Introduction

The ‘digital economy’ is an all-encompassing term that refers to any economic activity that uses digital information, knowledge, or tools as a factor of production and consumption^[1]. This typically indicates specific parts of the economy, such as e-commerce or trade in cross-border digital services. The extent to which the digital element has become omnipresent across economic sectors and human lives was largely beyond the imagination of policymakers until recently. This is exemplified by the fact that even until the late 2000s, discussions on digital trade at the World Trade Organization (WTO) were limited to the Moratorium on Customs Duties on E-Commerce transactions^[2]. The widening definition of the digital economy and its pervasiveness have also caused wariness at the level of multilateral policymaking related to the digital economy.

Digitalisation and digital innovation have been identified as the next frontiers in the industrial growth story, and governments have now started recognising the importance of regulating and perhaps even monetising this aspect of the economy. The 2019 Digital Economy Report by the United Nations Conference on Trade and Development (UNCTAD) notes the difference between traditional economic value creation and value creation in the digital economy—the main actors in the exercise of value creation are producers, consumers, and the government; in the digital economy, there are two additional forces in value creation: platformisation and the monetisation of data^[3].

In The Great Tech Game, Anirudh Suri argues that technology should be treated as a factor of production and not simply a sector of the economy^[4]. Suri compares the accumulation of technology and data to the accumulation of capital as an asset for both the public and the private sector. Notably, the meaning of ‘technology’ has evolved to coincide with the digital sphere. At one point in history, the printing press was the frontier of technology, given that it democratised knowledge. Today, technological innovation is almost coterminous with digital technology. The deployment of (digital) technology, as Suri argues, boosts the productivity of the other factors of production as well. Eventually, he indicates, this implies a link between capital and technological innovation, as one attracts the other^[5]. Countries wanting to progress technologically require capital, and capital is attracted to growth sectors of the economy (in this case, technological innovation).

A pre-pandemic report by Bloomberg shows that the digital economy is increasing the productivity of some economies, even as long-held advantages of the traditionally large economies wane^[6]. The report identifies five sources of economic disruption—digitalisation, automation, populism, climate change, and protectionism—and four key drivers—demographics, investment, productivity, and catch-up potential. The index measures a country’s ability to deal with these forces in percentage terms. An interesting picture emerges when exploring how the BRICS countries score in the areas of digitalisation as a disruptor vis-à-vis the overall drivers. (See Table 1)

Table 1: Digitalisation as a disruptor in BRICS economies (value implies an ability to adapt; in percentages)

Country	Digitalisation as a disruptor	Drivers
Brazil	49.7	43.8
Russia	61.7	45.3
India	49.5	56.2
China	72.5	69.6
South Africa	48.4	56.7

Source: Bloomberg^[7]

Besides China and Russia, the other BRICS members are in a unique middle position in their ability to adapt to a digitalised world. These are the levels of adaptation the countries would have likely been at if not for the COVID-19 pandemic. The pandemic has led to the increased adoption of digital technologies and leapfrogged growth in this sector of the economy. This can be seen from the growth levels in internet use and the digital economy during the pandemic.

Data aggregated from multiple sources suggests that, globally, the number of internet users increased from approximately 4.2 billion in January 2020 to 5 billion in April 2022. The global total increased by 200 million in 2020-21 alone^[8]. According to the UNCTAD’s 2021 Digital Economy Report, global internet bandwidth use increased from 26 percent in 2019 to 35 percent in 2020 due to the pandemic^[9]. The report shows that the net increase in the profits of digital platforms in the US (from search engines to social media companies) reached US$192.4 billion in 2020, a remarkable 21.1 percent increase compared to 2019, while Chinese platforms saw a 78 percent increase in profits^[10].Overall, digital trade saw an increase, with digitally deliverable services accounting for 64 percent of all service exports in 2020, even as overall services trade saw a 20-percent drop^[11].

Internet adoption in the private sector grew dramatically during the pandemic. A McKinsey Report published eight months into the pandemic (October 2020) shows that the average share of digital customer interactions (which rose from 20 percent to 36 percent between June 2017 and December 2019), rose to 58 percent between December 2019 and July 2020^[12].While a 16 percent increase had taken over two years, a 22 percent increase occurred in six months. These numbers are important because they indicate that there are more consumers in the current digital economy, and many more financial transactions are taking place digitally than ever before.

Along with internet consumption and the digitalisation of services and trade, an important area of increased digitalisation was the delivery of public services or digital public infrastructure (DPI).

The Digital Public Sector

An important but positive fallout of the pandemic was the need to rapidly digitise public services such as healthcare and education to minimise the negative impact of the pandemic. An OECD report on digital transformation identifies DPGs as digital open-source software that makes DPIs functional^[13]. DPIs are platforms used to deliver vital services like identification and payments to enable the use of public services. They cut across sectors and services.

The importance of DPGs and open-source data was repeatedly proven during the pandemic. In the health sector, governments and experts shared data to track and trace the spread of the virus in their populations, share effective treatment protocols in real-time, and record the ever-evolving variants of the virus. DPGs were also used for the issuance and roll out of vaccine programmes and vaccine certificates, which eventually allowed border rules to slowly be relaxed, thereby allowing trade in services (especially Mode 2 and 4, which depend on the movement of people^[14]) to resume. The OECD reports notes the example of the Digital Infrastructure for Vaccination Open Credentialing (or DIVOC) developed by India, and which was cited by the WHO, leading to its adaption in other countries like the Philippines.^[15] It has become widely apparent that DPGs are an important part of the global commons, which also impact international cooperation for public welfare. DPI in India has been used for a wide range of services, from direct benefit transfers, which is a flagship programme for financial inclusion, to enabling data sharing for access to vaccines using the Aadhaar unique ID.

A study by the Rockefeller Foundation spells out the importance of DPGs for DPIs. The report gives the example of the Digital Public Goods Alliance, which is built on the idea that DPGs are tools that countries can use to fuel their digital transformations, access pioneer information, and develop local ecosystems^[16]. This is part of a larger understanding, both in the public and private sectors, of digital technology being transformational and allowing economic growth. Technology is not just a factor of production but also a factor of distribution, according to Microsoft CEO Satya Nadella^[17]. The public and private sectors need to coordinate best practices and responses to deliver public services.

DPGs are also the tipping point for consumers when it comes to data sharing and information exchanges. Data from the Observer Research Foundation’s youth survey on technology policy suggests that young Indians are more comfortable sharing information with the government for what they deem as societal good than sharing information with for-profit technology companies^[18]. While about 66 percent of respondents said they would be uncomfortable sharing sensitive data with companies even if they were offered remuneration, about 77.4 percent said they would be comfortable sharing medical records and 82 percent said they would be comfortable sharing financial records to boost public healthcare or financial systems.

The BRICS grouping has also recognised the importance of DPGs. At an address during the BRICS Academic Forum in 2021, Indian BRICS Sherpa Sanjay Bhattacharyya highlighted the importance of digital technologies to achieve the Sustainable Development Goals and articulated the hope to set up a BRICS portal on DPGs^[19] to share open-source technologies created by BRICS members^[20].

What, then, is the appropriate middle ground in terms of policy? How can countries ensure economic growth without trampling on the needs and rights of citizens? 

Read the full report here.

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Endnotes

^[1] Brian Armstrong, “The Digital Economy is Becoming Ordinary. Best We Understand It,” The Conversation, January 24, 2020

^[2]  “MC12 Briefing Note: E-Commerce,” World Trade Organization

^[3] United Nations Conference on Trade and Development, Value Creation and Capture: Implications for Developing Countries, September 2020, New York, UNCTAD, 2019

^[4] Anirudh Suri, The Great Tech Game: Shaping Geopolitics and the Destiny of Nations (India: Harper Collins Publishers, 2022)

^[5] Suri, The Great Tech Game

^[6] Tom Orlik, Scott Johnson, and Alex Tanzi, “Tracking the Forces Threatening the World’s Hottest Economies” Bloomberg, October 29, 2019

^[7] Orlik, Johnson, and Tanzi, “Tracking the Forces Threatening the World’s Hottest Economies”

^[8] Simon Kemp, “Digital 2022: April Global Statshot Report,” Data Reportal, April 21, 2022

^[9] United Nations Conference on Trade and Development, Digital Economy Report: Cross-Border Data Flows and Development: For Whom the Data Flow, Geneva, UNCTAD, 2021

^[10] “Digital Economy Report, 2021”

^[11] “Trade Data For 2020 Confirm Growing Importance Of Digital Technologies During COVID-19”, UNCTAD, October 27, 2021

^[12] “How COVID-19 Has Pushed Companies Over the Technology Tipping Point—and Transformed Business Forever,” McKinsey & Company, October 5, 2020

^[13] Liv Marte Nordhaug and Lucy Harris, “Digital Public Goods: Enablers of Digital Sovereignty,” in Development Cooperation Report: Shaping a Just Digital Transformation, OECD, 2021

^[14] World Trade Organization, “Basic Purpose and Concepts, GATS Training Module: Chapter 1”, WTO

^[15] “Digital Public Goods: Enablers of Digital Sovereignty”

^[16] The Rockefeller Foundation, Digital Public Goods Alliance, and Norwegian Ministry of Foreign Affairs, Co-Develop Digital Public Infrastructure for an Equitable Recovery, 2021

^[17] Suri, The Great Tech Game

^[18] Antara Vats, Anushka Saxena, and Renita D’Souza, “Swiping Right on Tech Policy: An Assessment of Young India’s Aspirations”, Observer Research Foundation, May 2022

^[19] Sanjay Bhattacharyya, “Valedictory Address at the BRICS Academic Forum 2021,” (speech, online, August 6, 2021), Ministry
of External Affairs, Government of India 

^[20] BRICS, Declaration of the 7th BRICS Communications Ministers’ Meeting, Republic of India, October 22, 2021

• Economics and Finance
• Digital Inclusion
• BRICS
• India
• Neighbourhood
• Russia and Eurasia
• USA and Canada
• The Pacific, East and Southeast Asia
• COVID
• pandemic

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