New India What lends hope are the policy tweaks, like the introduction of Goods and Services Tax (inspiring the idea of ‘One Nation, One Tax’), digitalisation using the Digital Public Infrastructure to reduce if not eliminate, friction in the economy. Further, the resulting disintermediation and formalisation is also reducing corruption, which in turn further prunes the diseconomies faced by Indian enterprises. This improving ecosystem is in turn fostering the growth of startups—who now account for a very impressive tenth of the country’s workforce. Some of these startups are aggregating the economic power of small and medium enterprises (SMEs). For example Zetwerk (industrial products, apparel), nexprt (home decor), Groyyo (apparel) and FASHiNZA (apparel) are manufacturing tech startups that are aggregating demand and then servicing them by creating cloud factories for SMEs to manufacture these products. Not only is it good business SMEs, but it is also drawing these enterprises into the mainstream. | 24 | | 25 | In Crore (Source: Income Tax Department) A subtext of this new narrative is the growing formalization of the Indian economy. This is visible in the filings of Income Tax Returns (ITRs). The tax base—reflecting the surge in the country’s gross domestic product—has almost doubled from the level of 3.8 crore ITRs in 2013-14. It shows a visible structural shift upwards since 2016-17. This increase in the direct tax base is not an isolated instance. It plays out in the case of indirect taxes too. Ever since the launch of the Goods and Services Tax (GST) on 1 July 2017—the marquee tax reform that for the first time economically unified the country—the number of taxpayers has grown steadily. It has more than doubled from 60 lakh to 141 lakh on 1 July 2023. If India’s evolving tax system is providing an impetus to formalisation, then its digital economy is not only greasing the economy, but is also accelerating formalisation. This in turn expands stakeholders in the Indian economy. From being invisible they are transforming into economic entities. In other words, there are fewer Indians who are outside looking in, and hence remain invested in growing the Indian economy. A win-win situation. • If India’s evolving tax system is providing an impetus to formalisation, then its digital economy is not only greasing the economy, but is also accelerating formalisation IT 2.0 The Second Coming for Indian IT Indian IT is once again making headlines, driving the export of value added software services and bolstering India’s role in advancing generative AI. Addressing the second Kashi Tamil Sangamam at the Namo Ghat in Varanasi last month, Prime Minister Narendra Modi used a home grown generative Artificial Intelligence (AI) product, Bhashini, to translate his speech delivered in Hindi into Tamil. It was the biggest leg up for India’s national language database platform that uses generative AI services to bridge the Internet divide in the country by enabling access, both in text and voice, in local languages. It showcased India’s growing prowess in generative AI applications. Interestingly, addressing a conference in early December hosted by MoneyControl, Andrew Yan-Tak NG, co-founder, Coursera, maintained that India was emerging as a key player in generative AI—which at present is shaking up the global order. According to Stanford University AI Index India led the world in AI skill penetration. It is no coincidence then that service exports are beginning to see an unprecedented upward shift. The export of services three years ago averaged under $100 billion. In the last few years it is trending at around $200300 billion (see graphic). Recently, the Services Export Promotion Council (SEPC), set up under the aegis of the union commerce ministry, said this would top a record $400 billion in 2023-24. Previously India’s competitive edge lay in the IT outsourcing model—pioneered by the likes of TCS and Infosys. While IT services continue to dominate, there is a visible increase in other categories like engineering, research and development (R&D) and business services. The growing trend in the commoditisation of services, especially with the rise of cloud, has only hastened this process. Especially since it is blurring the distinction between service and merchandise exports. One such instance is the surge in Global Capability Centres (GCCs)—delivery centres created by MNCs in India. According to analysts, 40 percent of the global GCCs are located in India. Initially GCCs served as providers of support functions for the parent company. More recently, they have moved up the ladder, to R&D and business development This trend will only grow as GCCs are now a key part of the global supply chain. In the final analysis it is clear that new technology trends—the growth of generative AI—and an ongoing geopolitical reset has opened opportunities for India’s IT services sector, albeit in a new avatar. • SOURCE: Ministry of Commerce YEAR $ Billion 2019-20 213.19 2020-21 206.09 2021-22 254.35 2022-23 325.44 2023-24* 220.66 *Apr-Nov Services Exports from India
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