India: The emerging economic powerhouse

The South Asian nation has now surpassed China for population and GDP

India tech

India’s prominence in the global economy has become impossible to overlook. In 2020, China had the fastest-growing GDP of any major economy, and the largest population in the world. Fast-forward to 2023, and India has surpassed China on both counts. The IMF expects India to be the world’s fastest-growing major economy in both 2023 and 2024, and its population now stands at approximately 1.425 billion.¹

So, while China has long been hailed as the leading emerging market, there is now a case to be made that India is on the same trajectory. And alongside this marked growth, we are also seeing the rapid development of the country’s internet economy – the so-called “digitisation of India”.

To understand why India is believed to be digitising faster than any country worldwide, we need to delve into India’s demographics.²

A digital population

India’s explosive population growth is notable, but when examined closer, the reason for the country’s digitisation becomes clearer.

Not only is India now the most populated country on Earth, it also has the largest “Gen Z” population by some margin.³

With a median age of 28 and around 65% of the population under the age of 35, India’s vast population includes over 910 million millennials and Gen Z.⁴

This is significant, as these generations are cited as having a unique digital bond to the internet, growing up during the “Web 2.0” revolution since the mid-2000s, and being more likely to purchase smartphones or other appliances to bring themselves online.

On top of this, we are also seeing the rapid expansion of India’s middle class. There are an estimated 423 million middle-class Indians – enough to “achieve economic security and be able to engage in discretionary consumption”.⁵

India’s middle class currently represents around 31% of the population, but that number is set to rise to over 38% by 2031 (and 60% by 2047).⁶ This growth should lead to increased spending power and further boost India’s economy.

When taken together, we have a massive population of tech-savvy millennial and Gen Z consumers, with an increasing amount of disposable income – ready to purchase their way to internet access.

The smartphone revolution

It is perhaps no surprise then, that India is seeing an unparalleled level of smartphone adoption. There are an estimated seven million new smartphone users in India every 30 days.⁷

For context, back in 2010, India had around 34.18 million smartphone users. In 2023, there are over one billion – almost a quarter of the world’s smartphone-using population.⁸

This is impressive, but India is still lagging the most advanced digital economies when it comes to percentage smartphone penetration.

But it is closing the gap. In 2023, smartphone penetration reached 71%, and it is expected to reach 96% by 2040.⁹

5G rollouts driven by companies such as Jio and Airtel have seen substantial increases in subscribers to the network service, boosted by greater coverage in previously unconnected regions.

India has also developed digital public infrastructure (DPI), spearheaded by India Stack – a set of open APIs designed to bring India’s population into the digital age. Since its rollout over the past decade, DPI has had unprecedented success and is credited with driving India’s digital revolution.

Businesses and governmental organisations have been given the tools to facilitate secure financial transactions, large-scale data transfer, verify identities and much more – online.

India’s government backs digital

A vital element of India’s digitisation is the government’s recognition of its importance. In 2015, Prime Minister Narendra Modi launched the Digital India campaign, with the core goal of making its services available to citizens through expanded and enhanced online infrastructure and internet connectivity.

By 2018, India was adding 10 million daily internet users a month – the highest rate of internet-adoption worldwide.¹⁰ Most recently, at the 2023 G20 New Delhi summit, Modi spoke in favour of a “democratisation of technology” to bridge the data divide. He also expressed willingness to share India’s digitalisation experience with partner countries.

Government backing is an essential component of the digitisation engine. This was exemplified earlier this year, when the CEO of Google (and its parent company, Alphabet), Sundar Pichai, met with Modi – following which Google pledged $10bn for India’s digitisation fund.¹¹

Most of all, it provides reassurance to tech companies in India that their interests are protected, and that their success is integral to India’s growth.

Exposure to India’s digital revolution

Despite India’s impressive digitisation, there is still a way to go. Investors, therefore, have a unique opportunity to capture this potential growth. INQQ Internet & Ecommerce ESG-S UCITS ETF (INQQ) aims to provide pure-play exposure to India’s digitisation by capturing companies benefitting from increasing online consumption by India’s middle class.

INQQ is targeted, only including companies with majority exposure to internet and eCommerce activities in India. The ETF seeks to fix problems with broader India indices such as state-owned companies, overweight legacy bank and oil sectors and Indian companies in disguise generating most of their business in Europe or the US.

Notably, the ETF provides ESG-screened exposure to India – the only ETF of its kind to do so.¹² Accordingly, the ETF is also classified as Article 8 under the Sustainable Finance Disclosure Regulation (SFDR).¹³

This article first appeared in ETF Insider, ETF Stream's monthly ETF magazine for professional investors in Europe. To read the full edition, click here.

1 https://www.cnbc.com/2023/07/26/imf-raises-2023-economic-growth-forecast-for-india.html 2 https://economictimes.indiatimes.com/tech/technology/indias-digital-economy-grew-2-4-times-faster-than-economy-in-2014-19-rbi-article/articleshow/96412446.cms 3 https://timesofindia.indiatimes.com/blogs/voices/understanding-gen-z-capturing-attention-and-loyalty-in-the-evolving-landscape/ 4 https://bfsi.economictimes.indiatimes.com/news/fintech/millennials-at-forefront-of-online-finance-products-contribute-44-of-total-lending-report/97308820 5 https://www.ft.com/content/be53790c-ea16-4e5c-9410-bac189fb2636 6 https://economictimes.indiatimes.com/news/economy/indicators/how-the-middle-class-will-play-the-hero-in-indias-rise-as-world-power/articleshow/101608682.cms 7 Statista; World Bank; EMQQ Global analysis 8 Statista; EMQQ Global analysis 9 Statista 10 https://www.business-standard.com/article/current-affairs/india-is-adding-10-million-active-internet-users-per-month-google-118062700882_1.html 11 https://timesofindia.indiatimes.com/india/google-to-invest-10-billion-in-digitisation-ceo-sundar-pichai-after-meeting-pm-modi/articleshow/101228411.cms?from=mdr 12 Confirmed within the ETF Database as of 31.10.2023. 13 https://etp.hanetf.com/Supplement___INQQ_India_Internet__Ecommerce_ESG_S_UCITS_ETF.pdf

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