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India’s Digital Transformation Powered by 5G

September 13, 2022

Read Time 4 MIN

The 5G roll out in India may provide infrastructure that could accelerate the digital transition of India’s economy. The shift is creating investment opportunities worth consideration.

India’s economy has been surprisingly resilient to external shocks posed by Russia’s war on Ukraine and interest rate tightening by the U.S. Federal Reserve, despite higher energy prices and a stronger U.S. dollar. In fact, the country could emerge as Asia’s strongest economy in 2022-20231 as it is propelled forward by economic policy reforms, a young workforce and infrastructure investments by the government and private sector. India’s central bank remains positive on the country’s growth outlook and expects inflation to cool as well as a lift off in the economy from both domestic demand and foreign investment, as global investors diversify away from China.2

The private sector investments, along with the government’s digital infrastructure spending,3 are setting the stage for India to become a mobile-first economy. The government is investing in e-governance platforms and state of the art telecom infrastructure.4 The recent 5G spectrum auction in India exemplified the public-private partnership that is exacting the change. Jio Platforms, the internet arm of Reliance Industries (*7.64%) and Bharti Airtel (*7.56%) were the top two buyers in the 5G spectrum auction. Jio bid $11.5 billion while Bharti Airtel bid $6.5 billion for the 5G spectrum.4 Mukesh Ambani, the chairman of Reliance Industries, announced a $25 billion commitment to launch 5G in India. Ambani announced Jio’s launch of 5G services in major cities by the end of October 2022 and Jio aims to cover every district in the country by December 2023.5 Jio’s ambition is to become the world’s largest and most advanced 5G network, ahead of China and the United States.

A 5G roll out could be a technological and social game changer in India. Two thirds of India’s population live in rural areas beyond the reach of cable-based broadband and 80% of India’s internet users primarily access the web through their mobile phones often at creeping speeds.6 The 5G infrastructure build out may have effects throughout both core and newly digitizing sectors of the Indian economy. The startup eco-system is rich in unicorns focused in fintech, health-care, education technology, logistics, e-commerce, online market places, gaming and SaaS (software as a service) based tools, which all stand to benefit from the 5G rollout.7

The application of 5G across India may unlock immense value. There are a number of 5G use cases for enterprises, small businesses and consumers. For instance, private 5G networks could enable larger I.T. services companies to do more in the field of robotics, automation and IoT (internet of things) while maintaining control over data and network security.8 These 5G networks could also help improve the digital infrastructure needed for real time payments using mobile apps, making it easy to transact in a 3.1 trillion dollar economy.9 Small businesses or street vendors could take payments more securely via digital apps and C2C (consumer-to-consumer) transactions. The establishment of financial services in underpenetrated segments of the economy could likely accelerate growth in digital payments in India. India’s digital payment markets alone is expected to triple to $10 trillion by 2026.10

The 5G rollout could provide the infrastructure support needed to realize the country’s vision of tracking activity across its broad economy and bringing more people into the tax net. The reserve bank of India is in the works of launching a digital rupee in the fiscal year 2022-23. The government hopes that the digital rupee will provide a significant boost to the digital economy while also making currency management cheaper and more efficient for the central bank.11

Digitization Impacts Companies Across All Sectors of the Economy

Digitization Impacts Companies Across All Sectors of the Economy

We believe 5G infrastructure is imperative to the digitization of value chains and a cornerstone in establishing consumer and merchant confidence in e-commerce and digital payments. The 5G rollout across India could provide further support to the country’s healthy startup eco-system and digital apps providing consumer focused solutions. The emergence of embedded payments via 5G, IoT and the launch of India’s sovereign digital rupee could accelerate digital adoption across all sectors of India’s economy. VanEck Digital India ETF (DGIN) and the VanEck Emerging Markets Fund (GBFAX) offer access to the structural digital growth story of India and could be appealing investment opportunities for investors looking to seek technology or growth exposure in emerging markets.

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DISCLOSURES

*Portfolio weights as of 09/06/2022.

1 https://www.reuters.com/markets/asia/india-could-emerge-asias-strongest-economy-2022-23-says-morgan-stanley-2022-08-10/

2 https://www.bloomberg.com/news/articles/2022-08-21/india-rate-panel-member-sees-continued-growth-despite-hikes-pti?sref=wyMYZNQq

3 https://www.vaneck.com/us/en/blogs/emerging-markets-equity/a-digital-revolution-made-in-india/

4 https://www.barrons.com/articles/indias-5g-ambitions-could-make-it-a-giant-of-global-internet-51660922320

5 https://www.barrons.com/news/ambani-commits-25-bn-to-launch-5g-in-india-01661775007

6 Source: Kantar report “Internet Adoption in India”.

7 Source: Orios Venture Partners – India Tech Unicorn Report 2021.

8 https://www.business-standard.com/article/technology/what-is-private-5g-network-and-its-application-in-india-122041300237_1.html

9 https://timesofindia.indiatimes.com/business/india-business/india-is-now-a-3-1-trillion-economy/articleshow/88761957.cms

10 EY Report: $1Tn Fintech Opportunity.

11 https://economictimes.indiatimes.com/wealth/save/what-is-digital-rupee-how-it-works/articleshow/89276572.cms

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