How to close India’s technology gap

Anu Madgavkar
Partner, McKinsey & Company
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It is a notable irony that India, which produces solutions to many of the knottiest information-technology problems faced by the world’s largest companies, has benefited little from technological progress. Fortunately for India’s citizens, Prime Minister Narendra Modi intends to change that.

The gap between India and its emerging Asian counterpart China is significant. Whereas China has created the world’s largest online bazaar and become a global leader in renewable energy, India has just begun to explore the potential of e-commerce; IT remains beyond the scope of millions of small and medium-size enterprises; and most citizens remain cut off from the digital economy.

To bring India up to speed, Modi’s government announced in August a national digital initiative: 1.13 trillion rupees ($19 billion) in investment to bring broadband communications to 250,000 villages, provide universal mobile access, expand online government services, and enable online delivery of all sorts of basic services. Needless to say, this will do much to advance India’s e-government ambitions.

Technology trends are helping Modi’s cause. The rapid decline in costs and increase in performance capabilities of a range of digital technologies – including mobile Internet, cloud computing, and expert systems – make large-scale adoption a distinct possibility in the coming decade, even in relatively poor India.

These digital technologies – together with advances in genomics (supporting agricultural and medical innovation) and unconventional energy (wind, solar, and shale oil and gas) – will enable financial inclusion for hundreds of millions of Indians and potentially redefine how services like education, food allocation, and health care are delivered. Research by the McKinsey Global Institute indicates that, by 2025, these factors are likely to contribute at least $550 billion – and as much as $1 trillion – to India’s annual income.

The gains would be distributed among a variety of sectors, even some that currently have low levels of technology adoption. Existing applications in agriculture, health care, education, and infrastructure can collectively contribute $160-280 billion to annual GDP – and, more important, empower ordinary Indians.

Indeed, educational innovations – such as adaptive learning and remote teaching – could enable some 24 million workers to receive more years of education and find higher-paying employment. Mobile financial services will give 300 million Indians access to the financial system, allowing them to build credit. And precision agriculture – using geographic information systems and data to guide planting, watering, and other activities – can help 90 million farmers increase their output and reduce post-harvest losses, with access to timely market data bolstering their incomes.

Moreover, some 400 million Indians in poor rural areas can gain access to better health care in field clinics, where health workers can diagnose and treat some ailments using low-cost diagnostic tools, expert software, and online links to physicians. Finally, by digitizing government services, such as food-distribution programs for the poor, India could eliminate the leakage that diverts, according to our estimates, half of the food from intended recipients.

For India to derive the full potential of these technologies, it will need to dismantle barriers to adoption. McKinsey’s Internet Barriers Index for 25 countries classifies India as part of a cluster (along with Egypt, Indonesia, Thailand, and the Philippines) characterized by medium-to-high barriers in four key areas: infrastructure, affordability, incentives, and capability.

Even with low prices for devices and data plans relative to the rest of the world, Internet access in India remains beyond the grasp of close to a billion people. Furthermore, network coverage and the adjacent infrastructure remain inadequate, particularly in rural areas. And, though 48% of urban Indians are computer literate, only 14% of rural Indians are able to use a computer efficiently.

Indian policymakers should be working with the country’s tech industry and other private-sector actors to implement measures that would enable technology adoption. These include ensuring ongoing investment in broadband backbone networks, establishing inter-operability standards, and creating a supportive environment for low-cost devices.

In order to spur growth in online-services delivery, the authorities must also address broader challenges to entrepreneurship, such as India’s cumbersome procedures for starting new businesses. Moreover, as the experience of India’s mobile telephony sector clearly demonstrates, scaling up for massive impact requires more than start-up innovation; it also demands a regulatory environment characterized by a liberal approach to pricing, manufacturing, and distribution.
Sustaining the benefits of technological adoption and innovation will require continued investment and adjustment to compensate for its disruptive effects. For example, the automation of knowledge work – the software and systems that are increasingly capable of performing human tasks that require judgment – could affect 19-29 million jobs by 2025. Technology can help create new – perhaps better – jobs to replace those that are lost, but only if India’s education and training systems prepare workers adequately.

With thoughtful planning, productive collaboration between public and private institutions, and capable execution, India’s government can clear the way for technological progress. The social and economic benefits of a successful strategy cannot be overstated.

This article is published in collaboration with Project Syndicate. Publication does not imply endorsement of views by the World Economic Forum.

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Authors: Anu Madgavkar is a senior fellow at the McKinsey Global Institute. Raghunath A. Mashelkar is President of Global Research Alliance and Chairperson of India’s National Innovation Foundation.

Image: Vehicles move along New Delhi’s Connaught Place during evening hours, October 28, 2014. REUTERS.

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