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October 2017KPMG/in The intelligent economyLeveraging technology for the new era 2017 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reservedPREFACEChanges are taking place around us constantly, but by the time we realise them, our entire life seems to have changed. While there are many changes that we, perhaps, never think about, there are some that take us through a journey of immense yet exciting transformation. Technological innovations, not surprisingly, are driving most of these changes. Technology has significantly transformed the way consumers behave, the way businesses are conducted today and the way governments function. Consumers are increasingly becoming technologically more literate and constantly on the look out for better products and services. They now have varied sources to obtain information about the products or services they seek, rather than relying entirely on the marketing departments of different organisations. In addition, consumer-to-consumer interactions have increased multifold and so are the opportunities for new entrants to exploit the finer weaknesses of established players. Technology, thus, is one of the biggest levelers that any economy has ever seen.Industries are being challenged with the increase in the number of competing players on the back of technology. Smaller firms are confidently challenging the status quo and are aspiring to climb the competitive ladder faster than ever before. With an increase in competition, there is an increase in the pressure on organisations to cut costs, increase margins and, yet, provide better value proposition to customers. Businesses have realised the fact that a faster, better, cheaper approach would no longer work without focussing on technological innovation. The question organisations now face is: Is your innovation innovative enough?As citizens and the corporate world are adopting technology quickly to address their needs and wants, governments, too, cannot afford to stay behind. Digital India initiative captures this thought as a vision, helping to make India technologically sound, as the government puts its effort into many other initiatives such as Aadhaar, BHIM and DigiLocker. In all these initiatives, technology plays a key role to make things simpler for citizens and help ensure easier governance. The efficiency with which public services are being delivered is rapidly increasingly and continuously gaining momentum, with rising acceptance level for these technology-based approaches. 2017 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reservedTABLE OF CONTENTSDisruption is the new normal01page 01Key roles in the intelligent economy02page 03Digital intervention of new technologies03page 05Enabling the digital enterprise04page 11Challenges in the journey of digital transformation05page 13Road map/recommendations to the government and industry 06page 14Disruption is the new normalThe world is witnessing an internet-driven industrial revolution, evident by several billion-dollar start-ups and changes in business models by established firms. Large-scale technology adoption has not only disrupted the industry, but also brought a tectonic shift in consumer behaviour and preferences. There are companies which are valued in billions, having no physical assets, and but still became industry leaders in a very short span of time.The internet revolution has brought significant changes to the society we live in, and the way businesses, consumers and governments are operating. Modern consumers are no longer dependent on physical banks to transfer money it can be done using a simple banking application. Shopping has gone ubiquitous with the anytime, anywhere concept offered by e-commerce players, providing a number of options to buy products in different segments. Similarly, e-ticketing has helped save approximately three to four hours of waiting time to book a railway/airline ticket.This new phenomenon of internet economy is dominated by intelligent and interconnected machines, and self-learning algorithms. A patient in a rural area, sitting far away from a distant metro city, can now consult a doctor with the help of tele-medicine, saving cost and time to access healthcare. Smart health monitors can gather patients information and fasten the diagnosis process. Furthermore, currently, a three- or four-year-old child can watch his/her favourite cartoons and nursery rhymes on mobile screens.People all across are getting affected by the wave of intelligent machines and sensors of this era, where multiple segments of the society are getting disrupted in a continuous manner.Digital technologies of connectivity have one unrelenting promise they offer innovative ways of doing things, uplift traditional practices and allow new possibilities of information and data transactions that can transform the way we live. Digitisation is essential to Indias transition into a digital native country. India currently has approximately 422 million01internet users growing at a rate of 78 per cent, which makes India one of the largest market potential for global players. This digital revolution is not only expected to generate new market growth opportunities, but also create many new jobs and revenue streams.0101. Digital Evolution in India, BusinessToday, 29 August 2017pg.012015GoI launches Digital India initiative; Smart Cities Mission launched; Digital India vision2009GoI puts forth the draft policy on Indian language IDNs2003Online air ticketing launchedOnline air ticketingOnline trading 2000Cable internet arrives; IT Act 2000 passed;NSE online trading launched; ITC e-choupal initiative takenOnline banking 1997Online banking site launched by a leading private bankTwenty-two years of digital disruption in India: A timeline Please note that there may be multiple key events for each year, however only a few have been highlighted02. 20 Years Of Internet In India,TheHansIndia, 15 August 2015; Driverless Tractor Internet was launched in India a short timeline of major events, Techplayce; Digital transactions reach 1 billion landmark in July, Indiatoday, 5 August 2017; Mahindra Showcases its First Ever in India, Mahindra, 19 Sep 20172006National e-Governance Plan launched20124G LTE (dongle-based) introducedDigital wallet disruption2017Digital transactions reaches 1 billion in July; Driverless tractor launched;Driverless trucksMedia disruption 1996Major newspapers set up websites2002Submarine international gateways set up 1999National linking of Railway Reservation System2008Touchscreen mobile phone debuts in India; 2G spectrum allocatedSmartphone disruption2014Indian start-ups reach 3,100+; 82 million 3G subscribers in India Start-up disruptionPublic internet is introduced in India Internet revolution 19951998Private ISPs set up infrastructure;internet subscriber base touches 90,0002001IRCTC online ticketing launched; Dotcom bubble burstsOnline railway ticketing2005Social media platform disrupts the way people connect; IN domain registration begins; basic mobile phones start supporting Indian languagesSocial media disruption2004India approves a broadband policy2007Major Indian e-commerce platform launched2011Mobile number portability (MNP) launched; IIT course and lectures made available online2010Messaging disruption through apps; 3G auctioned to telco players; India enters e-commerce market; Aadhaar- UIDAI launchedMessaging disruption2013Auto industry disruptionDigital wallets launched; On-demand vehicle disruption by major start-ups2016India reached 391.5 internet users; chatbots launched by Indian banks;demonetisation leads to digital transactions growthChat bots disruptionpg.02Key roles in the intelligent economyTechnology has touched the lives of almost one billion Indians, changing the way they shop, interact, spend time and relax. Even businesses are not far behind established businesses are feeling the need to re-invent themselves in the wake of new tech-based entrants, who are changing consumer behaviour and increasing the technology expenditure of their competitors. These developments have prompted the government machinery at the national, state and municipal levels to provide their services via the digital mode, resulting in transparency, cost reductions and efficiency.Digitally-enabled consumers On the backdrop of these changes, India has emerged as the second-largest internet user market (only behind China the largest user base across the biggest social media network) and the second-largest market for a leading professional social network03,04,05. Furthermore, during 201416, with over 6 billion application downloads, India overtook the U.S., as the second-largest market for Android-based operating systems06. Mobile has emerged as one of the prominent touchpoints for Indian consumers, overtaking other media channels such as television and print media. Currently, Indians are spending 28 hours on their mobile devices, vis-vis four hours on television and two hours on print, per week. In addition, of the 28 hours, people are spending 45 per cent of their time on entertainment and 34 per cent on web searching, social media and messaging07. This paradigm shift along with smartphone penetration has increased mobile data consumption by 24 times in the last five years08. The paradigm shift in businessesTechnology has significantly impacted the established business practices in India across industries, such as financial services, consumer market and media. For instance, Indian banks have started deploying tech-enabled practices such as chat bots, in-house mobile wallets and virtual cards. In addition, online channels are facilitating digital enablement of front-end services and augmenting physical branches. Furthermore, the retail industry has also witnessed significant technology-led changes such as the rise of e-commerce, m-commerce and targeted promotional campaigns, and the use of augmented and virtual reality in offline shopping experiences. As online channels gain more traction in the retail industry, the retail firms are leveraging technology to digitise supply chains and launch analytics-driven product advertisements to drive efficiency and increase consumer touch points.app downloads during 2014-16 on mobiles in a week A larger, younger consumer base coming online and the number of women shoppers growing is growing fivefoldlargest market for Android after the U.S.billionhrsIndians spendnd62820203. India now has highest number of Facebook users, beats US: Report”, Live Mint, 14 July 201704. India ranks as second-largest market for LinkedIn”, The Hindu, 29 April 2017;05. India is now the second largest Internet user market, after China”, Forbes India, 2 June 201606. India Has Second Largest Android App Downloads: Mary Meeker Internet Trends Report 2017”, Inc 42, 1 June 201707. Mary Meekers India Internet Trends 2017: Indians spend 28 hrs on mobile vs 4 hrs on TV per week”, The Economic Times, 1 June 201708. Increasing internet penetration to boost revenue from data services for telcos”, Zee Business, 31 July 2017pg.03Governments efforts to adopt digital As consumers and businesses are both going digital, and India is on the cusp of a higher growth trajectory, the government has increased efforts to adopt digital technologies. The Digital India programme has seen significant progress, as over 2 lakh km of optical fibre cable has been laid across 100,299 gram panchayats, as of July 201709. Through this programme, the government plans to increase the ambit of digital connectivity to the rural hinterlands of the country. The government launched Bharat Interface for Money (BHIM) application in 2016 to promote digital payments and formalise the economy. The application witnessed significant traction from consumers, as the total application downloads crossed 20 million, having registered 11.8 million transactions on its interface during first quarter of FY1810.Case in point: Telangana government leveraging cloud and artificial intelligence11The Telangana government signed a MoU with an American IT company in November 2016 to leverage its technology expertise in areas such as e-Governance, health, agriculture and education. Furthermore, to support the Rashtriya Bal Swasthya Karyakram (RBSK), a pilot project was lunched to promote health and well-being of children. The government leveraged the companys cloud-analytics capabilities, Network for Eyecare (MINE), an AI platform, for eye screening, and to detect and prevent blindness in children. MINE a global association of eye specialists, researchers, and academic bodies deploys AI to eliminate avoidable blindness and provides eye care services around the world.During the pilot phase of the project in 10 districts, the American IT company conducted a health screening programme for children up to 18 years of age. The analytic capabilities of the company facilitated identification of major conditions which impacted children health. Going ahead, the pilot project is now getting implemented state-wide to help the government in early detection and treatment of refractive errors. Almost 6 million children in the state are expected to enjoy the benefits of this project.09. Government plans Wi-Fi for all panchayats by March 2019 at a cost of Rs 3,700 crore”, Bgr, 8 September 201710. BHIM app takes on Paytm and others; more cashback likely from Independence day, says report”, Financial Express, 7 August 201711. Government of Telangana adopts American IT company Cloud and becomes the first state to use Artificial Intelligence for eye care screening for children, Companynews, 3 August 2017Sources: Indias App Economy To Touch Rs 18 Lakh Crore By 2020, Teleanalysis, 14 July 2017 Digital economy can reach $4 trillion in 4 years: Tech sector to government, The Economic Times, 18 June 2017 ; Mobile Payment Market To Grow Extensively By 2020, CXO Today, 17 January 2017; TRAI: Annual Report 2006-07, TRAI, accessed on 28 August 2017; TRAI: The Indian Telecom Services Performance Indicators, TRAI, 5 July 2017; TRAI: Press Release, TRAI, 19 May 2017Internet subscribers CAGR:9.3 million(FY07)422 million (FY17)46.5%Broadband subscribersCAGR:2.4 million(FY07)276.5 million (FY17)60.8%Wireless SubscribersCAGR:166 million(FY07)1,170 million (FY17)21.6%App economy to touch INR18 trillion by 2020Digital economy to reach USD4 trillion by 2022Mobile wallet market to reach INRby 20221.5 trillionpg.04Digital intervention of new technologiesDigital evolution has changed the way things were consumed and businesses were run. 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