India’s Digital Ecosystem- Between Scale and Stability

This editorial is based on State should reclaim its role, shape digital markets which was published in The Indian Express on 10/12/2025. The article brings into picture India’s regulatory hurdles that curtails the state to fairly regulate the digital sphere. Moreover it also provides suggestions that can be adopted to strengthen the regulatory policy framework.

For Prelims:DPI, State of India’s Digital Economy Report 2025, How To Regulate The Digital Economy , UPI, Gig Economy,GCCs,digiLocker,IndiaStack,GeM

For Mains: Status of digital economy, challenges in regulation, policy suggestions for regulating emerging market places.

India’s digital economy has emerged as a strategic growth engine and a major structural shift in the country’s development trajectory. According to the Government’s “Estimation and Measurement of India’s Digital Economy” (State of India’s Digital Economy 2024), the digital economy contributed nearly 11.74% of national income in FY 2022–23 and is projected to rise rapidly, approaching ~20% of GVA by FY 2029–30.  Also, India’s digital economy, employing ~14.67 million workers (~2.55% of the labour force) with high productivity, leads globally in digital payments and ICT exports, with 49% of global real-time transactions via UPI. 

What Factors are Driving India’s Emergence as a Global Leader In Digital Transformation? 

• Digital Public Infrastructure (DPI) as a Growth Multiplier: India’s unique stack of digital public goods, Aadhaar, DigiLocker, FASTag, CoWIN, ONDC, Account Aggregator, e-KYC, has created a low-cost, interoperable digital backbone unmatched globally. 
  • It reduces transaction costs, enables real-time service delivery, and offers a plug-and-play digital architecture that catalyses private innovation. 
    • According to World Bank‑linked reports, India’s financial inclusion rate jumped from about 25% in 2008 to over 80% of adults in the past six years largely due to JAM‑enabled infrastructure. 
• Explosive Digital Payment Adoption: The IMF has officially recognised India’s UPI as the world’s largest real-time retail payment system far ahead of Brazil, Thailand and China, due to its unique feature of zero-cost payments,interoperability,and mobile-based access. 
  • This has boosted financial inclusion and reshaped consumption behaviour, directly expanding the digital market size. 
    • For example, UPI has enabled even small kirana stores, street vendors, and self-employed workers across India to accept instant, zero-cost digital payments through smartphones. 
• Affordable Smartphones & Low-Cost Data: Affordable smartphones and low-cost data have positioned India as a mobile-first economy, enhancing access to online education, digital payments, and entertainment.   
  • For example, India has one of the cheapest mobile data prices in the world at Rs 18.5 or $0.26 for 1GB compared to the global average of $8.53 or around Rs 600 per GB. 
  • The average price a consumer pays for a smartphone is lower in India ($250 - $294) compared to the global average of $357 - $370. 
  • Also, India has dramatically transformed its mobile phone sector, becoming a major exporter with USD 20.5 billion in exports in 2024. 
• Rapid Expansion of ICT Services & Digital Exports: India hosts 55% of the world’s Global Capability Centres(GCCs), which provide essential services like IT support, R&D, and business process management.  
  • State Governments are adopting dedicated policy to establish GCCs. For instance, Madhya Pradesh became the first state in the country to have a dedicated policy for GCCs, Uttar Pradesh has a similar initiative.  
• Formalisation and Platformisation of the Economy: The digital economy has accelerated the formalisation by expanding digital compliance, e-governance and traceable transactions.  
  • GST, e-way bills and digital invoicing have brought over 1.51 crore GST Taxpayer into a unified indirect tax network, enhancing transparency and revenue buoyancy.  
  • Digital marketplaces such as ONDC and GeM  have integrated small sellers into national markets, while platform-based work in logistics, mobility and food delivery employs over 7.7 million gig workers as per NITI Aayog (2022). 
    • Together, formalisation and Platformisation are creating a more transparent, scalable and productivity-driven economy, strengthening India’s digital growth trajectory. 
• Rising Digital Skills and Employability: Status of India’s Digital Economy (SIDE) report 2024 shows over 14.6 million workers already in digital jobs, with rapid migration from low-skill to tech-enabled occupations. 
  • Growth in AI/ML, cybersecurity, cloud computing, data analytics, and IT services is increasing employability and productivity across sectors. 
    • With this, India’s digital economy is emerging as a significant contributor to its economic growth, accounting for 11.74% of the GDP in 2022-23. 
• Policy Push and Investment Momentum: Government programmes like Digital India, IndiaStack expansion, PLI schemes for Electronics/Semiconductors, IndiaAI Mission, and start-up innovation fund have created a supportive ecosystem. 
  • India has become a leading start-up hub with over 100 unicorns, many in digital-first sectors. 
  • Major hubs like Bengaluru, Hyderabad,Mumbai and Delhi-NCR have been at the forefront of this transformation,while smaller cities are increasingly contributing to the momentum with over 51% of the startups emerging from Tier II and Tier III cities. 
• Consumer Behaviour Shift Post-Pandemic:The pandemic served as a massive catalyst for digital adoption, fundamentally rewiring consumer habits toward e-commerce, digital payments, remote work, telemedicine, and EdTech.  
  • Far from being a temporary disruption, this behavioral pivot has become structural, permanently widening the addressable digital market and entrenching a "digital-first" preference across demographics. 
  • For example, the Indian e-commerce market is projected to grow from US$ 125 billion in 2024 to US$ 345 billion in 2030 and is expected to touch US$ 550 billion by 2035.

What are the Major Regulatory Challenges Confronting India’s Rapidly Expanding Digital Ecosystem ? 

• Digital Platform Monopolisation and Anti-Competitive Conduct: Digital markets are increasingly dominated by integrated platform ecosystems,combining operating systems, app stores, and data control, leading to entry barriers, user lock-ins, and winner-takes-all outcomes. 
  • Traditional tools (competition law, data protection) act after harm has occurred (Ex- Post Regulation) 
  • For instance, the Competition Commission of India fined Google ₹1,337.76 crore for abusing its dominant position by leveraging the Android ecosystem, underscoring concerns over algorithm-driven exclusion, user lock-ins, and erosion of platform neutrality. 
• Risks within Digital Public Infrastructure (DPI): Possibility of re-monopolisation if private actors dominate discovery, delivery or data layers of DPI. 
  • For instance, UPI’s dominance leading to virtual duopolies among service providers, showing DPI can centralise power despite public purpose. 
    • PhonePe and Google Pay consistently command over 80% of the total UPI transaction volume and value, creating a significant market concentration that poses systemic risks. 
  • Gatekeeping may shift from platforms to logistics, payment gateways or identity layers. 
• Governance and Data Sovereignty Risks in PPP-Based DPIs: PPP-led DPIs increasingly rely on private partners for technical standards, cloud infrastructure, and AI tools, creating accountability gaps in data stewardship and weakening state control. 
  • For example, with AWS, Microsoft Azure, and Google Cloud controlling nearly 65–70% of the global cloud market, public DPIs that run on such private cloud infrastructure risk creating a model of “sovereignty as a service”, where critical public data and digital functions depend on external platforms. 
• Monetisation of Public Data: Existing data protection laws do not address risks of commercialising public data generated through DPIs. 
  • It involves lack of clarity on rights, consent, and usage limits for data emerging from public platforms. 
  • Significant gaps exist in the DPDP Act as it excludes non-personal and public data, permits broad state use through deemed consent, and provides no framework for consent, ownership, or limits on commercial reuse of DPI-generated data. 
• Weak Oversight and Accountability: Fragmented regulation across sectoral regulators leads to enforcement gaps. 
  • Sectoral fragmentation: Reports highlight overlapping and inconsistent enforcement across MeitY, CCI, RBI, TRAI, and the nascent Data Protection Board. 
    • The proliferation of deepfakes has outpaced detection mechanisms, creating a regulatory lag where "accountability" for AI-generated misinformation remains elusive despite new guidelines. 
    • The core friction lies in enforcing "originator traceability" on encrypted platforms without compromising user privacy, a technical deadlock that emboldens bad actors. 
  • DPDP Act governance concerns: Lack of full autonomy for the Data Protection Board is raising accountability fears. 
• Existential Crisis in Online Gaming (Taxation vs. Ban) The regulatory stance on online gaming has oscillated between high taxation and outright prohibition, creating a volatile investment climate that fails to distinguish "skill" from "gambling. 
  • The dual blow of the highest GST slab and the new prohibitive legislation effectively incentivizes the grey market, driving users to offshore, unregulated betting sites that ignore local laws. 
  • The Promotion and Regulation of Online Gaming Act banned "online money gaming," rendering the 28% GST on face-value bets moot for legal operators. 
• Satcom Spectrum: Administration vs. Auction: The battle over satellite communication (Satcom) spectrum allocation remains a fierce policy divide, pitting global satellite giants against domestic telecom operators. 
  • The "administrative allocation" method favors rapid satellite internet rollout but is fiercely opposed by telcos who paid billions for terrestrial spectrum, arguing it creates an uneven playing field and revenue loss for the exchequer. 
  • The Telecommunications Act 2023 favored administrative assignment for satellite spectrum, triggering legal challenges from telcos. 
• Escalating Data Breaches and Cybersecurity Vulnerabilities: India’s rapidly expanding digital ecosystem is increasingly exposed to large-scale data breaches, ransomware attacks, and state-sponsored cyber intrusions, revealing critical gaps in cyber governance and enforcement capacity. 
  • The proliferation of DPIs (Aadhaar, UPI, DigiLocker), fintech platforms, health-tech systems, and cloud-based public services has exponentially increased the volume and sensitivity of data vulnerable to cyberattacks. 
  • Cybersecurity incidents in India rose from 10.29 lakh in 2022 to 22.68 lakh in 2024. Union Budget 2025-2026 allocated ₹782 crore for cybersecurity projects. 

What Measures Can India Adopt To Strengthen And Future-Proof Its Digital Ecosystem? 

• Shift from Ex-Post Regulation to Institutional Market Design: Ex‑post tools like the Competition Act work after harm occurs, often when dominance is already entrenched. 
  • A pre‑emptive approach(Ex-Post) can prevent market tipping before damage happens. 
    • For instance, the European Union’s Digital Markets Act (DMA) designates “gatekeepers” (big tech) with proactive obligations (e.g., interoperability, no favouring own services) to ensure contestability before harm occurs. 
  • The state must act as an architect shaping the rules, architecture, and incentives of digital markets. 
• Strengthen and Expand Digital Public Infrastructure (DPI): Use DPI as open, interoperable, low-cost public rails that allow multiple providers to innovate without dependence on private gatekeepers.  
  • For example: UPI’s zero-cost model reinforces open access and prevents fee-based monopolisation. 
  • Namma Yatri of ONDC, an open‑protocol mobility aggregator, innovated pricing models by using open DPI, competing with incumbents without high entry barriers.  
• Build Safeguards Against Re-Monopolisation:  To prevent DPIs from creating new bottlenecks, they should be designed so that all users and participants are treated equally, with no special advantages for any party. 
  • Encourage Participatory governance to prevent capture by any single private actor. A multistakeholder model fostering legal interoperability and inclusive governance in global cyberspace ,a reference for participatory digital governance.  
• Improve Governance of PPP-Based DPI: Clear contractual obligations for accountability, transparency, and audit mechanisms. 
  • Prevent private partners from informally controlling standards or operational layers. 
  • Strengthen Data Sovereignty and Reduce Cloud Dependence. For example, Gaia‑X (Europe) a federated data infrastructure project ensures data control, transparency, and sovereignty across cloud services. 
  • Encourage public or nationally governed cloud infrastructure for critical DPIs. Mandate interoperability and data portability to avoid lock-in with global cloud giants. 
    • Include fiduciary clauses ensuring public-interest use of data. 
• Enhance Regulatory Capacity and Coordination: Enhance Regulatory Capacity and Coordination: To manage the complexity of AI and digital platforms, the state must move beyond generalist bureaucracy to specialized technical governance. 
  • This requires establishing a cadre of "techno-legal" auditors capable of conducting algorithmic audits to detect bias and opacity in black-box models. 
  • Furthermore, dismantling the current siloed approach, where issues overlap between the CCI, MeitY, and RBI, is critical.  
    • A unified "Digital Regulator" or inter-agency mechanism is needed to harmonize enforcement, reducing compliance burdens and ensuring that agile digital markets are not stifled by fragmented, contradictory rulings. 
• Safeguard Public Value and Prevent Commercialisation of Public Data: India must pivot from "unrestricted open data" to a "Managed Public Commons" framework, ensuring that private entities (especially Large Language Models) accessing sovereign datasets for training are bound by "reciprocal value licenses" that prevent exclusive commercial capture. 
  • This stops the "socialization of data production and privatization of profit," ensuring that the economic surplus from public data reinvests into national digital infrastructure rather than fueling Big Tech monopolies. 
• Foster Open, Non-Discriminatory Digital Ecosystems: India must rigorously enforce "interoperability mandates" to dismantle digital silos and prevent the formation of "walled gardens" where dominant platforms lock in users.  
  • The "public" in DPI must signify a legally binding "Open API" architecture, ensuring that infrastructure remains neutral rather than becoming a moat for specific vendors.  
  • The success of ONDC (Open Network for Digital Commerce) illustrates this, having reduced the  market concentration. 
• Resolving the Taxation–Ban Paradox in Online Gaming: India needs a clear central law to distinguish games of skill from gambling, based on judicial tests, to end regulatory confusion. 
  • The 28% GST on face-value bets should be moulded with a tax on platform commission (GGR model) for skill-based games to prevent capital flight and curb the grey market. 
• Bridging Administration vs Auction Divide in Satcom Allocation: Adopt a hybrid allocation model: administrative assignment with transparent usage fees to speed up satellite internet rollout while ensuring fairness. 
  • Introduce spectrum usage charges or revenue-sharing to protect exchequer interests and level the playing field with terrestrial telcos. 
  • Ensure policy certainty and investment confidence through regular stakeholder consultations and clear tech-neutral obligations for all operators. 
• Strengthening Cyber Resilience: India must adopt a whole-of-state cybersecurity framework by mandating real-time breach reporting, time-bound disclosure, and graded liability for data fiduciaries across sectors.  
  • Public DPIs must follow security-by-design standards, including regular third-party audits, zero-trust architecture, and indigenous cryptographic tools. Clear compensation norms for affected users and strict penalties for negligence will improve accountability.  
  • Finally, strategic investment in domestic cyber capabilities and cloud infrastructure is essential to reduce systemic dependence and enhance digital sovereignty. 

Conclusion:

India’s digital journey shows that the state can shape markets, not just regulate them. DPIs  have expanded inclusion and reduced dependence on closed private platforms.However the challenge now is to prevent re-monopolisation, fix fragmented accountability in PPP systems, and strengthen digital sovereignty amid reliance on global cloud and AI infrastructure. The next phase must build interoperable, transparent, purpose-limited data systems and a strong, unified tech regulator.  

Drishti Mains Question: 

India’s experience with Digital Public Infrastructure (DPI) shows that the state can shape digital markets, yet significant risks of re-monopolisation, data governance failures, and fragmented regulation persist. In this context, critically examine the challenges in regulating India’s digital economy and suggest a framework for ensuring an open, inclusive, and innovation-friendly digital ecosystem. 

FAQs 

Q. What makes India’s digital economy a major growth engine?
India’s digital economy contributes nearly 12% of national income and is expanding rapidly due to DPI, digital payments, ICT exports, and rising digital skills. 

Q. Why are traditional ex-post regulations inadequate for digital markets?
Because digital ecosystems evolve faster than regulatory responses, ex-post tools often act after harm occurs and cannot address structural dominance or data asymmetries. 

Q. What is the key concern regarding digital public infrastructure (DPI)?
DPIs risk re-monopolisation when private actors capture discovery, delivery, or data layers, leading to new chokepoints despite being public platforms. 

Q. Why is digital sovereignty important for India?
Dependence on global cloud and AI infrastructure weakens national control over sensitive public data and limits strategic autonomy. 

Q. What is the suggested way forward for regulating digital markets?
India must shift to institutional market design with open standards, interoperability mandates, strong data safeguards, and coordinated regulatory capacity. 

UPSC Civil Services Examination, Previous Year Question (PYQ) 

Prelims

Q. Consider the following: (2022) 

1. Aarogya Setu   
2. CoWIN   
3. DigiLocker   
4. DIKSHA   

Which of the above are built on top of open-source digital platforms? 

(a) 1 and 2 only   

(b) 2, 3 and 4 only   

(c) 1, 3 and 4 only   

(d) 1, 2, 3 and 4   

Ans: (d)

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Mains

Q. What is the status of digitalization in the Indian economy? Examine the problems faced in this regard and suggest improvements." (2023).

Q. The emergence of the Fourth Industrial Revolution (Digital Revolution) has initiated e-Governance as an integral part of government”. Discuss. (2020)