The central theme of the recent report on ‘Economic Outlook for Southeast Asia, China and India’, released by OECD development centre, is fostering growth through digitisation. The report indicates that ICT (information and communication technology) services embodied in manufacturing and services account for a considerable share of the value of exports from China, India and other Asian nations.

Improved telecom and Internet penetration, availability of skilled manpower for providing IT services, entrepreneurship exhibited in building ICT start-ups, along with government embracing ICT in its operations and services are enabling India to play a significant role in the digital economy.

The digitisation embodied in manufacturing and services improves efficiency, total factor productivity, spill-over effects, transparency and accountability. For example, e-commerce has improved logistics and supply chains; digital payment services have provided flexibility and transparency; digital identification services have enabled de-duplication and prevention of fraud; and digital learning platforms have augmented literacy. Though India pioneered offshore IT services to contribute to exports worth $150 billion, it is this wave of digitisation that has brought ICT services to the domestic market at large.

There have been many studies that analyse the impact of ICT stock variables such as mobile and broadband penetration, on economic development. However, there are not many studies that analyse digital data flows that characterise digital economy. For example, when we use Ola app to hail a cab, there are data flows pertaining to: fetching map data on vehicle location; direction data that shows the cab driver the pick-up location; navigation data that shows the cab location in real time; and algorithmic data that gives the shortest path between source and the destination.

It is this data flow over the Internet that enables the working of cab aggregation service pioneered by the likes of Ola and Uber. Same holds good for other digitised services as well.

Digital flows rising

In one of the first studies, McKinsey Global Institute (MGI) pointed out in its 2014 report on ‘Global flows in a digital age’, how apart from goods and services, digital flows across countries do contribute to economic development. It points out that cross-border goods, services and financial flows contribute to about $30 trillion and about 40 per cent of world GDP, there is increasing trend in knowledge intensive data flows compared to capital and labour intensive flows.

These flows typically have high research and development (R&D) component and intellectual property, and enable exchange of ideas, thoughts and expressions, facilitated by the digital platforms. Examples include: courses offered through digital platforms attended by students from around the world; global collaborative design of a 3D printing artefact; tele-medicine by expert doctors; and robotics programming done by AI programmers around the word.

How can these flows be measured? One way is to look at international call flows and internet data flows, through which most of the communication mentioned occur.

We analysed a panel data from 2000-2015 across all countries of the world, comprising goods, services, people, and digital flows. We found that a 10 per cent increase in digital flows increases country GDP by 0.2 per cent. Though elasticities for goods and services flows are comparatively higher at 1.15 and 0.7, respectively, it is expected that that contribution of digital flows is expected to increase in the years to come.

Policy implications

Given this emerging potential of digital flows and economies, what are the policy implications?

First, the use of digital technologies requires higher-order cognitive, socio-emotional, and technical skills that help respond to fast-changing technologies and their adoption at scale. As per 2016 ‘World Development Report’, this multiplicity of skills has always been important, but it is now essential. It is time that our technical and management institutes revamp their curriculum to integrate all the above features instead of promoting rote learning.

Second, movement of information across borders is crucial to the operation of the digital economy, and thus to the producers of goods and services that rely on it. Any barriers to free information flow is likely to have adverse impacts. For example, recent initiatives by the government on “data localisation” is likely to inhibit digital flows in and out of India. While security and data protection are of paramount importance, merely restricting digital flow is not likely to guarantee the same. Stricter data protection laws that govern such cross border digital flows is the answer.

Third, since the digital economy is heavily based on intellectual property, we should enforce strict protection to patents and copyrighted work, whether produced in India or elsewhere. For example, the Indian Patent Act does not allow patenting “software per se ”. Though there is a heated debate even in the US regarding software patents, merits of software patents in the digital economy needs to be reconsidered.

We also need to augment the infrastructure and capability at the patent offices in the country so that Indian inventors consider patenting in India seriously, before proceeding to file their patents in the US Patent and Trademark office. Since patents are jurisdictional in nature there are merits to encouraging and incentivising patent filing in India.

Fourth, digitisation is pervading from enterprises to the common man. The cognitive skills of people, especially in India, is quite varied due to varying literacy levels, Hence there should be conscious effort by product/service designers, developers and project managers to ensure that digitisation does not leave behind masses and create a massive digital divide.

To some extent, start-ups such as Paytm, Ola and Flipkart have enabled inclusion of most sections of the society to participate in their digital products and services. However, quality of digitisation of government services is sometimes pathetic. They are difficult to navigate even for digital-savvy urban users; not to mention, semi-literate or illiterate masses for whom it is supposed to be more beneficial.

It is time governments took notice of this and improved their services and programmes for digital inclusion of the society at large.

The writer is Professor, IIIT-Bangalore.

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