Is India becoming a tech powerhouse?

Introduction and the spread of smartphones

It used to be called the Elephant Economy, but the vast subcontinent of India is fast moving up the list of global markets where tech is big business. In the world at large, India has produced myriad multinational IT firms, from Infosys and Tata to Wipro and Cognizant. But as an internal marketplace, India can seem impenetrable; this country is like nowhere else on the planet.

The challenges are many. Roads are choked with traffic, most people lack bank accounts, and electricity is far from ubiquitous in a country where 22 official languages (among 150 commonly used tongues) resist cultural uniformity. That complexity makes it an unforgettable place to travel in, but its business and political landscape is tricky to navigate.

But India has the numbers on its side – here lives many of the Next Billion we hear so much about. A whopping 50% of the Indian population is aged 35 and under – the largest population of youth anywhere in the world – while India has the third largest online population in the world.

Crucially, it's on the brink of producing a sizeable middle class. With a tech-savvy population on the rise, India's digital economy is exploding. And with India's tech industry predicted to take $12 billion (around £7.8 billion, AU$15.2 billion) in 2015, is Asia's famously elephant-like country at last becoming an irresistible Tiger economy?

How is India's tech economy performing?

Earlier this year India overtook China as the world's fastest growing big economy. However, Indian manufacturing has actually been in decline for a number of years. "The sector only contributes around 16% of India's GDP each year and less than 2% of the overall global manufacturing output," says Jonathan Wilkins, marketing manager at European Automation, an industrial automation parts supplier. "This sector employs around 58-60 million people, which is just about 12% of the overall working population."

Over the next 15 years, it's estimated that almost 250 million people will enter the working world in India, which means only one thing – India's manufacturing needs new investment, new infrastructure and new technology. Cue the Indian government's Make in India scheme, which got a lot of attention at the recent Hannover Messe.

"It's designed to foster innovation, enhance skill development in industry and promote the Delhi-Mumbai Industrial Corridor (DMIC) as a global manufacturing and investment hub," says Wilkins. The philosophy of the project is sustainability, connectivity and development. Rejuvenating the manufacturing and technology landscape in India is a long-term project, but Wilkins thinks results could come fast, saying: "If companies appreciate the benefits of Industry 4.0 and are willing to adapt and accept the changing landscape, radical transformations aren't very far away."

Smartphones and the coming middle class

With little fixed-line broadband, the digital economy in India is conducted on phones. A whopping 77% of Indians use a smartphone; that's over 900 million people. Not everyone's online – some say only a fifth are connected to the net – but it's growing fast. Competition is ruthless, handsets are cheap, and calls can be made for a single rupee per minute. Even in poor rural areas, that's incredibly cheap and is changing the way lives are lived and business is done.

Trillions of rupees have been raised by the Indian government through wireless spectrum auctions, and everyone from Sony, Lenovo, Samsung and Panasonic to Chinese handset makers like Xiaomi, Huawei and ZTE all have their eye on India.

India's market dynamics make it irresistible to global tech companies, or rather, it's about to be. "In 2017, India will enter an economic 'sweet spot' when the majority of people leave poverty and start entering the middle class," says Ray Newal, MD of India-based immersive in-game platform Play It Interactive. That needs some context – people are said to enter the global middle class once they begin earning about $10 (around £6.50, AU$12.70) per day.

"At this point, consumer buying habits begin to attract the attention of companies used to serving the middle class in developed markets," observes Newal, adding that the size of the middle class will then grow directly proportional to economic growth, and itself accelerate growth to produce a virtuous circle. "These market dynamics provide a lucrative opportunity for companies like Xiaomi that create low-cost, full function products for a middle class consumer," says Newal.

Bangalore and digital advertising

What's holding back India's digital economy?

The sheer vastness of the Indian population – 1.2 billion at the last count – means India's digital economy is thriving, but that's despite some systemic problems. A stunning 400 million people have no access to power, though companies like OMC Power are creating micro power plants across rural India. For now, in remote villages phones can be charged-up at the same kiosks that phone credit is bought.

It naturally follows that most lack access to broadband internet. "That's probably the single biggest opportunity for the country in terms of its digital growth," says Newal, who thinks that the lack of bank accounts and credit cards make traditional business models fall at the first hurdle. In India, the mass-market is elusive. However, that's changing, with bank accounts spreading, particularly among young people.

"Most Indian startups focus on the 'low-hanging fruit', either the English speaking Indian upper-middle class, or the developed markets outside of India," says Newal. "There is no economic incentive for startups to undertake the hard work of making the digital economy relevant to the lower classes, who speak hundreds of vernaculars, are not English or Hindi-literate, and who lack familiarity with the smartphone user interfaces that so many of us find intuitive."

How critical is Bangalore to the IT industry?

Bangalore in Karnataka – officially now called Bengaluru – is at the centre of India's high-tech industry. This 'Silicon Valley of India' has long been a hub of software development and outsourcing from Western companies. However, the increasing pool of talent in Bangalore, and the more viable market conditions in India generally, are driving more investment from outside. Just one example of a company flourishing because of India's growing technology industry is MetricStream, a governance, risk and compliance firm that works with TCS, Wipro, Tech Mahindra, Infosys, HCL, Cognizant, KPMG, Deloitte and PwC.

"MetricStream relies on Bangalore as one of its key hubs in the company's innovation efforts, with products and services designed, built, marketed, delivered, and supported from India," says Piyush Pant, VP of Strategic Markets at MetricStream. "India is an ideal location, due to the availability of a highly talented, skilled and technical workforce ... India serves as a critical hub." Make in India is proving instrumental in driving investment into Bangalore.

Is India ripe for digital advertising?

With a quarter of a billion net users having made the internet the easiest way of appealing to people across India, surely the country is in the grip of a digital advertising blitz? "It would seem to be a no-brainer for digital advertising firms," says Pawan Sadarangani, MD, AudienceScience India, who admits that India is the third biggest market after China and the US. "Things are never quite as straightforward as they seem – there may be 243 million internet users in India, but this represents only 19% of the population, which is the lowest penetration for the biggest 20 internet markets."

Despite that, India is already at the forefront of advertising technology and programmatic trading. "It is the centre for technology operations for a number of leading firms, such as AudienceScience, Google, Criteo, Xaxis and Pubmatic," says Sadarangani, whose AudienceScience now has about 70 staff in Pune near Mumbai, and is investing heavily in training local talent.

Indian advertisers are conservative, hugely price sensitive, and most ad tech companies simply serve global campaigns according to Sadarangani. "While India is at the forefront of technology in many areas, programmatic is still to come of age," says Sadarangani, "but India can learn from the successes and mistakes of other markets as we grow and take our rightful place as a powerhouse in this sector."

So why hasn't India produced a Microsoft or a Google? So far, there's been little incentive to. Producing necessities, not luxuries, is what has characterised India's tech sector so far, though that will change, thinks Newal: "It is very likely that countries like India will produce companies that are revolutionary in a global context."

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