Columbia Threadneede: India’s digital revolution offers more opportunities for investors

Columbia Threadneede: India’s digital revolution offers more opportunities for investors
Digital Business

The country is in a structural growth cycle, with a focus on reform, infrastructure investment and manufacturing. Alongside favourable demographics, it's making India an easier country in which to do business

28.02.2024 | 12:05 Uhr

In November 2016, on the same day Donald Trump won the US presidential elections, the Indian government announced a massive demonetisation effort, removing the country’s largest bills from circulation, representing 80% of total currency.1 On any normal day this would have been on the front pages of all the major financial publications, however, election of the 45th President of the United States understandably took precedence.

Demonitisation, which initially created tremendous economic upheaval, was part of the government’s ambitious efforts to combat corruption, curb tax evasion and bring more people into the formal economy. It was part of a comprehensive strategy by the government of Prime Minister Narendra Modi to structurally transform the Indian economy. Since he was elected in 2014, Modi has pushed forward economic reforms aimed at fostering a more business-friendly environment, including instituting a national goods and services tax (GST). This streamlined the complicated web of state taxes and helped bring the manufacturing and industrial sectors into the formal economy. He also revised the Insolvency and Bankruptcy code which facilitated improving capital allocation and the cost of credit.

Many market participants did not connect the dots at the time, but the digitalisation of the Indian economy, known as IndiaStack, was a core part of the government’s strategic thinking. This digital public infrastructure is best understood as a public utility and it could have enormous implications for the people of India and its economy. It could also present new and compelling investment opportunities.

Understanding India’s digital evolution and revolution

The potential significance of IndiaStack is best understood through an example: Prema is a 23-year-old born in a rural Indian village who recently migrated to Mumbai in pursuit of better opportunities. But without a permanent address Prema would fall at the first hurdle when trying to open a bank account. Here’s how IndiaStack works for her:

  1. Identify: The first layer of IndiaStack is AADHAR, a biometric identity database, which links Prema’s national ID to her biometric data so she can open a bank account and financial service providers can conduct “know your customer” checks.
  2. Payments: Next, the Unified Payments Interface (UPI) enables cashless payments by linking Prema’s ID number, phone number and bank account to a payment address. This allows her to receive her salary electronically. It also enables her to send money back to her parents or shop at the local market, all on her smartphone and without a costly middleman.
  3. Data: The final layer, DigiLocker and e-consent, allows Prema to store copies of documents like academic records, birth certificate and driver’s licence. She can share these with potential employers or financial service companies to apply for loans.

Together with India’s demographic and income trends, these reforms could support continued economic development and growth. India is the world’s most populous country, with a median age of 29,2 recently breaking the $2,000 GDP-per-capita level,3 and a rapidly expanding middle class – the number of households earning in excess of $35,000 a year4 is expected to rise fivefold in the coming decade (Figure 1). It is estimated that more than 40%5 of the Indian economy is informal. Digitisation has the potential to bring many people into the formal economy, for example by facilitating access to credit. The reforms have also revolutionised credit underwriting and streamlined lending, which should result in a significant pick up in loan growth, boosting the financial sector and the economy. We’ve also witnessed an explosion in retail investing with a potential quintupling of stock market participants from 62 million to around 300 million.6

Digitisation has the potential to bring many people into the formal economy, for example by facilitating access to credit.

Figure 1: India’s income pyramid is forecast to invert within the next decade


Infrastructure and manufacturing are still key

India’s structural growth story is not just limited to digitalisation, population and wealth creation. The government is investing in massive infrastructure projects and supporting the development of its manufacturing sector in a bid to increase foreign direct investment and kick-start substantial network effects in supply chains, as the economy seizes the opportunity of China+1 diversification efforts by multinational corporates.


1 American Economic Association, 2020
2 Worldometer. 2023
3 Citi Research. 2023
4 Jefferies. 2023
5 World Economics. 2023
6 Morgan Stanley. 2023

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