Digital India

Telcos should train their sights on the application for data

18 April, 2017, Economic Times

Original link is here

Long at the margins of the telecom and internet revolutions, India is today moving towards pole position on data consumption. The recently released Boston Consulting Group-The Indus Entrepreneurs (BCG-TiE) report on India’s internet economy suggests the country is the ‘second highest’ in terms of mobile internet adoption, clocking at 391 million users.

India’s digital economy is expected to double its value to $250 billion, and contribute to 7.5% of the GDP in three years. The projected data consumption per average user: 7-10 GB a month by 2020. Contrast this to the findings of the 2016 Ericsson Mobility Report that suggested data usage in India is slated to increase five-fold by 2021, rising to 1.4 GB per active smartphone. The five to seven times difference in projected data consumption between the 2016 Ericsson and the 2017 BCG-TiE one can be attributed to a disruptive intervention and a data-hungry consumer.

Jio, Reliance Industries Ltd’s technology startup, provided that disruptive intervention. It is perhaps the most influential driver behind the new numbers, which are, however, only the tip of the iceberg. There are deeper transformations that await the digital sector.

Three such transformations will prompt traditional telecom companies to compete and create new revenue streams that can’t rely on connectivity alone:

* The Death of Voice: Telecom companies should acknowledge the reality that traditional voice-based communication is now a market utility, not a luxury. ‘Voice-based’ communication companies will be pressed to invest in new infrastructure and ecosystems that meet the demand for videos and data-driven apps.

In practice, this means investing in infrastructure, and a new cadre of experts who can not only build platforms but respond agilely to disruptive innovation. Unless they can create this new technology ecosystem, they will perish.

* An Internet of People: Unprecedented data connectivity in the hands of half-a-billion (and growing) Indians will create an ‘Internet of People’, with each user signifying multiple opportunities to generate value for the platform economy. GoI’s flagship Digital India programme is, perhaps, the biggest public sector effort in the world to create such an ecosystem.

The ‘Internet of People’, in turn, gives rise to a major challenge: will the innovations for Indians be created and hosted in India? Or will the biggest platforms all be based abroad, leaving little room for the Indian platform economy to grow? As custodians of data, Indian businesses should build capacities for Big Data analytics, create tailored services and products for local consumers in local languages and, in the process, generate employment, unleash entrepreneurial spirits, and catalyse technology-driven social transformation. So, the individual is the biggest driver of India’s platform economy.

Policies for the Platform Economy: As India moves to a $10 trillion GDP by the early 2030s, the fuel of choice will be ‘bits and bytes’. If data is indeed the new oil, how is India prepared to secure this valued commodity? Regulatory questions around cyber security and data protection, as these relate to civilian networks in India, remain woefully unaddressed.

Policy debates in this space have been ‘principle-heavy’, seeking a golden median for regulation — say, for encryption or net neutrality — that can be emulated nationally. Instead, digital economy regulation should be ‘function-heavy’, prescribing rules of conduct for businesses and governments based on the end uses that data is deployed for.

The three-way contract between the user, service provider and app provider will determine questions like: who shares access to data? Can service providers innovate as nimbly as small startups providing applications on their platforms? How should applications be priced? And should this be reflected in data tariffs?

Jio is only one example of the disruption that is set to reverberate across the digital sector in India. That a company like Reliance can bring its considerable resources to bear on a digital enterprise definitely sets Jio apart from others. But the reality is that its digital infrastructure will generate little to no value for Jio, its nearest competitor or the next entrant into this sector. Innovation at the top, at the level of the platform, will expand the digital economy pie in India.

Already, Jio has emerged as a big contributor to Facebook’s latest quarterly revenues from Asia. How can Indian platforms avail the same benefits? It is crucial that India’s businesses, entrepreneurs and regulators train their sights on the application of data, rather than the tubes that deliver them to consumers.

The writer is vice-president, Observer Research Foundation. He has worked with Reliance Industries Ltd since 1994

 

Moving towards a secure digital economy

The velocity of digitisation and technology adoption must necessitate a response different from what was the norm in the ‘public sector era’

by Samir Saran and Vivan Sharan, Live Mint, Jan 26, 2017

Original link is here

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A wider adoption of digital payments will invariably change the dimensions of risks, crime and security as well. Photo: Pradeep Gaur/Mint


Even as incessant political bickering is polarizing opinion on demonetisation, India is making a significant transition to a digital payments ecosystem. This project endeavours to breach the urban-rural divide, geographical exclusions of the real world, and income criteria that privileged only a few with access to certain private and public services. This new digital payments ecosystem is brutal in its attempt to alter the way India transacts, trades and is taxed.

A wider adoption of digital payments will invariably change the dimensions of risks, crime and security as well. If pickpockets were a common menace some decades ago, cybercriminals may dominate conversations in the days ahead as they eye digital and online transactions. While the “pickpocket” had to select a relatively “fat target” to make the effort and risk worthwhile, the cyber thief will have a low-risk environment (lack of forensic capabilities, human capacities and attribution challenges) and an expansive reach of technology that will make even “petty pickings” attractive. And although cybercrime will affect us all, it will harm the poor disproportionately. It could ravage the small savings of many, deprive them of their meagre means and, most importantly, result in erosion of trust in the financial ecosystem currently being built. It is, therefore, important that the government pay heed to small fraud.

An early warning of this was provided by the frisson of panic that followed the cautionary message from the newly launched Bharat Interface for Money application (BHIM app) on 4 January 2017: “Users please beware: Decline all unknown payment requests you may get! We will work on an update, which will allow you to report spam.” This response is inefficient and leaves the ecosystem vulnerable to malicious intent.

Governments around the world and here in India must respond to this new dimension, where “petty cash is big money” and digital pickpockets pose a range of threats to individuals, institutions and economic stability itself. Most governments have left themselves with little time to create the requisite mitigation capabilities. The velocity of digitization and technology adoption must necessitate a response from policymakers different from what was the norm in the “public sector era”, where Centrally controlled banks and enterprises offered a modicum of stability, privacy, and security (with less efficiency). To achieve this, a comprehensive approach for securing the digital ecosystem must be devised and some actions must be taken immediately.

First, there are a multiplicity of stakeholders operating networks and tools that pose varying degrees of risk. This, in turn, demands differentiated security responses. These include the Reserve Bank of India (RBI)-run National Electronic Funds Transfer (Neft) and Real Time Gross Settlement (RTGS), the National Payment Corporation of India’s (NPCI’s) Immediate Payment Service (IMPS) on which the Unified Payments Interface (UPI) currently operates, traditional card networks, mobile payments solutions, various banking apps. In a report released in December 2016, the Union ministry of finance’s committee on digital payments suggested a hierarchical approach based on the level of “systemic risk” posed by different tools and networks. This must form the design basis going forward.

Second, while industry is consulted by expert committees such as the one referenced above, an inclusive multi-stakeholder consultative process must become the norm for policymaking itself, to avoid arbitrariness. This can be done by instituting multi-stakeholder consultations that are transparent and inclusive. This is the model India has agreed is best suited to govern the Internet internationally, and it’s time to adopt consonant processes at home.

Third, while the “mobile” is being hailed as a replacement for physical wallets as well as a proof of identity through its widespread use in second-factor authentication of digital payments, government and users should be circumspect about the risks involved. For instance, there is evidence to suggest that distributed denial-of-service (DDoS) attacks—in which a multitude of compromised systems attack a single target, causing denial of service for users of the targeted system—are increasingly targeting the applications layer rather than the network layer of the Internet. In layman terms this means a sophisticated mode of cybercrime is being unleashed on unsuspecting users of mobile applications and popular software.

Mature hardware-based solutions, such as tamper-proof Universal Integrated Circuit Cards and Embedded Secure Elements, are being tested against the latest forms of cyberattack. Software-based solutions such as Host Card Emulation are also relatively secure but require upgrades through the cloud, placing large data demands on the user and testing the service capabilities of the issuer.

Globally payment solutions that have been able to integrate hardware- and software-based security exist, but domestic mobile payments providers are relying largely on software-based security solutions. And while the Indian government’s Computer Emergency Response Team, RBI and NPCI are undertaking security audits of payment solutions, it is important that users be given standardized information to make informed choices, particularly when the digital adoption drive is at its height.

Lastly, it may be useful for the government to think of the digital payments ecosystem, now anchored by the NPCI, as analogous to the Internet. And much like the Internet, the National Financial Switch (the infrastructure backbone of all Indian ATMs, operated by the NPCI) must acquire robust redundancies offered by private-sector partnerships in order not to be a vulnerable single point of failure—which can potentially be compromised by self-styled “legions” of hackers. The NPCI should be managed through multi-stakeholder groups that can help with standard-setting, and can ensure that the payments ecosystem serves the common citizen, making even a small transaction online.

Samir Saran and Vivan Sharan are, respectively, vice-president at the Observer Research Foundation and founding partner at the Koan Advisory Group.

 

 

 

 

If India wants to become a superpower, it has to stop trying to become the next China

Original links are : ORF and Quartz India

India is currently in the midst of two large but different endeavours.

The first is to complete the unfinished agenda of the previous decade, providing the country with the modern infrastructure, rural amenities, social services, and connectivity that any developed economy needs. And the second, the most ambitious of the two, is to create jobs, wealth, and value to accommodate a young and aspiring population, eradicate poverty, and boost GDP growth.

But these two projects are being undertaken at a time when global headwinds are deeply unfavourable. Today there are five hurdles that stand between India and its ambition to join the club of developed economies.

The first is the advent of this new age where the open, free, and democratic global trading system has become a pale shadow of its previous self. The multilateral trading system — and the preference for this kind of model — has waned considerably. It is being replaced by free trade arrangements between smaller groups of countries and regions, where a handful of stakeholders are able to decide the terms of trade.

This is coupled with a stagnation in global financial flows, because of weak growth, and the growing disquiet over globalisation, curiously enough, in the developed world. From the EU to the UK to the US, politicians are using globalisation as a convenient culprit for all that ails domestic economies and societies.

It’s against this backdrop that India has to discover new markets, new sources of funding, and new trading arrangements.

Second, the advance of technology and the expansion of the digital economy, along with robotisation, is in many ways closing the window for export-led manufacturing growth. They have significantly eroded the advantages that cheap labour typically provide for developing countries. Industrialisation, when seen through the narrow prism of manufacturing, therefore already looks improbable, if not impossible.

Manufacturing, Globalisation, Digital India, Labour

Emerging economies will be stuck with the traditional disadvantages of weak governance, cumbersome bureaucracies, quality and competence issues, fragile supply chains, and a lack of skilled labour even as they compete with machines and machine learning. Large labour pools are unlikely to provide any competitive advantage unless the labour force is reoriented, retrained, and reimagined.

That’s going to make things difficult for India. Even though the country might benefit in the next five to 10 years from weak energy prices, industries exiting China, and inflows of foreign direct investment, it’s going to get harder to compete in manufacturing.

Large labour pools are unlikely to provide any competitive advantage unless the labour force is reoriented, retrained, and reimagined.

A case in point is the relocation of textile and garment production to the developed world. This was previously a sector most sensitive to cheap labour and therefore the first to be off-shored to the developing world. Today, it’s now returning to robotised factories in the US and the EU.

Indeed, it can be argued that with 3D printing and artificial intelligence, manufacturing as we know it may be coming to an end. Whatever form that manufacturing takes in the future, we can safely assume that it will based on high competencies in design, material science, resource management, super-computing, and precision engineering, all delivered by machines or sets of machines and requiring minimal labour.

Third, energy derived from fossil fuels may no longer be a given in any new industrialisation effort. In a “climate-aware” world, it is apparent that there is a willingness to compromise with low incomes and poverty but little appetite to allow the developing world too much carbon space.

Fourth, global finance is increasingly agnostic, if not outright unfriendly, to the idea of traditional industrial growth. An IMF working paper suggests that “investors such as pension funds, insurance companies and mutual funds, and other investors such as sovereign wealth funds hold around $100 trillion in assets under management.” This study estimates the infrastructure-funding gap between $1 trillion and $1.5 trillion each year, with the deficit significantly higher in developing countries. This paper and other studies have argued that this stems from a lack of financial instruments and a lack of appetite to invest in the industrial ventures of the past. Global capital and even local commercial capital in developing countries are being crowded away from investing in infrastructure.

Fifth, innovation itself has a spatial flaw. Discovery and invention are still the preserve of the Atlantic system while consumption and absorption are witnessing greater uptake in the Asian economies and in Africa. This new innovation divide, when combined with restrictive intellectual property regimes set up for the benefit of Western corporations, is bad news for developing countries. It’s likely that they will merely transform from being labour sources, marginal consumers, and resource-rich spaces to markets for innovation, sources for the data that drives the process, and part of a value chain where the largest wealth will still be created in the old economies.

Discovery and invention are still the preserve of the Atlantic system while consumption and absorption are witnessing greater uptake in the Asian economies and in Africa.

This will ensure that their purchasing power remains low. Without large-scale, export-driven manufacturing, and without the revenues that would accrue to the owners of technology, there is a high possibility that developing countries that are not yet middle-income will remain trapped in a low-productivity, low-wage spiral.

The better way forward

So what should India do, given these five trends in global economic development?

First, India must get its own house in order. One-fifth of humanity is a market and a productive base in and of itself. But for the country to take advantage of its size, it must sign a free trade deal with itself.

Currently the 30-odd states and union territories that comprise the Republic of India are nominally a single economy. But in reality, they’re less integrated than the economies of Europe. India’s states and union territories often have sharply different regulations and incompatible tax systems. As a result, trading across state boundaries is a nightmare and India really needs to focus on creating a trade association among these regions.

As a single tax, the GST is the first step in the right direction as it will allow new manufacturing units set up under the “Make in India” programme to have access to multiple markets.

Manufacturing, Globalisation, Make in India, Labour

And there are other government policies that also fit well with this endeavour: “Digital India” knits markets together, allowing for vast e-commerce and business-to-business opportunities, and “Start-up India” gives new entrepreneurs access to the finance and incubation required for them to take advantage of these opportunities.

Secondly, the attitude towards informal employment needs to change. It’s time to stop thinking of the informal economy as a bad thing, particularly since an overwhelmingly large number of Indian workers (over 90% by some estimates) are currently employed in the sector. The government should instead focus on creating support systems that will allow for India’s vast informal workforce to become more secure, productive, and, where feasible, more entrepreneurial.

Finally, India must think big. It must consider the possibility that it will have to leapfrog over the industrialisation process itself. It must imagine itself becoming the epicentre of the robotics and AI world, much like Japan become the hub for electronics, Germany for automobiles, and China for manufacturing everything at a tenth of the cost.

To prosper in a world that is suffering from the absence of growth and the disruption of old models, India must strive to become the principal stakeholder of the digital revolution — and ensure that its teeming millions partake in it gainfully, even if informally.

This commentary originally appeared in Quartz India.