Originally published in HANetf’s Thematic & Digital Assets Review
While smartphones and ecommerce have become ubiquitous in developed markets, 1.4 billion young consumers in India are only just now beginning to get online, experiencing the profound impacts of the Internet on daily life. The convergence of declining technology costs and a government focused on growing India’s connectivity are enabling significant economic growth and a digitization boom that is creating a ripe investment opportunity for those paying attention.
As the rest of the world transitions into this digital era, India is embracing technology and making significant investments in both physical and digital infrastructure, quickly taking the country into the age of connectivity.
With a swelling middle class of young, digitized consumers hungry for modernization, innovative companies in India are just now beginning to go public.
India’s compelling growth story
With 1.8 billion people or 28% of the emerging markets population, pictures and graphs can’t possibly describe the sheer number of humans and the density in which they populate South Asia and its chaotic megacities. India is incredibly diverse, with over 2,000 ethnic groups, six major religions, and 22 government-recognized languages, creating both challenges and opportunities. A young population and favorable demographics only add to the importance of the region for investors in the coming decades.
While India’s overwhelmingly popular Prime Minister Modi is not without controversy, he has driven the country to invest in physical infrastructure with his PM Gati Shakti project (aka National Master Plan) and digital infrastructure with his Digital India platform and the ‘India Stack’.
India’s secret weapon – the India Stack
India has developed a unique “digital public infrastructure” over the past 15 years that is only now revealing its power and bearing fruits. This digital public infrastructure (aka the ‘India Stack’) refers to a set of digital infrastructure components and protocols that have been implemented in India to support the country’s digital transformation and enable a range of digital services. It was designed to provide a secure and scalable foundation for various government and private sector applications.
The India Stack consists of three key components:
Aadhaar (which means “foundation) is a biometric identification system that assigns a unique 12-digit identification number to each Indian resident. It serves as a digital identity for citizens, allowing them to access various government services and private sector applications.
Unified Payments Interface (UPI) is a real-time payment system that facilitates instant fund transfers between bank accounts using smartphones. It allows individuals to send and receive money, pay bills, make merchant payments, and more, directly from their bank accounts. UPI has gained significant popularity in India and has simplified digital payments.
Digilocker is a cloud-based platform that provides individuals with a digital storage space to securely store and share their official documents and certificates. It eliminates the need for physical documents and enables easy access to important records, such as educational certificates, driving licenses, and government-issued documents.
These components of the India Stack work together to create a digital ecosystem that enhances convenience, efficiency, and accessibility for Indian citizens. The goal is to enable the delivery of various services, including financial services, healthcare, education, and more, through digital means while ensuring security and privacy. No other country on the planet has anything like the India Stack. It is our contention that the true power of this digital public infrastructure will not just facilitate India’s economic growth but accelerate it and largely define it. This is India’s secret weapon.
An ecommerce challenge unique to India
As India powers its large-scale digital transformation, many parts of its economy will be affected. A key economic player is the traditional kirana store – a hyperlocal neighbourhood provision store or “mom and pop” shop that carries a regular supply of essentials for a local neighbourhood. At first glance, these shops may seem insignificant – individual shops owned by individual owners – but due to the sheer size of India and the Indian retail market, kiranas make up a $450 billion industry.
As in many emerging and frontier markets, India’s existing retail spending is dominated by 13 million kirana stores that control 90% of India’s massive retail spending – a number that is quickly approaching $1 trillion annually. While “traditional” ecommerce players like FlipKart and Amazon are seeing significant growth, it appears that a hybrid ecommerce model will be a unique and major part of India’s digital economy. The newest part of the “India Stack”, the Open Network for Digital Commerce, should play a central role in the acceleration of this hybrid model.
As the country’s digital development continues to accelerate, and the middle class continues to grow, the result is a large, retail-friendly consumer class ready to invest in bringing themselves online. India could, therefore, be the most exciting emerging market in the world.
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