How India's digital push is creating vast investment opportunities

Country has set a target for its digital economy to reach $1 trillion by 2026

President Sheikh Mohamed and Indian Prime Minister Narendra Modi at the launch of a digital debit card during a reception in Abu Dhabi on Tuesday. Reuters

India's digital push is creating enormous investment opportunities in the country, as its digital infrastructure tries to keep pace with the increasing use of technology, industry experts and analysts say.

But while progress has been made, there are still major obstacles to be overcome, says Himanshu Vyas of Vyaparify, a digital commerce solutions company in India.

“Demand for digital services is skyrocketing and infrastructure is struggling to keep up, especially when it comes to meeting the diverse needs of India's huge population,” he says.

As India's digital economy continues to expand, “the need for robust digital infrastructure becomes even more important”, Mr Vyas says.

“It is necessary to invest more, strive to reduce the digital divide and improve the quality of internet access.”

This would require more investment from the government, the private sector, and foreign and domestic investors, according to Mr Vyas.

“The development of the digital sector is central to India's economic strategy, aimed at global competitiveness and a better quality of life for its people,” he says.

The government has set a target for the India's digital economy to reach $1 trillion by 2026.

Alongside the need to improve internet access, especially, in rural and more remote part of the countries, India needs to strengthen other areas of its digital infrastructure, industry experts say.

“Today, India is among the fastest-growing digital markets,” says Yashraj Vakil, chief executive of CaptainBiz, which offers business software solutions.

"India needs to expand internet accessibility, invest in its broadband networks and build more data centres to take the load.”

A boost to the expansion of the country's digital infrastructure came on Wednesday, with the UAE and India signing a pact to expand bilateral investment co-operation in digital infrastructure, with a focus on developing data centre projects.

Under the agreement, the two countries plan to jointly explore, assess and evaluate the technical and investment potential of developing data centre projects in India with an initial capacity of up to two gigawatts, the UAE’s Ministry of Investment said last week.

The adoption of new technologies such as cloud, Internet of Things, artificial intelligence and the introduction of 5G, alongside a rise in internet penetration and “a government focus on digital infrastructure and favourable regulatory policies”, are all factors that are driving digitisation in India, and in turn, the need to expand the country's digital infrastructure, a recent report by ICRA said.

The credit rating agency projects that, in total, 5,100 to 5,200 megawatts of data centre capacity requiring investments of 1.6 trillion rupees ($19.27 billion) is likely to be added in the next six years. It describes India as a “hot spot for data centre investments”.

“To cater to the strong demand prospects for data centres, Indian corporates, foreign investors and existing data centre players have started investing massively in Indian data centres,” according to the report.

Although there is still much to be done in terms of improving its digital infrastructure, India has already made enormous strides.

The International Monetary Fund has praised India for developing world-class digital infrastructure.

Developments such as India's pact with the UAE will certainly help the South Asian nation grow its digital economy, analysts say.

“The UAE is going to be a significant source of investment capital and a destination market for Indian tech,” says Utkarsh Sinha, managing director at Bexley Advisors, a boutique investment bank.

“We can expect the closer ties between our two governments to translate into even deeper relationships between our tech and investment companies over the next few years."

Calling the recent partnership between the UAE and India "a big step" for the country's digital growth, Mr Vyas says: “This deal shows the world believes in India's digital market and its potential to grow even bigger. Together, they're looking into building data centres and investing in digital projects, AI and research, setting India up for a tech boom.”

This can lead to “better infrastructure for digital services like online payments and cloud computing”, he adds.

Already, international companies have been investing heavily in India's digital sector and its infrastructure, and the agreement with the UAE could also help the country to attract even more global investment, Mr Vyas says.

“From local and foreign investors, including foreign direct investment, foreign institutional investors, and high-net-worth individuals, investments in India are flowing from various sources,” says Mr Vakil of CaptainBiz, adding there is still scope for a lot more capital to flow in.

Meanwhile, in rural areas, the challenges of limited internet access, digital literacy and electricity, need to be urgently tackled, Mr Vakil says.

“Addressing this gap necessitates expanding infrastructure, providing innovative data solutions and implementing targeted digital literacy initiatives. Investments in renewable energy to enhance electricity accessibility, even in the most remote areas of the country, will also play a crucial role in India’s digital transformation,” he says.

However, it is not only infrastructure that India needs to focus on to achieve its digital ambitions, he says.

“Technology is growing at a rapid pace, and there is a skill mismatch,” Mr Vakil says.

“To bridge the skill gap amid rapid technological advancements, prioritising Stem (science, technology, engineering and mathematics) education, implementing re-skilling programmes, and fostering industry-academia collaboration, especially in new technologies, is essential.”