Digital - Preparing for the aftermath
The numbers say that the Indian economic momentum is slowing down. Indian GDP growth rate rose to a peak of 9.1% in March 2016. It has been declining since then and reached 5.7% in June 2017. The commonly accepted reasons for this drop are demonetization and GST. I want to add that digital too will pull down GDP figures, though only modestly.
The key aspect of digital is that it is far more cost efficient than physical. Take for example cash withdrawal transaction at a bank. It may cost about `60 to do it in a branch, about `20 to do on an ATM and perhaps `3 to do it online. With more and more transactions becoming digital, banks would enjoy substantial savings.
However, there is a flip side. Banks will invest less in branches and ATMs, which would mean a slowdown for those companies that are in the business of supplying and maintaining branch and ATM related operations.
Cash withdrawal is just one activity. So many activities are increasingly migrating to digital. The biggest is probably payments that will impact those that profit from the cheque business. With consumers consuming more and more digital content, companies in the paper and printing business will see slower growth. An increasing number of consumers are adopting Ola and Uber in preference to owning a car. This will impact the production and sales of automobiles. More and more people are consuming video content on mobile phones. That will lead to decline in production and sales of televisions. Government is making numerous processes digital. The result is fewer trips to government offices, meaning lesser spend on travel and photocopying and documentation.
These may appear to be trivial reductions, but what is noteworthy is that we are in the infancy of the digital revolution. When the revolution gains momentum, it will have an increasing impact on numerous businesses that will pull down the GDP figures. A whole lot of associated jobs will disappear as well. Just imagine that with driverless cars, how many driving jobs will disappear. How many financial advisors will robo advisors displace? How many call center agents will chatbots displace?
The digital revolution will bring huge efficiencies to customers, but it will be accompanied by de-growth and job losses in several sectors. This is something to worry about now so that the solution can be created in advance, rather than reacting when the tsunami hits with an enormous force.