developing countries are already lagging behind developed countries in digital development, if they do not take timely action to develop a national digital strategy for economic transformation, the digital divide will be inevitably widened and the sustainability of their economic growth will be limited. This is especially true for large emerging developing countries like India, which has the ambition of being a great power.

India’s information services industry, featuring software outsourcing, has a global reputation and a good foundation for digital economy development. But even so, the digital divide between India and the developed world is still huge, and the level of digital development varies from region to region within India. Apart from the highly developed IT outsourcing services industry, India is still lagging behind in other industry sectors, not only behind the developed Western countries, but also significantly behind China, which India considers one of its competitors.³⁵ India urgently needs to improve the speed and efficiency of its economic growth through digital industries and the digital development of industries; at the same time, digital strategies have a positive effect on improving India’s national governance capacity and public service effectiveness. India’s digital strategy thus can date back as far as the 1980s under the administration of Rajiv Gandhi, and since then India’s focus on digital industries has continued unabated. By 2014, when Prime Minister Narendra Damodardas Modi took the office, the digital trend had become so significant that the Indian government attached greater importance to its digital development strategy, with national flagship initiatives such as “Digital India” and “Smart City”.³⁶ In July 2015, with the introduction of China’s “Internet Plus” strategy in March of the same year, the Indian government’s determination to develop a digital strategy was strengthened and “Digital India” was elevated to a national strategy as a flagship initiative of the Modi government.³⁷

3.2 The Content of “Digital India” Strategy

The “Digital India” strategy is the government’s flagship initiative to transform India into a digitally empowered knowledge economy society, improve people’s living standard, and enhance the country’s governance capacity. The strategy has three main visions: Digital Infrastructure as a Core Utility to Every Citizen, Governance and Services on Demand, Digital Empowerment of Citizens.³⁸ The “Digital India” strategy is also seen as the beginning of India’s digital revolution, which calls for the digitalization and modernization of the country’s development through the transformation of government services into e-governance by improving communication infrastructure and increasing connectivity among regions.

To realize these three visions, the government of India has proposed nine key pillars of this initiative: Broadband Highways, Universal Access to Mobile Connectivity, Public Internet Access Programme, e-Governance-Reforming Government through Technology, eKranti-Electronic-delivery of services, Information for All, Electronics Manufacturing, IT for Jobs and Early Harvest Programmes.³⁹ In terms of organization and implementation, “Digital India” is led by the Ministry of Electronics and Information Technology and involves a number of Departments, including the Ministry of Communications and IT, the Ministry of Rural Development, the Ministry of Human Resources, and the Ministry of Health, to provide a strong impetus for the implementation of e-governance and to cover a wide range of areas such as e-services, products, equipment, manufacturing and employment, thereby contributing to inclusive growth in India.

The ultimate goal of the “Digital India” strategy is to achieve the above three visions, of which digital infrastructure development is the cornerstone for digital governance and digitization of goods and services, and digital empowerment of citizens. The telecom industry is the backbone of the digital infrastructure development effort, with a large number of fiber-optic communications facilities being built to increase mobile cellular data and Wi-Fi coverage, thereby facilitating connectivity among all regions, especially in the less developed rural areas. The enhancement of the country’s digital governance capacity not only focuses on improving the governance capacity of government agencies, but more importantly, achieving full coverage of digital governance within India. Therefore, it is possible to achieve inter-regional connectivity and further reduce the digital divide by vigorously developing digital infrastructure, which is also an important guarantee for the digital empowerment of citizens. For example, to enable digital governance and enhance the digital literacy of citizens, the Indian government has created the world’s largest database of biometrics and created digital identity information for every citizen (Project Aadhaar).⁴⁰ At the same time, the construction and transformation of digital infrastructure is also a strong support to achieve the digital transformation of goods and services. For example, the e-commerce sector is typical of the digital transformation achieved by the Indian retail industry, especially in the light of the impact of COVID-19, which has witnessed a greater than usual increase in online orders from brick-and-mortar stores, with a large number of brick-and-mortar retail shops and services moving online.⁴¹

3.3 The Implementation Path of the “Digital India” Strategy

The government serves as the guide and leader of the “Digital India” strategy. Firstly, the government is the one that proposed and designed the “Digital India” strategy, which in general can be divided into three levels, with macro vision as a guide and nine major development pillars as implementation path, and then further refined with ten implementation measures at the operational level, such as smart healthcare, smart city, telecommunication network, etc. Secondly, the government has the means and ability to regulate the market and industry. The Indian government has guided its domestic telecom companies, internet companies, and other digital-based enterprises to participate in digitalization through a series of policy provisions, and directed the flow of social resources to the pillar companies.

The joint participation of the initiative from the private sector and multinational capital. In implementing the “Digital India”, government’s capacity is limited and it needs to engage with the private sector and multinational capital. The implementation of the “Digital India” will require significant financial support, which will require active corporate partnerships between the private sector and the government, as well as active engagement of foreign capital.

3.3.1 Developing Digital Infrastructure is the Cornerstone of India’s Digital Vision

As mentioned above, the development of digital infrastructure is a cornerstone of the “Digital India” strategy. According to a study from McKinsey, the digital economy will contribute up to $1 trillion to India’s GDP.⁴² Investment in infrastructure typically has a multiplier effect of doubling on the GDP growth, and investment in digital infrastructure has a multiplier effect of 4 times on the GDP growth.⁴³ The key to developing digital infrastructure lies in the development of India’s telecom industry. For developed countries such as the UK, Germany, Japan, and the US, they spend approximately 1–1.5% of their total GDP on digital infrastructure every year, for example, the UK and France spend over $35 billion on digital infrastructure every year, Japan about $62 billion and the US $160 billion respectively. In contrast, India’s public spending on telecommunications is grossly inadequate. India invests about $13 billion in telecommunications, of which government spending accounts for only $2 billion, with 80% of government public spending on roads, electrical power, railways, petroleum etc. The Government’s investment in telecommunications accounts for less than 2% of total government investment.⁴⁴

While the Indian government has placed a high priority on digital infrastructure, investment in this area is still low compared with that of developed countries, especially in digital infrastructure, where most of the investment has come from the private sector and government spending has been grossly inadequate. Although investment in telecommunications from the private sector is supported by government policy, the investment needed to realize the “Digital India” vision is extremely tremendous. The “Digital India” vision emphasizes the digital empowerment of citizens and aims to give every citizen equal access to digital power, which requires greater digital infrastructure in less developed areas such as rural areas, but the profit-seeking nature of business makes it difficult to attract the investment of private sectors for digital infrastructure in rural areas.

To address above mentioned problems, achieve digital equality, make communications affordable for citizens in rural areas and bridge the last mile of digital connectivity in rural areas, Indian government has launched BharatNet, the world’s largest rural broadband connectivity initiative.⁴⁵ The BharatNet, a flagship project of Indian government, is being implemented by Bharat Broadband Network Limited (BBNL), a joint venture, set up by the Government of India under the Administrative Ministry of Communication and IT, Department of Telecommunications for the establishment, that is responsible for setting up, managing and operating the NONF, which was renamed as the BharatNet after the Modi government initiated “Digital India” strategy.⁴⁶ BharatNet is a central-local cooperation project in which Indian states provide free passage for the establishment of internet networks. The first phase of the project, which planned to connect 100,000 GPs in 2017, has achieved its goal.⁴⁷ Currently, BharatNet has laid a total of 549,115 km of OFC and 178,317 GPs have achieved OFC.⁴⁸ The construction of fiber-optic network facilities is an important part of India’s digital infrastructure and an important support for the “Digital India” project. However, the project is mainly led by the Indian government, with the participation of private companies including Tata Communications, whose main task is to provide communication services connected to hardware facilities such as fiber-optic networks.

According to a joint report issued by the Confederation of Indian Industry (CII) and KPMG, India needs to invest at least Rs. 70,000 crore in digital infrastructure to meet its ambitious digital plan, yet as mentioned earlier, due to declining revenues and challenges such as high costs of spectrum acquisition, disruptive pricing strategies and fierce competition in the market, the Indian government has severely under-invested in the telecoms sector. However, its private sector investment also continues to face a shortfall due to the low share of private sector investment in network-related costs and the unabated upward trend in non-network-related costs such as regulatory costs and tariffs, which has resulted in the input–output of the private sector being much lower than the impact of the GST and the overall financial position of the private sector, including operators, has continued to deteriorate, making private sector investment and capital expenditure in network and digital infrastructure unsustainable.⁴⁹

The biggest role of the private sector in the digital economy is to provide platform-based services such as digital media, e-commerce, etc. for profit, and thus more and more digital businesses are investing in digital infrastructure to enable connectivity between digital platforms and infrastructure in order to provide better services to users.⁵⁰ The Tata Group, for example, has played an important role in helping companies with their digital transformation. Headquartered in India, the Tata Group is a multinational company with business in dozens of industries and consisting of 30 subsidiaries.⁵¹ Tata Communications, one of the subsidiaries of the Tata Group, which mainly covers submarine cables, has positioned itself as an enabler of the digital ecosystem in its digital strategy in India, helping global businesses to transform digitally.⁵² The submarine cable system owned by Tata Communications is one of the world’s most advanced and largest submarine cable networks, sharing approximately 30% of the world’s Internet routing and connecting businesses to 80% of the world’s cloud systems, with its network system covering more than 190 countries and territories worldwide.⁵³ However, like the Indian government, Tata Communications’ efforts remain at the level of communications infrastructure, and while it has contributed to the digital transformation of businesses to some extent, this contribution has been focused on the management level of businesses and to a lesser extent on the digital transformation of goods and services such as e-commerce, online payments, smart city, smart healthcare, and has done relatively little to promote the digital empowerment of Indian citizens as a whole.

In addition, Reliance Jio’s strong entry into the Indian telecom industry in 2016⁵⁴ has seen the pre-existing entrants in the sector lose market share. In order to compete with it, other telecom companies have increased their investment in digital infrastructure, such as Bharat Airtel, which has invested heavily in infrastructure like towers, claiming to build 70,000 cell tower base stations and planning to invest around $12 billion in network expansion.⁵⁵

In terms of foreign direct investment (FDI), the Indian telecoms sector attracted over $30 billion in FDI over the period from FY 2000 to FY 2020, ranking it the third largest sector attracting FDI in India.⁵⁶ Foreign capital inflows are closely linked to the policy direction of the Indian government, which raised the FDI cap in the telecoms sector from 74 to 100% in 2013, giving foreign capital full ownership and control over its telecoms ventures in India, unrestricted by the ability of local partners to raise capital, and thus contributing to the rapid growth of the telecoms sector. However, after 2015, even with the “Digital India”, foreign capital inflows into India’s telecoms sector have fallen by 54% compared to the previous period, due to several factors.⁵⁷ Firstly, the corporate income tax rate is too high. India’s corporate tax rate is the highest among the G20 countries, and such a high tax rate puts huge financial pressure on corporate cash flow, thus discouraging foreign investors. Secondly, the telecom spectrum cost in India is too high, India’s telecom spectrum price is about 25 times higher than that of countries such as the US, France, and Singapore, and the government policy of forcing operators to bear heavy network rollout costs, which further contributes to the digital divide between urban and rural India. Thirdly, the fierce competition in India’s indigenous private sector has created a multi-oligopolistic market, thus making it difficult for foreign investors to gain a competitive advantage in the sector.⁵⁸

It is thus clear that the development of India’s telecom industry is the key to boosting India’s digital infrastructure, meanwhile acting as a bridge to digital empowerment of citizens, goods and services, and digital governance by the government. The Indian government plays an important role in building digital infrastructure, with the government being the key guarantor of digital connectivity in rural areas, but there exist also problems such as under-investment. Efforts of the private sector, on the other hand, mainly focus on providing digital services that help to connect to digital infrastructure, but the sector is highly competitive and investment in digital infrastructure is weak. Although the Indian government has raised the FDI cap and used favorable policies to attract foreign capital, the inflow of foreign capital is also made more difficult by structural issues such as its domestic tax policy, the cost of services, and the development of the telecoms sector etc.

3.3.2 Facilitating the Digital Transformation of Goods and Services

In order to promote the digital transformation of goods and services and make it easier to transact online, Modi government launched the “demonetization” campaign in 2016. One of its main intentions was to move the economy toward cashless or less cash transactions.⁵⁹ Digital payments will, to some extent, help the development of India’s digital economy, and in particular, help the development of e-commerce in India. India’s growing e-commerce market has attracted a large number of investors, but Indian government has strict restrictions on the inflow of foreign capital into the e-commerce sector, and strictly regulates the content of foreign investors’ business activities.

According to Indian government’s FDI regulations, foreign investors are allowed to invest in e-commerce with 100% equity, but only in B2B (Business to Business) and not in B2C (Business to Customer), which means that foreign investors can only engage in B2B related operations and foreign capital is prohibited from selling goods and services directly to consumers.⁶⁰ Indian government’s move is intended to protect local retailers, as large international e-commerce companies such as Walmart and Amazon have the financial strength and ability to stock their products, which will inevitably squeeze the survival of local companies in India. However, this regulation is inherently biased and reflects the discrimination between the foreign and domestic e-commerce marketplaces. This is because such regulations are only applied to foreign e-commerce investors, while the domestic e-commerce market is not subject to such requirements. On the surface dimension, the restriction on the business model of foreign investors is intended to protect traditional brick-and-mortar shops from the impact of financially advantaged foreign e-commerce players, but the regulation is partly a reflection of the Indian government’s use of policy constraints to protect its own businesses, as financially advantaged domestic e-commerce players are just as likely to cause equal harm to traditional brick-and-mortar shops.⁶¹

The main drivers of India’s digital transformation of its goods and services sector are its own private sector and FDI, yet protectionist tendencies urge India to place severe restrictions on foreign capital investment in the country due to structural factors in the regulation of the domestic economy.

3.3.3 Developing Electronics Manufacturing as a Pillar Industry of India’s Digital Economy

Electronics manufacturing industry is a pillar in India’s digital economy strategy, and thus the Ministry of Communications and Information Technology established the Electronics Development Fund (EDF).⁶² The EDF is designed to support the development of electronics manufacturing to achieve the goal of zero net imports, and it also includes a number of venture capital, angel funding, and sub-funding projects to support the development of start-ups. For the private sector, its financial support for the “Digital India” strategy is equally important. According to the website of “Digital India”, the government’s announcement of the Self-Sufficient India plan coincided with an investment of Rs. 45,000 crore from industries and a commitment to provide 180,000 jobs, with the major investing companies shown in Table 1.⁶³

Table 1 Key investors in the “Digital India” projectFootnote

Information from: https://www.cmai.asia/digitalindia/pdf/indutry_commitment.pdf.

3.4 The Development Logic of “Digital India” Strategy under Theoretical Analysis Framework

Based on the above theoretical framework, India’s national digital strategy as a whole is driven by three main actors: Indian government, the domestic private sector and foreign investors. Each of these three actors plays a different role in realizing the three visions of the “Digital India” strategy. Firstly, the government of India is the initiator and driver of the national digital strategy. In addition to setting macro policies, the government’s rural broadband connectivity initiative (Bharat Net Initiative) is the flagship project that directly drives the development of India’s digital infrastructure and, to a certain extent, promotes digital empowerment of citizens and provides the infrastructure to connect people in rural areas to the Internet.⁶⁵

Secondly, domestic consortia are key to India’s digital leap and are the main drivers of the country’s digital transformation. The digital infrastructure development driven by Indian government and the private sector, such as Tata Communications, is only the foundation for the development of the digital economy and the realization of the three macro visions of “Digital India”. However, the digital transformation of goods and services is not only dependent on hardware facilities, it is an act of universal participation, and the digital transformation of industries is a joint transformation of infrastructure, service recipients, and public participation. Thus, only by digitally empowering citizens and providing stable, fast, and affordable data services to each of them can they be empowered to participate in the digital transformation of goods and services and thus digitize industries. It is based on this development logic that Reliance Jio, a subsidiary of Reliance Industries, was launched in 2016 following Prime Minister Modi’s “Digital India” strategy in 2015, rendering India directly on the fast track to a digital economy.

Reliance Jio’s launch of its mobile 4G network marked a turning point in India’s digital economy from low to high speed. Mukesh Ambani, Chairman of Reliance Industries, announced at the Annual General Meeting in September 2016 that Jio’s data, voice, video, and the full suite of Jio apps would be free to the public from 5 September 2016 until the end of 2016, and that the 4G network would be officially launched, whereas prior to this, all telecom providers in India offered 2G or 3G services. The launch of Reliance Ji’s 4G network thus officially marked India’s entry into the 4G era, and as Mukesh Ambani said, Reliance Industries can be called the biggest contributor to the “Make in India” and “Digital India” strategies.⁶⁶ In order to quickly capture the 4G network market and meet the demand of a large number of users to connect to the data network, prior to the official launch of the 4G network, Reliance Industry has built 220,000 mobile towers across India and covered 80% of the country at a total cost of over $30 billion, thanks to Reliance Industry’s decades of experience in building oil pipelines and refineries.⁶⁷ Reliance Jio quickly stirred up the Indian market with its extremely low price strategy, quickly attracting over 100 million new users, using low prices in exchange for market share.⁶⁸ According to a Nokia report on mobile users, after Reliance Jio launched its 4G services, 4G data usage across India grew from 46 PB in 2015 to 823 PB in 2016, and in 2020, 4G data usage across India was close to 1000 PB, accounting for nearly 99% of the country’s total mobile data traffic (see Fig. 2). And by 2020, its total mobile user base was already close to 1.2 billion, with Reliance Jio having over 400 million 4G users.⁶⁹ Reliance Jio, a subsidiary of the Reliance Industries, has been instrumental in driving India’s 4G development, and is also a pioneer and initiator of 4G mobile communications in India. It is noteworthy that Reliance Jio’s entry has led to a reshuffling of the Indian telecoms industry, with Indian telecom providers gradually developing into a multi-oligopoly situation, and Reliance Jio’s market share in India is expanding, and its market share amounted to 35.06% by December 2020, gradually growing into the headline player in the Indian telecom industry.

Fig. 2

4G mobile data usage and number of wireless users in India, 2015–2020Footnote

Figure credit: Self-made by the author based on relevant data, see Nokia, “India Mobile Broadband Index 2021”, February 2021, p.3. https://www.nokia.com/sites/default/files/2021-02/Nokia-MBiT-2021.pdf; Statista, “Number of wireless subscribers across India between June 2010 and September 2020” January 2021, https://www.statista.com/statistics/328003/wireless-subscribers-in-india/.

Around 2016, it was the involvement of Jio, a domestic Indian consortium that triggered a major shift in the market participants in the Indian telecom industry (see Fig. 3). Reliance Jio’s entry into the telecom industry has provided Indian citizens with affordable data traffic, while also prompting competitors in the industry to take steps to respond, but ultimately benefiting Indian citizens. The emergence of Reliance Jio can thus be considered to have contributed significantly to the digital empowerment of Indian citizens and has been a key enabler in India’s move toward digitization.

Fig. 3

The market share of India telecoms industry in 2016 and 2020Footnote

Figure credit: Self-made by the author based on relevant data, see Sandhya Keelery, “Mobile India: Increasing Reliance on Jio”, October 2018, https://www.statista.com/chart/15895/market-share-of-wireless-carriers-india/; Statista, “Wireless Subscriber Market Share in India as of December 2020”, April 2021, https://www.statista.com/statistics/258797/market-share-of-the-mobile-telecom-industry-in-india-by-company/.

Thirdly, foreign capital is helping to build India’s digital ecosystem and facilitate the digital transformation of Indian goods and services. Following the development logic of Indian digital market, the Indian government and domestic consortia, typically like Reliance Jio, have made major contributions both in terms of building digital infrastructure and achieving digital empowerment of Indian citizens, with the ultimate aim of enabling the digital transformation of Indian goods and services. Foreign capital has also played a prominent role in building India’s digital ecosystem in this process of digital transformation of Indian industries. In order to understand why foreign investors are attracted to the Indian market, it is necessary to analyze the characteristics of the Indian digital market from three perspectives: the market environment, the regulatory environment, and the political environment.

In terms of market environment, the Indian digital market has huge potential, which is the main reason for attracting foreign investors. According to Statista, a leading global statistics agent, the number of internet users in India was on a year-on-year increase from 2015 to 2020, with the total number of internet users in India approaching 700 million in 2020 and the internet penetration rate exceeding 50% (see Fig. 4).⁷² Despite this upward trend, there was still a significant gap between this figure and that of other more digitally advanced countries and regions in Asia, such as South Korea, where internet penetration is 96%, and Japan, Hong Kong SAR and Singapore, where internet penetration is above 85%, leaving India with much room for improvement.⁷³ Demographically, the number of Internet users in India between the ages of 12 and 29 accounts for up to 2/3 of the total number of users, and this age group corresponds to over 70% of Internet users in rural areas.⁷⁴ This group of users is younger in age and mostly located in rural areas, with a relatively low level of consumption, but at the same time there is a huge potential for consumption. Secondly, in terms of the age composition of India, people aged 12 to 29 account for 35.6% of the total population, which means that about 1/3 of India’s population accounts for 2/3 of the total number of Internet users in India. The number of Internet users in India still has a lot of room for growth.⁷⁵ The huge potential of consumption and population of Indian market has attracted a large number of foreign investors, including many investors from China. According to a report published in 2020 by Gateway House, an Indian think tank, since the launch of “Digital India” in 2015, a large number of Chinese investors have entered the Indian market, mostly Chinese technology giants or venture capitalists, with a focus on the technology and digital sectors. And Chinese investors were more interested in Indian start-ups, and they invested in 18 of the 30 unicorns in India in the last five years.⁷⁶

Fig. 4

Number of internet users in India, 2015–2025Footnote

Figure credit: Self-made by the author based on relevant data, see Statista, “Number of Internet Users in India from 2015 to 2020 with a Forecast Until 2025,” July 2020, https://www.statista.com/statistics/255146/number-of-internet-users-in-india/; datareport, “Digital 2021: India,” February 2021, p.24, https://datareportal.com/reports/digital-2021-india?rq=India.

What should not be overlooked, however, is that India is a multilingual country whose cultural plurality inevitably leads to digital plurality.⁷⁸ This has led to the existence of several subsystems with different identities and cultures within the vast digital ecosystem of India. This feature divides the Indian digital market into different regional markets and there is heterogeneity among the different regional markets. However, it is very difficult to make a profit from individual market. For example, it is difficult to effectively connect user traffic from online shopping and video channels with that from digital payment channels, and as the digital economy is networked and externalized, the benefits and utility can only be maximized if different ecosystems are integrated into the same ecosystem. Thus, although India has been hailed as a “blue ocean” for investment due to its huge market potential, the cultural diversity of the Indian market has discouraged opportunistic investors, and to a certain extent, the market mechanism has served as a screening function to drive out the bad money.⁷⁹

While the market environment screens out and expels some investors, foreign investors also face the constraints of India’s regulatory environment. India believes that if its domestic start-ups rely too heavily on foreign capital, they will gradually integrate into the digital ecosystem of foreign investors, which will lead to a loss of data control by the Indian government and threaten India’s digital security.⁸⁰ In an effort to tighten control over data, Indian regulators want to impose tough new rules on the tech industry and impose strict regulations on taxation, data storage, security, and pricing to protect the data security of its citizens.⁸¹ For Chinese investors, the political environment is an even more important factor to watch out for, especially in the aftermath of the Sino-Indian border friction, as India’s crackdown on Chinese companies and increased scrutiny of Chinese investment⁸² could fundamentally cut off the possibility of Chinese capital entering the Indian market.

But a pending question is why, with such a regulatory environment and a hostile business environment in India, there is still an upward trend in FDI, especially after 2020, and why FDI in India’s digital sector has taken the bull by the horns and still attracted investments from Facebook and Google when the world is in an investment slump. According to the United Nations Conference on Trade and Development, India’s FDI grew by 13% in 2020, compared with that in the previous year, and India is one of the few countries to maintain FDI growth despite COVID-19.⁸³

To explain this interesting phenomenon, we have investigated foreign capital investment in the Indian digital market since 2015 and found that, after being filtered through the environment of Indian market and cultural diversity, the majority of foreign investors in the Indian digital sector are now the top players in the digital industry, with strong and long-term plans to gain a firm foothold in the Indian market. For example, Chinese investments in India’s digital sector have been led by domestic digital leaders such as Alibaba, Tencent, and Xiaomi.⁸⁴ Western investment in the Indian digital market, on the other hand, has been led by internet giants such as Google, Facebook, and Amazon, with Google in particular increasing its investment in the Indian market after the outbreak of COVID-19, announcing a $10 billion investment in India to increase its ties to this huge digital market that has yet to be fully exploited.⁸⁵ This means that India’s market potential remains the No.1 attraction for foreign investors, especially capital from the United States. US capital believes that despite India’s conservative tendencies and a range of regulatory restrictions, the profits of its market development potential can compensate for this, i.e. trading time for market profits. Unlike opportunistic investors, the internet giants have a lot of cash flow, which is what gives them the courage to trade time for market, and thus their investment in India is more of a value investment, betting on India's digital market a decade from now, where they are investing not in a particular app but in the entire digital ecosystem of India.⁸⁶ But India’s digital eco-market is too complex and faces increasingly stringent digital regulation in the country. The Indian government has a two-pronged approach to attracting foreign investment in the digital economy—on the one hand, it wants to attract huge investments to boost the economy, and on the other hand, it wants to protect its businesses and data security through regulatory restrictions. It takes time and test to tell whether this move by US investors is a sensible investment or simply a gamble. Overall, with the aim of building a digital ecosystem, the logic of attracting foreign investors to the Indian digital market is to use the market environment and regulatory environment to filter and weed out opportunistic investors, with the remaining investors often being the top players in the digital sector and having the financial strength to support their long-term investments. However, investors from China still need to assess the political environment in India, which is the biggest risk for Chinese investors. India’s digital ecology, despite its numerous problems, has still attracted a large number of investors due to its market environment, and is gradually developing a digital strategy with government guidance and the involvement of its domestic consortia. India is a unique presence for South Asian countries with a huge market potential, and thus other countries should also be motivated to involve their domestic enterprises in digital initiatives when developing their digital strategies. As other developing countries do not necessarily have the ability to use market advantages to offset regulatory disadvantages, governments, apart from being the policy makers, should also balance the regulatory and market environments in order to attract foreign investment. For Chinese investors, political risk and international relations are the primary factors to consider, followed by the market environment and regulatory environment.

4 Progress and Impact of the Implementation of India’s Digital Development Strategy

4.1 Progress of the Implementation of India’s Digital Development Strategy

Summarizing the progress of India’s digital development strategy in practice to date, the following features are noteworthy.

Development of digital infrastructure is a prerequisite. As one of the three visions of India’s digital strategy, digital infrastructure development is a prerequisite for realizing the national digital strategy and the digital transformation of the economy and society, as well as a bridge to connect urban and rural areas for digital development, and only a well-developed infrastructure can enable connectivity in the areas of telecommunication, broadband, computers, and software. The Indian government has therefore taken a number of measures to strengthen the country’’s digital infrastructure. ICT facilities are key to building digital infrastructure, and India was ranked 131st in ICT Development Index 2015, indicating that India is still lagging behind in terms of digital infrastructure development.⁸⁷ The Indian government promotes digital equality for citizens by promoting rural networking through digital infrastructure. At the same time, the government has promoted the digital identity project (Aadhaar), which aims to improve India’s identity infrastructure, as a prerequisite for developing national e-governance and promoting digital payments. In addition, the government has also taken a number of policy initiatives to improve India’s digital infrastructure by establishing the National Knowledge Network (NKN) and the National Information Infrastructure (NII). It is evident that the advancement and improvement of India’s digital infrastructure is a prerequisite for achieving the “Digital India” strategy and the country’s economic goals.⁸⁸

Strengthening the development of electronics manufacturing as a leading industry in the digital sector. A leading industry usually serves as a pillar for national development. Leading industries can directly boost regional economic growth by absorbing new technologies, or indirectly by influencing the development of other industries. The development of leading industries is central to achieving economic growth, and the development of leading industries is influenced by a combination of factors such as technological innovation, resource endowment, and industrial policy.⁸⁹ According to a McKinsey’s report in 2019, information technology and business process management, the communication sector, and electronics manufacturing are the core sectors of India’s digital economy, and these sectors generated $170 billion in economic benefits from 2017 and 2018, accounting for 7% of India’s total GDP in that year, with information technology and business process management and electronics manufacturing generating $115 billion and $10 billion, respectively.⁹⁰ On 28 February 2019, the Modi government adopted the National Policy on Software Products (2019), which aimed to develop India as a software product powerhouse and a global hub for software products, and promoted a number of reforms for commercialization.⁹¹ The promotion of electronics manufacturing is key to the realization of “Make in India” and is one of the key initiatives to realize the “Digital India” strategy. The government of India attaches much importance to the manufacturing of electronic products. Considering the issue of national security, the massive development of domestic telecom infrastructure and the use of domestically produced electronics is conducive to creating a secure cyber ecosystem. The development of electronics manufacturing also has a large economic potential. The demand for e-products in India is predicted to rise to around $400 billion by 2025, representing a vast market potential.⁹² There is another reason why India is developing its electronics manufacturing sector, namely not only to meet domestic demand, but also to become a global hub for electronics manufacturing with the aim of being counterpart of China or replacing China’s position in this field. As a pillar of the “Digital India” strategy and the “Make in India” strategy, India has witnessed the development of electronics manufacturing as one of the nine pillars of the national digital strategy and has set the goal of achieving zero net imports of electronics by 2020.

However, the data in Fig. 5 shows that while India’ total exports of electronics manufacturing products have been increasing year on year since 2015, its imports have also been increasing year on year and have remained in a trade deficit. This suggests that zero net imports of electronics manufacturing by 2020, the goal of “Digital India” strategy, has not yet been achieved, possibly because the “Digital India” strategy has stimulated digital demand among the population, but its electronics manufacturing capacity has not yet met the growing domestic demand. All in all, India’s electronics manufacturing industry as a pillar of the “Digital India” strategy, has made some progress, but it is not growing as fast as expected.

Fig. 5

Export value and import value of India’s electronic productsFootnote

Figure credit: Self-made by the author based on relevant data, see Statista, “Value of electronic product imported into India from financial year 2011 to 2020”, September 2020, https://www.statista.com/statistics/625751/import-value-of-electronic-products-india/; Statista, “Value of electronic products exported from India from financial year 2011 to 2019, with an estimate for 2020”, September 2020, https://www.statista.com/statistics/624053/export-value-of-electronic-products-india/.

Endeavoring to unlock the spillover effect of the digital economy. Spillover Effect refers to an organization undertaking an activity that can not only have an impact on that activity, but also create externalities for subjects outside the organization. Digital industries have network externalities that create spillover effect on other industries and generate positive externalities for society. According to a report released by India’s Ministry of Electronics and Information Technology, India currently generates around $200 billion in economic value per year and the existing digital ecosystem in India is expected to create $500 billion in economic value by 2025, but if digital technologies are used to unlock productivity in multiple sectors such as agriculture, education, energy, finance, healthcare, logistics, and manufacturing, the potential economic value to India could reach $1 trillion and the potential economic value added of India’s digital transformation would increase five times. Digital empowerment of other sectors will also lead to increased productivity levels and will create more jobs. According to the estimation from the Ministry of Electronics and Information Technology, the spillover effect of the digital economy will create 60 to 65 million jobs by 2025.⁹⁴

4.2 Shortcomings in the Implementation of the “Digital India” Strategy

There is a mismatch between the government’s ambitious strategic goals and the actual infrastructural conditions. Although Indian government has set ambitious goals in formulating the “Digital India” strategy, which covers digital applications in a wide range of sectors such as agriculture, manufacturing, education, finance, and healthcare, there are still many practical difficulties in the actual implementation of the strategy, particularly the fact that the government can only play a leading role in providing incentives to the market and to private and foreign capital, and that the digital industry cannot grow without a significant supply of digital talent that requires the role of educational institutions, all of which can’t be addressed in a short time. From the perspective of digital demand, for example, the majority of India’s population is not digitally literate and lacks the ability to use the internet and digital devices. By January 2020, India’s literacy rate is 74% in the target group over 15 years old,⁹⁵ which will adversely restrict the spread of internet adoption in India. At the same time, the Indian government’s chronic fiscal weakness and high deficits have limited the amount of money it can invest directly or indirectly in the “Digital India” Strategy, making it more difficult to fully utilize government funds. In fact, in rural areas where digital infrastructure is lagging behind significantly, the government needs to take on the responsibility of providing universal services and creating the conditions for subsequent private and foreign investment, but without tangible support from the government, there will not be enough enthusiasm for profit-oriented private enterprises and multinational capital to participate in rural digital development.

Despite the rise in digitization, there is still a long way to go to completely address the digital divide. With 688 million internet users by January 2020, up from 243 million in 2015, and mobile internet penetration in India rising from 19% in 2015 to 50% by 2020, India has become the second-largest internet user market in the world. In a project to enable digital payments and develop e-commerce, Prime Minister Modi launched a campaign to abolish banknotes in 2016, but by January 2020, only 2% of India’s population had an e-money account and only 4.3% of the total population were shopping and paying online. Figure 6 shows the main payment methods for online shopping in India in 2020, with 16% of the population still accustomed to using cash to make purchases.⁹⁶ In terms of regional gap in development within the country, the digital divide among states in India is decreasing, but the level of digital development is still uneven.

Fig. 6

E-Commerce payment methods in IndiaFootnote

Figure credit: Self-made by the author based on relevant data, see Datareport, “Digital 2020”, 2020, p.64. https://datareportal.com/.

Digital penetration in India is closely related to per capita GDP or affluence level, and the implementation of the Indian government’s digital strategy has not been effective in correcting or deflecting the market. For example, according to the Department of Telecommunications under the Ministry of Communications in India, the number of Internet users per 100 inhabitants after COVID-19 is 55.1, which is well below the global average published by the ITU, and the states of Bihar (30.4) and Uttar Pradesh (38.6), for example, are lagging behind in terms of digital development, while these two states also lag behind the country in terms of net domestic product per capita. In contrast, Delhi, which has one of the highest levels of economic development in the country, also has one of the highest levels of digital development, with 202.71 wise internet subscribers per 100 inhabitants.⁹⁸

The tendency toward digital centralization and protectionism has constrained the development of digital industries and the advancement of digital strategies. In general, Modi government’s “Digital India” strategy has a certain nationalist and conservative tendency, especially in the area of digital regulation, which shows a clear conservative tendency. According to the Digital Trade Restrictiveness Index published by the European Centre of International Political Economy, which focuses on national policies on digital trade and the digital economy, India has adopted comprehensive regulatory restrictions on all aspects of digital trade, including trade in digital goods and services, investment in the ICT sector and the movement of data and ICT professionals.⁹⁹ In addition, India imposes high tariffs on digital products, adopts trade protection measures for digital products, and erects heavy barriers in policy areas such as taxation, subsidies, foreign investment, and intellectual property rights. For example, government procurement of electronic manufacturing products is more favorable to the domestic private sector and explicitly requires a certain percentage of government procurement for domestically produced electronics, with the aim of developing local electronics manufacturing. Such excessively restrictive competition policies reflect the Indian government’s use of policy tools to over-protect domestic enterprises, reflecting India’s deep-rooted rejection and distrust of foreign investment and making the implementation of its digital strategy far less progressive than expected.

4.3 Impact of “Digital India” Strategy on India’s Modernization Process

One of the most important objectives of “Digital India” strategy, which is not an isolated strategy, is to accelerate India’s modernization process and promote integrated national development by driving India’s digital transformation. To this end, we look at its impact on India’s manufacturing development strategy as an example of the spillover effects of the “Digital India” strategy on other sectors in India.

4.3.1 Background of the “Make in India” Strategy

The “Make in India” strategy, another flagship initiative launched by the Modi government in 2014,¹⁰⁰ is no less important than the “Digital India” strategy. The background of the Modi government’s “Make in India” strategy stems from three reasons. The first is the imbalance in India’s industrial structure. Figure 7 shows the share of added value of the three major industries in India, with the share of added value of manufacturing in India’s GDP being much lower than that of services, and about the same as that of agriculture. The large production gap between services and agriculture reflects the imbalance in the structure of the Indian economy, but it also means that there is more scope for India to develop its manufacturing sector, which could provide new growth for the economy.

Fig. 7

Added value of the three main industries in IndiaFootnote

Figure credit: CEIC database, see https://www.ceicdata.com/zh-hans.

The second reason lies in India’s relatively small foreign exchange reserves. Figure 8 compares and analyzes India’s foreign exchange reserves with those of China and shows that from 2010 to 2020, India’s foreign exchange reserves are much smaller than that of China. India is dependent on foreign exchange for a large number of its imports, particularly for electronics, which are the country’s second-largest import.¹⁰² With the advent of the digital age and the advancement of the “Digital India” strategy, the need for electronics is on the rise in India, however, the shortage of foreign exchange funds requires India to respond to the rising demand for electronics by developing the electronics manufacturing sector through self-reliance. As mentioned earlier, both the “Digital India” strategy and the “Make in India” strategy call for a significant development of the electronics manufacturing sector in India, a commonality between the two flagship initiatives, both of which place greater demands on the development of the manufacturing sector.

Fig. 8

Comparison of foreign exchange reserves between India and ChinaFootnote

Figure credit: Self-made by the author, data from CEIC database，see https://www.ceicdata.com/zh-hans.

The third reason is to ease the pressure on employment. India is the world’s largest country in terms of population, and in terms of age structure, young people make up a large proportion of the total population, with nearly a million young people entering the labor market each year.¹⁰⁴ As the manufacturing sector expands, it will provide employment opportunities for surplus labor in the agricultural sector, thus ultimately reducing unemployment and poverty levels.¹⁰⁵ And there are synergies between the development of manufacturing and other related industries, with each additional job in India’s manufacturing sector creating two to three jobs in related economic activities.¹⁰⁶ And, to some extent, the “Make in India” strategy has had a positive effect on employment in India. In the last decade, the share of employment in the industrial sector in India has increased, and the share of employment in the service sector has also increased slightly, yet employment in the agricultural sector has been slowly declining, implying a shift of surplus labor from the agricultural sector to the manufacturing sector and an easing of the employment imbalance (Fig. 9).

Fig. 9

Percentage of employment by segmentFootnote

Figure credit: Self-made by the author, data from CEIC database，see https://www.ceicdata.com/zh-hans.

4.3.2 The Endowment of Factors of “Make in India”

According to Cobb–Douglas Functions, the development of a national industrial system depends on the combined effect of the three factors of production: capital, labor, and technology.^[1]108 From a capital perspective, India does not have a particular advantage over China. Although India’s foreign capital inflows are on the rise, there is still a gap between India and China in absolute value. India’s comparative advantage over China currently lies in its workforce, but the workforce also has its fair share of problems, mainly in the form of poorly qualified workers and the low level of education of Indian workers. While India has a broad workforce with the potential to unlock a young demographic dividend in terms of age structure, the skills of the young population are not yet sufficient in terms of educational attainment to sustain the ambitious plans for “Make in India”.¹⁰⁹ And similar to China, the supply of workforce is not always unlimited. When the supply decreases, the rising consumption levels of the employed population will lead to an increase in the cost of labor in India, and thus the advantage of India’s workforce will gradually disappear in the long run. Finally, there is the element of science and technology, which is the most crucial component affecting the prospects for the development of Make in India and is essentially central to its modernization path. It was recognized during the Nehru’s period that the development of science and technology would be conducive to the modernization of the country. Nehru was convinced that the scientific and technological superiority of the West was an important factor in boosting production, that science and technology was intrinsic to self-reliance, modernization, and development, and that for this reason India needed to use science and technology to help modernize the country.¹¹⁰ And, as social production enters the era of Industry 4.0, the new industrial paradigm is based on personalized production, collaboration in networks, the integration of supply chains and, ultimately, the creation of new added value for products in production and distribution. This new way of production brings with it an evolution in international relations, organization of work and, ultimately, social production.¹¹¹ In accordance with this philosophy, Modi’s “Make in India” strategy not only aims at traditional labor-intensive and capital-intensive industries, but also includes high-tech manufacturing companies and modern services.¹¹² Therefore, in addition to traditional industries, Modi government is looking to capture new industries. It is clear that technology is the key to the long-term development of manufacturing in India, and that the fundamental aim of the “Make in India” strategy is to promote technology, to empower industry with technology, and to modernize and transform the country.

4.3.3 The Interaction between “Digital India” and “Make in India”

“Digital India” and “Make in India” may seem isolated, but they are mutually reinforcing and interact to form the fundamental driving force behind India’s modernization and transformation. As previously analyzed, technology is a key factor of production that the Indian government values as a source of long-term competition and comparative advantage for Indian manufacturing, and capturing the high ground in the era of Industry 4.0 means that Indian manufacturing will capture value and high added value at the top of the global value chain. Indian government’s attempt to modernize and transform the country’s development through technological empowerment relies on the interaction of “Digital India” and “Make in India” in two main ways.

One is to take advantage of the leading and pioneering industries to promote the deep integration of digitization and industrial sectors. IT industry is India’s dominant industry, and “Make in India” concentrates its strength on developing India’s dominant industries in digital field, such as the electronics industry; while the Indian digital industry uses the endowment of the existing software industry to help complete the digital transformation of “Make in India”. To achieve inter-industry transformation and deepen the synergy among industries, it is necessary to promote the transformation of manufacturing from labor-intensive to innovation-intensive and smart-intensive. The path to this transformation lies in vigorously promoting the digital transformation of small and micro manufacturing enterprises to enable them to achieve Industry 4.0, and the path to achieving Industry 4.0 lies in achieving digital development of industries.¹¹³ Thus, “Digital India” drives the digitization of industry by “Make in India”, while “Make in India” contributes to the digital industrialization of “Digital India”, which together form India’s modernized development strategy.

The other is to upgrade supply chain, production chain, and value chain. To produce high-value-added products and achieve high-quality development in the manufacturing sector, it is necessary to promote the core value of the supply chain. The “Digital India” strategy will not only bring about increased productivity in the manufacturing sector, but also higher added value to the manufacturing sector. New technology-intensive and smart-intensive industries such as cloud computing, big data, and artificial intelligence have high added value and leveraging on the “Make in India” strategy, they can help industrialize digital, technology, and smart-related industries and help India create higher added value in the global value chain.¹¹⁴ In particular, since the outbreak of COVID-19, Indian government has proposed the “Self-Sufficient India” plan, which on the one hand is related to the outbreak of the epidemic and the adjustment of India’s economic development strategy in the context of reverse globalization, which means that India will implement strategies such as import substitution to promote the development of the domestic economy.¹¹⁵ On the other hand, India’s goal is to become a global manufacturing hub. India is not content to being as one part of the global production chain, and it wants to internalize the production chain and the supply chain, so as to not only secure the supply chain, but also to boost domestic employment and economic development, thus creating a full supply chain and a full production chain to meet the needs of global manufacturing.

A fundamental requirement of India’s modernization development strategy is therefore to strengthen the country through advanced technology and to develop its competitive industries by its early first-mover advantages. “Digital India” strategy will certainly help to facilitate this goal, because one of the core elements of the “Digital India” strategy is the digital transformation of industry for industrial development, in particular to continuously increase the share of smart and digital industries in the industry. Naturally, “Digital India” strategy and “Make in India” strategy will be organically integrated, creating a synergy that drives and promotes each other. It is also foreseeable that in the coming post-epidemic era, with the accelerated development of digitalization and informatization, India will inevitably pay more attention to the role of information technology in enabling modern production and manufacturing, and strive to make the “Digital India” strategy play a more fundamental and pervasive role, so that India can take a giant leap forward in its modernization journey by taking advantage of the latecomer advantage of information technology.

5 Conclusion

Globalization has produced a wide range of convergence effects. Digital strategies, popular in developed countries, have won a more durable favor among and followed by developing countries, and become the focus of their development, which is also determined by the fact that digital strategies serve as a tremendous impetus in promoting national economic growth and political governance. However, different from the digital development pattern adopted by developed countries, which is mainly based on the spontaneous growth of the market, the situation in developing countries often encounters more serious market malfunction, hence, government’s intervention and the role of transnational capital under open pattern are more needed. Therefore, the construction of a digital development strategy model for developing countries based on the supply side perspective is supposed to include at least the following elements: government, domestic private capital, and transnational capital as well as the interactions among them. Based on this framework, this paper also analyzes how digital strategy was formulated and implemented in India. The development of India’s digital strategy suggests that a clear digital strategy can generate positive results, specifically, through establishing government-oriented public–private partnership, the construction of digital infrastructure can be strengthened, the leading industries in the digital field can get strong support, and the spillover effect of digital strategy can get enough attention from parties concerned. However, just as every coin has two sides, the other side of digital strategy shouldn’t be neglected. Digital strategy itself can only accelerate the development of a country, but it cannot fundamentally solve other internal problems existing in the economic and social development of a country, such as limited role of the government rendered by national fiscal conditions, deep-rooted regional differentiation, improper policy-making orientation as well as conservatism, which will make it difficult for the government, private capital and transnational capital to achieve synergistic effect at a higher level, thus, restricting the realization of the national digital development strategy.