Artificial Intelligence (AI) significantly impacts various domains, even in its early stages. With applications ranging from virtual assistants and predictive analytics to generative AI, it is progressively improving industries. AI is not just a new technology for 2024 but a key driver of digital transformation, acting as a catalyst for growth across different sectors.

This is evident from the report “The Economy of Billion Connected Indians,” which states India is in its Digital Decade. It says India's internet economy is set to grow 6X in the next eight years, reaching $1 trillion by 2030. However, AI has to be the flag bearer of this rapid growth. The role of AI has the potential to change the landscape radically and supercharge the growth curve. Let's have a detailed discussion about the role of AI in shaping India's Digital Economy. 

Understanding Artificial Intelligence 

Artificial intelligence (AI) is about making computers do things that normally need human intelligence. This means creating programs that let computers learn, make decisions, and understand language. AI is used in everyday technology, like helping your phone understand voice commands, suggesting movies you might like, and even in robots that can move or do tasks on their own. AI is a big part of making gadgets smarter, helping them figure out what you need without being directly programmed for every task.

Overview of India's Digital Economy

Before we jump into the story of India's Digital Economy, we need to understand the term "Digital Economy.” The term was coined in the 1990s, but its connotation changed over the years as the nature of technology changed. Today, it includes all activities that use digitized data as a part of the Digital Economy. According to the ADB (2021) Framework, the Digital Economy is a sum of economic transactions that involve both digital products and digital industries to Gross Domestic Product (GDP) or Gross Value Added (GVA). It measures the size of the digital economy by identifying forward and backward linkages associated with the core digital economy. 

India's Digital Economy contributed to the overall GDP by 4- 4.5% in 2014. This is expected to become 20% by 2026, as per the finance ministry report. 

According to a Ministry of Electronics and Information Technology report India's Digital Economy was US $200 billion in 2019 and is expected to reach US $500 billion by 2025.

From 2011 to 2019, digitalization in India grew by 11% during the last decade, at par with China. 

AI and its Significance in the Digital Economy

AI is a revolutionary technology, and its integration into the digital economy can streamline complex processes to prepare for personalized and sophisticated solutions. Combined with the Internet of Things and increasingly data-driven approaches, AIe will boost the growth of the digital economy manifold. Beyond its popular use as a generative tool, let’s look at the impact and potential of AI in the digital economy industry-wise. 

Banking and Finance Services: Artificial Intelligence is revolutionizing banking and finance services to make it more robust and reliable. With the help of Robotic process automation (RPA), banks can free up valuable workforce, effectively reducing operating costs and risk of error and improving time-bound completion of tasks. AI is helping banks provide 24/7 customer assistance by deploying chatbots on call. Beyond this, machine learning is strengthening fraud detection and better regulatory compliance. Finally, banks utilize AI to understand customers' transaction history for improved load and credit decisions. 

E-Commerce: Today, more and more AI features are finding their way into E-commerce. Machine Learning in E-commerce captures consumer behavior data to boost efficiency, sales, and preparedness. Personalized recommendations based on consumers' previous purchases are now a common feature of E-commerce. Besides this, AI is now used to combat credit card fraud and detect fake reviews and orders. Finally, AI-powered Chatbots are becoming a norm for all platforms for engaging customers. As the Natural Language Processing improves, customer relations will only improve using the chatbots. 

Security and Surveillance: AI is showcasing an incredible impact on Security and Surveillance by increasing the efficacy and diversity of security measures. Intelligent video analytics and facial recognition applications are used at various places for better monitoring. Biometric Access control applications, along with robust AI and IOT integration, are reducing data breaches. With the help of data analytics and predictive analytics to recognize patterns, AI integrated Surveillance systems give prior alerts. At the same time, it helps to make immediate decisions for preventive measures. 

Supply Chain and Logistics: AI or rapidly transforming the Supply Chain and Logistics industry with predictive analytics and data analysis. Operations are streamlined with the help of AI's proactive optimization and efficient decision-making in supply chain management. AI is also helping with quality control, inventory management, and risk assessment for agile supply chain management strategies. AI can detect patterns and predict a usable demand-supply to make the entire chain efficient, resilient, and responsive to the ever-changing market. Besides this, AI can automate logistics based on real-time analytics and insight. 

IT & Client Relations: IT is a huge umbrella term, including various things beyond the general convention of hardware, software, and networking. Machine learning and Artificial intelligence are enhancing allied areas, such as cloud computing, cybersecurity, and data management and analytics. By extension, Customer Relationship Management, Enterprise Resource Planning, and Human Resource Management are also getting a boost due to the integration of AI automation. This is further improved with AI-powered personalization to handle client relationships through chatbots as a starting step. Other elements of AI, such as Natural Language Processing, Predictive Analytics, and QA testing, are extensively used as an efficient and futuristic solution. 

Besides this, the impact of AI can be seen in the healthcare industry and edtech as well. However, its adoption and use as an aid are limited to research labs and higher education at a rudimentary level. Moving on to understand the impact of AI in various industries, we must look at different business processes and their integration with AI. Here are the six broad domains where AI and its impact are most evident across sectors and industries. These specifics help you contextualize the impact of AI in the digital economy at a micro level.

Impact of AI on India's Digital Economy

India's remarkable success story, even in the challenging times of the 21st century, is largely driven by its growth in the digital sector. The primary contribution of artificial intelligence to the Indian digital Economy is boosting productivity and efficiency. 

AI-based automation is deployed to outsource repetitive tasks throughout various industries to streamline processes and reduce operational costs. Deploying AI also results in a low occurrence of deviation and provides a standard experience. The improved quality of products and services further has a snowball impact, strengthening other adjacent processes. Here's how AI is shaping India's digital landscape:

Enhancing Financial Services: AI is revolutionizing India's banking and finance sector by improving fraud detection, offering personalized customer services, and automating routine tasks, thus increasing efficiency and customer satisfaction.

Transforming Healthcare Access: In India, AI makes healthcare more accessible and efficient, especially in rural areas. AI is helping to bridge the urban-rural healthcare gap by powering diagnostic tools and telemedicine platforms.

Agricultural Innovation: AI technologies are being deployed to predict weather patterns, optimize crop yields, and identify pest threats, supporting India's rural economy by making farming practices more informed and productive.

Education and Learning: AI is also reshaping education in India by enabling personalized learning experiences, automating administrative tasks for institutions, and providing language translation services to break down language barriers.

E-commerce and Online Retail: AI-driven algorithms for personalized recommendations and customer service chatbots are revolutionizing the shopping experience for Indian consumers. It is driving sales and enhances customer satisfaction.

Challenges of Implementing AI in India's Digital Economy

Introducing AI in India's digital economy has challenges that need careful handling. Here are the key obstacles:

Establishing a Secure Digital Infrastructure: One of India's biggest challenges is creating a secure digital infrastructure to reap the benefits of AI. There is a wide disparity in the digital infrastructure among the states in the country. Karnataka is at the top of the list, while states like Bihar and Jharkhand are lagging. Widespread adoption of AI depends largely on a robust and secure digital infrastructure. Reliable and cheap internet access improves the participation and utility of the infrastructure. 

Low Preparedness and Skill Gap: India needs to invest in upskilling its workforce to transform AI as a growth enabler, boosting the digital economy and the overall GDP. Almost 75% of the surveyed organizations acknowledge a low to moderate level of readiness to harness the benefits of Gen AI. While there is immense talent, there's a need for more specialized training and education in AI and machine learning to meet the growing demand for skilled professionals. 

Prioritizing Ethical and Sustainable Approach: Data privacy is a major issue that can make or break India’s digital economy if the digital infrastructure is vulnerable to cyber-attacks. One big advantage is affordable internet, which makes it one of the world's largest networks, but it is also a big responsibility. The need of the hour is a data protection policy competing with the Euro standard. 

Ensuring Access and Equal Participation: Even though India is the third most digitized country in the world, it is an aggregate picture at the national level. There is a large disparity in the distribution of digital resources and infrastructure among the country's states. The digital divide between urban and rural areas must be bridged to strengthen the digital economy and harness AI. 

Conclusion

Artificial Intelligence (AI) is revolutionizing India's digital economy, improving services across sectors like banking, healthcare, and agriculture and offering personalized consumer experiences. AI's role in enhancing productivity and fostering innovation is certain, setting the stage for economic growth. However, using AI's full potential requires overcoming challenges such as building a strong digital infrastructure, addressing the skills gap, and ensuring data privacy.

To reap AI's benefits, India needs to focus on creating a sustainable AI ecosystem that prioritizes ethical considerations and equitable access. By tackling these issues, India can harness AI to drive its digital economy forward, establishing itself as a leader in the global digital landscape. The path ahead demands strategic efforts. But the rewards promise to transform the nation's economic and social fabric.

https://www.adb.org/sites/default/files/publication/722366/capturing-digital-economy-measurement-framework.pdf