India’s digital economy supplies one-fifth of national income by 2030

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India, the fastest-growing large economy, expects its digital economy to grow almost twice as fast as the overall economy, contributing to nearly one-fifth of national income by 2030.

“In the short run, the highest growth is likely to come from the growth of digital intermediaries and platforms, followed by higher digital diffusion and digitalisation of the rest of the economy,” the Ministry of Electronics & IT (MeitY) said in a statement.

This means that, in less than six years, the share of the digital economy will become larger than that of agriculture or manufacturing in the country. Agriculture employs around 45% of India’s workforce and contributes nearly 15% to its $3.5 trillion economy.

“India’s digital economy is expected to grow almost twice as fast as the overall economy, contributing to nearly one-fifth of national income, and surpassing the 1-trillion mark by 2029-30,”  S Krishnan, secretary of MeitY, said in the foreword of the report titled Estimation and Measurement of India’s Digital Economy. The report is the first to quantify the value added and employment generated by India’s rapidly growing digital sector.

India’s digital economy was at 11.74% of the national income in 2022-23 and is likely to rise to 13.42% by 2024-25. 

India’s digital economy in 2022-23 was roughly $402 billion in gross domestic product (GDP).

“Not only is India the third-largest digitised country in the world, it has made significant strides in empowering individual users and delivering services at population scale,” Krishnan said.

“At the global forefront of the digital transformation, India mainstreamed the idea of digital public infrastructure through its G20 Presidency in 2023. The government’s Digital India programme laid the foundation for building the world’s largest digital identity programme, Aadhaar, and the fastest growing real time payment system, UPI (United Payments Interface). These have become force multipliers for the private sector innovation,” Krishnan added.

In 2022-23, the digital economy accounted for 14.67 million workers or 2.55% of India’s estimated workforce. In comparison, agriculture accounted for 263.6 million (or 45.8% of the total workforce), while manufacturing employed 65.6 million workers (or 11.4% of workforce).

Largest contributor to GitHub AI

The report stated that India has become the largest contributor to the global GitHub AI project and ranks third in the number of homegrown unicorns. GitHub is an online platform that allows developers to store, share, and collaborate on code, web pages, and other content.

India’s contribution to GitHub for AI projects is the highest in the world, at 23%, followed by the U.S. at 14%, the report stated. As of April 2024, the third largest number of homegrown unicorns by country was in India, following the U.S. and China.

According to the report, the faster-growing segments of India’s digital economy include cloud services and global capability centers (GCCs.) With AI adoption increasing, India’s public cloud market is expected to grow at 24% CAGR (compound annual growth rate), reaching $20.3 billion by 2027.

Global Capability Centers (GCCs) are offshore centres established by multinational corporations to provide various services to their parent organizations. GCCs in India provide services like research and development, IT support, and business process management. India hosts 55% of the world’s GCCs, with numbers increasing from 1,250 in 2017-19 to a projected 1,900 in 2023-25. The ICT sector (information and communication technology), particularly computer-related services, contributes significantly to this growth, with these companies accounting for 6% of total computer-related services output, the report said.

India’s digital empowerment sector

India’s digital-enabling industry, which includes sectors such as information and communication-related services, telecommunication (traditionally referred to as the ICT sector), and manufacturing of electronic components, computers, and communication equipment, is the highest contributor, accounting for 7.83% of GVA (gross value added).

The new digital industries, which include Big Tech players, other digital platforms and intermediaries, and firms dependent on digital intermediaries, account for nearly 2% of GVA.

The digital contribution of three traditional industries—BFSI (Banking, Financial Services, and Insurance), trade, and education—amounts to 2% of national GVA.

“This is a clear indication that India’s digital economy is steadily moving beyond the realm of the ICT industries, diffusing across all parts of the economy through digital platforms and the digitalisation of brick-and-mortar sectors,” the report said.

“Going forward the increasing share of the digital economy in GVA is likely to come from traditional industries adopting digital tools and practices. Among all sectors, the BFSI sector seems to be the most digitized, with nearly 20 percent of the sectoral output coming from the digital side,” the report said.

India’s digital economy has been growing much faster than the rest of the economy. While the overall economy, measured in nominal GVA, was growing at a rate of 11.8% over the last 10 years, the sectors comprising the digital-enabling industry were growing at 17.3%. Digital platforms and intermediaries are growing much faster—at about 30%— and will likely do so for the next few years. Consequently, the gains to businesses and individual entrepreneurs are also going to be higher, the report added.

Recommendations

The report identified several areas of improvement and made recommendations to improve the ease of doing business in India.

The rapid growth of digital platforms and businesses has raised concerns about risks like misselling, data misuse, misinformation, and monopolization. In response, regulators have introduced new regulations, many of which are still under consultation, in draft, or pending, with some seeing revisions.

“Until finalised, businesses, especially new businesses, would find it challenging to navigate uncertainty,” the report pointed out.

The recommendations for improvement include minimizing the time between the announcement of intent and the passing of the law. Cyberattacks and cybercrimes are a major vulnerability in rapidly digitalizing economies, including India. Sectors like health, banking, and government are especially prone to attacks. As digitalization accelerates, building resilience and trust is crucial.

“Bring regulatory clarity on the use of emerging technologies such as cryptocurrencies, gaming, and generative AI, and removing frictions in the operation of digital platforms,” the report recommended.

Government policies and fiscal incentives have supported India’s industry growth, particularly in IT services, mobile phones, and telecommunications. However, these efforts are insufficient to accelerate the digitally enabling sector, which needs resilient, indigenous products for both domestic use and exports.

The report pointed out that challenges include slow semiconductor uptake, low-value addition in mobile phones, limited telecom competition, and minimal representation in standard-setting.

The report recommends investing in high-quality physical infrastructure, such as logistics and energy resources, that lower the cost of doing business; improving center-state coordination and providing friendly terms to investors, both foreign and domestic; re-evaluating business laws, including labor laws, like extending work hours in ICT sector, providing adequate safeguards for workers, to create a balance between labor rights and compliance cost.

Why the need to quantify?

The Indian economy has been digitalizing at a remarkable pace over the last decade. Yet, there are no credible and up-to-date estimates on the digital economy’s contribution to national income and employment. Quantifying and understanding the role of the digital economy in driving economic growth, employment, and sustainable development are essential for both policymakers and the private sector, the MeitY said in its statement.

“This report is an attempt to compile the first set of credible, comprehensible, and current estimates of India’s digital economy based on an internationally accepted framework. The insights from this report are invaluable for policymakers, businesses, and other stakeholders,” Meity said.

Accurate data on the digital economy is expected to allow for more effective policy decisions, enabling targeted interventions and investments to support digital growth. For businesses, understanding the contribution of digital technologies to their sectors can help inform strategic decisions, drive innovation, and increase competitiveness in a globalized market.

This is especially significant as India readies itself to present the Budget 2025-2026 in Parliament on February 1. The Union Budget is an annual financial statement outlining planned government spending and expected revenue for a specific year.

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