Why India's digital drive is on full throttle thanks to Covid-19

As consumers and businesses are forced online, investment activity is picking up in the country's tech sector

An Indian visitor gives a thumb impression to withdraw money from Jio Easy Money outlet with his Aadhaar or Unique Identification (UID) card during a Digi Dhan Mela, held to promote digital payment, in Hyderabad on January 18, 2017. - The Digi Dhan mela is a government initiative aimed at digital transformation in the country following the recent demonetization. (Photo by Noah SEELAM / AFP)
Powered by automated translation

India's digital sector is accelerating faster than ever before as the coronavirus pandemic forces businesses across all sectors to ramp up online solutions for customers, resulting in a flurry of high-profile investment deals, according to analysts.

“The pandemic has definitely affected the tech space and it has acted as a change catalyst for the economy, society and generally all business groups,” says Amrit Mehta, a partner at law firm Majmudar & Partners. “One unexpected outcome of this is that companies have now started realising the benefits of fast-tracking or increasing their investment in digital transformation.”

The pandemic has significantly accelerated the pace to digital adoption by enterprises.

Corporates conducting meetings online and hospitals ramping up their telemedicine solution to offer remote consultations to patients are just some of the changes seen over the past few months that have led to heightened investment activity in the sector.

Last week, Indian e-commerce company Flipkart raised an additional $1.2 billion (Dh4.4bn) in funding, led by its majority owner, US retail giant Walmart, as it aims to bring the “next 200 million shoppers online”.

Last week also saw Google unveil plans to invest $10bn in India over the next few years in a virtual event attended by the tech giant's chief executive Sundar Pichai and Indian government officials. The money will fund Google's digitisation efforts for small businesses, the company said, as well as low-cost internet solutions and artificial intelligence for sectors such as agriculture, education and healthcare.

This was followed by Google investing $4.5bn into Jio Platforms, the digital unit of Reliance Industries, which is controlled by India's richest man, Mukesh Ambani. Mr Pichai tweeted that the move would “increase access for the hundreds of millions in India who don’t own a smartphone”.

This was the latest of more than a dozen stake sales in Jio Platforms during Covid-19. In June, Reliance said it became free of net debt after selling stakes in Jio Platforms, its energy business and through completing a rights issue. So far, the company has received some 1.2 trillion rupees from the Jio investments, according to a tally of company filings. This includes investments by Facebook and Abu Dhabi's Mubadala Investment Company.

“It's the pandemic leading to transformation and transformation leading to a promising future for investors to come in and form a presence in India,” says Mr Mehta.

Reliance Jio has played a significant role in helping more Indians make the move online. Its launch in 2016 came with cheaper data deals, which forced telecom companies into price wars, and made internet access through smartphones far more affordable for the general population. With computers out of reach for many, most internet users in India depend on their smartphones to access the web.

As a result, the market opportunity is huge. There are now 574 million active internet users in India, a growth rate of 24 per cent from 2019, according to data from consulting firm Kantar. It says India's active number of monthly internet users will reach 639 million by the end of this year, with the coronavirus-induced lockdown a factor in this increase.

India's government is eager to ramp up the use of technology in the country. Prime minister Narendra Modi's Digital India initiative – one of the government's flagship campaigns – has brought more government services online and developed the digital infrastructure, as the country looks to further boost access to the internet.

This photo taken on May 8, 2018 shows the logo of e-commerce company Flipkart at its headquarters in Bangalore. - US retail behemoth Walmart is expected to announce May 9 that it is to buy a majority stake in India's largest e-commerce company Flipkart for around $15 billion. Walmart CEO Doug McMillon arrived in Bangalore, the  Flipkart headquarters, to announce the deal which media reports said would see the American firm acquire around 70 percent of the Indian e-tailer. (Photo by - / AFP)
Last week, Indian e-commerce company Flipkart raised an additional $1.2bn in funding, led by its majority owner, US retail giant Walmart, as it aims to bring the “next 200 million shoppers online”. AFP

To accelerate the digital shift, the government unveiled an app to track Covid-19 infections and a platform for online coronavirus consultations with doctors.

Meanwhile, companies across India switched to a work-from-home model and several states imposed movement restrictions as the number of confirmed cases in India surged past the 1 million mark.

“The pandemic has significantly accelerated the pace to digital adoption by enterprises,” says Srividya Kannan, founder and director at Avaali Solutions, a Bangalore-based IT consultancy. “What used to be considered something that is ‘good to have’ has now suddenly become ‘must-have’ and is being taken up for adoption in a very rapid way. Enterprises are realising they need to prepare themselves to become more resilient and have processes run with less dependency on people.”

Tech companies certainly stand to benefit from this transition, as the crisis has reiterated "the importance of digital", says Diwakar Nigam, the managing director at Newgen Software. “The current scenario has made automation a prerequisite.”

There has also been a shift to digital payments over cash. Although, consumers have not been spending as much with many shops and restaurants still closed and travel options restricted, digital payments are now on the rise.

"The digital payments industry couldn't escape the pandemic crisis and we witnessed a dip of 30 per cent in online payments since the lockdown began. [We are] now seeing a rebound of 23 per cent over the last 30 days,” says Harshil Mathur, chief executive and co-founder of FinTech Razorpay. “After witnessing an increased demand for digital payments in tier two and tier three cities, I believe Covid-19 has definitely [provided] the final push to overthrow cash, which even demonetisation couldn’t, as Indians now become more comfortable paying for services without cash.”

Demonetisation refers to the Indian government's sudden ban of the country's two highest-value banknotes in 2016 in an effort to crack down black money.

With schools still closed across the country, the online education sector expanded by 23 per cent during the first 100 days of the lockdown to July 2, according to Razorpay data. Meanwhile, online payments for medical services rose by 20 per cent with more online consultations taking place.

But digital transactions in sectors such as travel and F&B saw a decline during the first 100 days of the movement restrictions, as demand for these services was hit hard, Razorpay found.

“Clearly [the pandemic] is pushing more consumers towards digital payments,” says Ajay Adiseshann, founder and chief executive of PayMate, a Mumbai-based payment solution provider. “We're seeing demand coming from businesses, as a lot of pre-Covid transactions that happened offline are now also moving online in a more accelerated fashion. The pandemic has pushed both consumers and businesses into a path of digitisation activity.”

Mr Adiseshann expects "an uptick in growth and adoption of digital payments in India” over the next three quarters.

However, tighter foreign direct investment rules and ongoing border tensions between China and India could affect flows from China into the tech sector in the near term. Chinese investors have been an important source of funds for start-ups, and some of India's top online companies including PayTM, BigBasket and Zomato have all raised funds from China. Last year, Chinese investors ploughed $4.6bn into Indian start-ups – 12 times the amount invested four years earlier – according to analytics firm GlobalData.

As the online sector accelerates, a more pressing issue, says Mr Mehta, is India's need to implement a data protection and privacy regime. The country has a draft data privacy bill that is yet to move through the legislative process.

“The more and more we are getting into this digital platform, it becomes really important for the country to have a robust and a full-fledged comprehensive legislation, so I think that is the need of the hour,” adds Mr Mehta.