India’s shift from a centralized socialist economy to a free-market economy has taken decades, but is progressing. With such a big population and long-established culture it obviously isn’t a simple shift. There are, however, some large advantages for the Indian people in their long interactions with European countries and especially among their English-speaking people. Indian IT and outsourcing have become the fastest growing and most lucrative sector of the Indian economy. English-speaking Indians with technical skills can easily make a living using online freelance sites such as ODesk.
A Service Economy
Almost half of India’s population is still engaged in agriculture. Information Technology (IT) and the new services sector tied to computers, software and the internet represent almost two thirds of economic output while using less than a third of the labor force. Obviously, things are changing in India’s economy, and the digital cycle plays a big role. There are several cities that engage in the digital economy in a big way, but Bangalore is the most significant. Starting back in the 1970s the city began to gear itself up for technical growth and is now home to many well-recognized educational and research institutions.
But research and education are only a part of what makes a Silicon Valley wanna be actually viable. There are also technical skills required that are only available as part of a work force that grows up within technical companies. Unlike any of the other technically aggressive Indian Cities, Bangalore does have that work force working in the National Aerospace Laboratories, telecommunications and electrical companies and defense organizations. Also, since a large part of India’s cell phone network depends on satellite communications, there is the Indian Space Research Organization in Bangalore.
The most basic question about the digital cycle is how long will niche domination last? But for India, it’s not clear that there is any niche domination. The advantage of speaking English has a down side in that every niche the Indian technical community competes in is head to head with all the other English speaking countries including the United States. India’s niche aren’t software and server based so much as they are service based. Online customer support, online software support and online coding are more to the center of what happens in India. Will these services continue to offer the Indian economy a vibrant source of growth? It’s difficult to say. After 2011 the Indian economy slowed down and in large part due to financial problems that have slowed investment. When investment slows it can’t be good for expanding service companies.
India’s e-commerce is growing and has its own platforms. But online retail is still a new way of doing things for most Indians, yet there is huge potential sales. According to Ernst and Young Consulting, there were about eleven million online e-commerce transactions in 2011, but they project over 38 million transactions by 2015. Online retail makes up only about three tenths of one percent of all retail in India, which is a very small number. One of the newer Indian retail sites is Snapdeal.com, which is similar to Ebay. The company grew five-fold between 2012 and 2013, making over a billion dollars in revenue in 2013. The site sells a lot of electronics and apparel. Indian e-commerce has largely been about travel. Until recently most (over 75 percent) of Indian e-commerce was for airline tickets, hotel reservations and car rentals. Maybe that’s starting to change, but that change comes accompanying cultural reformation. In India, men control the purse strings, yet e-commerce is growing due to women buyers. Myntra.com is India’s largest e-commerce site started in 2007 it sells fashion clothing and has a 30% market share.
Part of the change is due to technology. India is becoming a cell phone active country with close to a billion users. Urban areas have over 100 percent teledensity, while rural areas lag behind. The national average is close to 80 percent. The boom in cell phones is due to deregulation and liberalization of telecommunications laws and policies. There are both state-owned service providers and private service providers. While cellular service was first introduced in India in 1994, the technology didn’t take off until recent investment in the last few years for trunk line capacity built with fiber optic cables and the world’s largest domestic satellite system, which relies on six telecommunication satellites. Broadband cell phones are beginning to find a market in urban areas.
At the very foundation of India’s digital growth is their electricity generation capacity. India relies on fossil fuels for over 70 percent of its electricity. About 20 percent comes from hydro-generation and the remaining 10 percent comes from renewable sources and a small amount (about 2 percent) of nuclear generation. In the last ten years India’s electricity production has doubled, but is still short of enough electricity to power the big cities consistently and reliably. Because fossil fuels are expensive and must be imported, India plans to grow its nuclear power generation capacity to be about 25 percent of total power generation. Until recently India was unable to develop its nuclear capacity because it was outside the Nuclear Non-Proliferation Treaty and therefore subject to trade bans in nuclear plant or materials. Unfortunately there are huge power transmission loses, which detract from the overall growth of the electrical power generation. As the power industry improves it allows improvements in the digital economy that relies upon it.