ICICI Securities says that India is amongst the fastest growing digital economies in the world. Digital economy growth will be within a range of 4-8% of GDP for India according to various estimates. However, given the trajectory in internet data consumption and proliferation of various digital platforms, this number could have risen significantly.

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As per a study by MEITY, digital economy in India stood at US $200bn (8% of GDP) in 2018 and is expected to rise between 3x to 5x (18-23% of GDP) by 2025. On a cross-country basis, India is the second fastest growing country based on digital adoption over the recent past although it is still much lower in digital adoption rankings.

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India’s digital economy is expected to get augmented further by:

1)     strong capital flows (FDI of US$17.5bn in FY21TD in IT services & hardware)
2)     conducive policy environment (digital India programme outlay more than doubled to ~Rs68bn in FY22 Budget)
3)     affordability (lowest data price globally of US$0.15 per GB in Q2FY21)
4)     expected ramp up in digital infrastructure including telecom networks, data centres, manufacturing of digital devices and scaling up of digitally skilled talent pool (1.17mn digitally skilled employee base by FY21 (YoY growth of 32%), as per NASSCOM).

Listed space is limited to few direct players in the e-commerce space and incubations within large traditional companies. Profitability during the early stage of developing digital platforms remains a key concern. New listings are expected to rise going ahead as profitability improves along with M&A activities due to consolidation. The recent sharp run up in digital stocks propelled by covid-19 pandemic has stretched valuations and can result in a consolidation phase, but the structural strong growth of digital economy remains intact. Some of India’s leading digital platforms including unicorns (Nazara Technologies, Nykaa, Zomato, Policy Bazaar etc) are expected to get listed in the near future and could make their way to benchmark indices going ahead along with the existing listed players.

The complete impact of digital economy on gross value added (GVA) in the economy is elusive as ‘digital activities’ are not measured in national accounts as a separate sector or consumption activity. Also, it is difficult to measure ‘intangible benefits’ provided by large digital platforms which charge nothing for their services and even incur losses.

However, evidence from USA, where the BEA has developed digital economy statistics using the supply-use framework indicates that for the period 2005-2018

(a)  faster growth: Digital economy growing at a much faster rate of 5.2% than the overall economy at 1.5%
(b)   lower prices: Prices for digital goods and services declined at an annual rate of 0.5% vs an inflation of 1.9% in the overall economy
(c)   quality employment: Digital economy supported 5.7% of total US employment in 2018 with an average annual compensation per worker of US $105473 vs US $70858 for the total US economy.