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Hitachi Research Institute

President Column

Commentary by our President, Keiichi Shimada

#6: Digital and Transformation

 I made my first business trip to India in early summer 2008. Nearly a year and a half had passed since both governments signed an MOU on the Delhi-Mumbai Industrial Corridor Project (DMIC), one of the joint Japan-India projects. My stay in India began with an argument with customs officers at Delhi International Airport when they found a bottle of sake, which I had brought as a gift, in my luggage and a taxi ride from the airport to downtown Delhi, which was as crazy as a car chase. The highlight was when I visited the Neemrana Industrial Park in Rajasthan. The Neemrana Industrial Park is located 100 km southwest or about a 3-hour drive from Delhi. I’d heard that many Japanese companies were planning to move there, however, the site was nothing but grassland. When I saw its vast landscape partitioned off with a simple rope, with factory buildings under construction in the foreground and camels grazing in the background, I was struck by how different the flow of time feels in India compared to Japan.

 I visited India again in the summer of 2014, when the Indian People’s Party (Bharatiya Janata Party: BJP) won a sweeping victory in the Lok Sabha (India’s lower house) election and the ruling party attained a single-party majority for the first time in 30 years. Unlike its predecessor, the Indian National Congress (INC), which had run pork-barrel politics such as distributing handsome subsidies or free public services (electricity, gas, etc.) to the agriculture sector, BJP announced the implementation of institutional reforms and an industrialization-oriented “Make in India” initiative. Moving from a regional to a national stage, the former Chief Minister of Gujarat and the current Prime Minister of India, Narendra Modi, declared that he would leverage his experience as the former Chief Minister to pursue drastic structural reforms and a transformation of the Indian economy and industries, including political reforms, anti-corruption campaigns, and industrial development expansion.

 It’s been five years since then. The Make in India initiative is still on Indian time. The manufacturing industry did not reach its target to make up 25% of India’s GDP; instead it has leveled off at 17%. The Goods and Services Tax (GST) was successfully implemented against the odds, but the tax system remains complex, and the difficulty in expropriating land is hindering factory construction. With its prioritization of fiscal restructuring, government spending on the expansion of infrastructure development is unlikely for the moment.

 Meanwhile, the “Digital India” initiative is making remarkable progress. The Modi administration has pursued the digitization of government services in parallel with the Make in India initiative. Under the Digital India initiative, mobile phone and high-speed internet networks are expanding, with citizens obliged to have a national ID number and open a bank account as the processes of identification, government services, and social security benefits become available online. The amount of monthly mobile payments has grown 120-fold, from 44 billion rupees in July 2014 to 5.3 trillion rupees in July 2019 (source: Reserve Bank of India). The number of mobile phone users has exceeded 1 billion and is still rising.

 When I was in India just after the inauguration of the Modi administration, everyone was talking about the future of the Make in India initiative in discussions with companies and industry associations. Back then, I was so preoccupied with the Make in India initiative that I overlooked the significance of the Digital India initiative. I only took notice when the country launched “India Stack” in 2016. India Stack is a government service which provides the functions of personal identification, electronic signature, cloud storage, and interbank money transfers based on national ID number information. As these functions and data are open to private enterprises, emerging start-ups from various fields such as cashless payment, rideshare, and healthcare have started using the service. In India, which has a huge national market and a mass of mobile users, the accumulation and use of data has accelerated. India’s IT industry, which has grown as an outsourcing contractor for the IT systems of companies from developed countries such as the United States, is now transforming into a digital service industry targeting the domestic market.

 Bypassing expansion of the secondary sector of the economy, India has begun enlarging the digital services industry. The country has become a wondrous place where the slow Indian pace of life and th dynamic, rapidly-changing digital time coexist. Currently, the slow Make in India and the dynamic Digital India initiatives are out of sync. However, if complex tax procedures and negotiations for land expropriation can be simplified by utilizing India Stack, then more manufacturers would advance into India and provide the momentum for infrastructure development. This would eventually contribute to the industrialization of the country.

 When I think about it, the Modi administration must have predicted from the beginning how both initiatives would turn out. They plan to transform India’s domestic industries through digitization. Achieving this goal will depend on using digitization to create totally different industries and regimes, and widely exploiting their capabilities as a driving force for economic and industrial transformation, instead of digitizing the existing industrial framework. I believe that the digital-native businesses and regimes created by the preceding Digital India initiative will bring proactive changes over time to the Make in India initiative, which should ultimately lead to a wide-ranging industrial transformation in India.