THe Blog

February 11, 2021

Financing Institutions is Crucial for the Digital economy

COVID-19 has forced us to reckon with the rapidly changing nature of governance. It has highlighted the need for judicious deployment of technological tools and frameworks in multiple areas -- from crisis response to benefits delivery and tracking. Governments will have to look at setting up the right institutions to tackle these challenges. Financing these institutions to improve their capacity will be key. An analysis of the Ministry of Electronics and Information Technology (MeitY) allocations in Budget 2021-22 shows that there are significant gaps here.  


The total budget set aside for MeitY, which houses institutions like the National Informatics Centre and the National Cyber Coordination Centre, is minuscule. For 2021-22, Rs 9720 crore was allocated, accounting for less than 0.3% of the total budget of all ministries. Our post-covid world demands that financing this Ministry will be crucial for various outcomes. Further, roughly only one-fourth of the department budget is devoted towards institution-building activities. For instance, at Rs 1400 crore, the budget for the National Informatics Centre (NIC) — an organisation defined as the technology think-tank and arm of the government — is still below par. Compare this to Singapore and Taiwan, countries with successful e-governance initiatives. They had invested approximately $1 billion dollars each (~Rs. 4600 crores) while building out their programmes. This was way back in 2003, and for miniscule populations compared to India.


The major chunk of the MeitY budget is on the Digital India programme - with a budget of Rs 6806 crores, accounting for more than two-thirds of the total budget. This head has witnessed a 380 per cent increase in allocations since its launch in 2015. In contrast, the institution building heads (Secretariat, National Informatics Centre, Regulatory Authorities) have witnessed a 84 per cent increase - less than one-third of the increase in Digital India program - over the same period. Even within the Digital India head, the budgetary components which aid institutional development see a drop. It is hard to say whether this is intentional or incidental but it is certainly consequential for India’s digital development.


Consider the budget for e-governance - a pillar of Digital India to transform governance through digital delivery of services to citizens. From an actual allocation of Rs. 489 crores in 2015-16, the allocation has dropped to Rs. 425 crores in 2021-22 which is a decline from 35 per cent to 6 per cent of the Digital India budget. The National e-governance Division - responsible for program management and implementation of e-governance projects - is, at least partly, funded under the e-governance program which may suffer due to the reallocation. Similarly, the budget towards securing India from cyber-attacks is still insufficient. While the allocation for cyber-security has increased from Rs. 12 crores in 2015-16 to Rs. 200 crores in 2021-22, experts still view this as woefully inadequate and much below the global benchmark of spending 10-12% of the total technology budget on cyber security. India is second on the list of countries affected by targeted cyber-attacks and institutional developments on this front are crucial as India expands its digital footprint - especially in financial services and digital payments. An initial proposal to set aside Rs 1000 crores - about 6 times the current allocation - for the cyber-security coordination centre has still not materialised.


The focus on incentive-based schemes is mostly for promoting manufacturing electronics clusters. This is responsible for the spurt in the Digital India budget -- from Rs 52 crore in 2015-16 to Rs 2631 crore this year for promoting manufacturing clusters of IT hardware products.  While we recognise that focusing on short term incentive-based programmes is necessary to better integrate into global supply chains, it certainly shouldn’t come at the cost of long-term institutional development. That will hurt India in the long run. Moreover, promotion of manufacturing requires large scale reforms of governance than transitory incentive based schemes, to be entirely successful.


The World Development Report 2016 also underscored the importance of strengthening institutions if countries were to reap digital dividends. When everything from work to entertainment is now completely captured by the forces of technology  - the government needs a clear plan for navigating this new digital world. India is the fastest growing digital market and institutions must be built not only to keep pace, but propel this growth.The strength of its institutions will determine whether it becomes a South Korea, a high per capita income country with effective enforcement of laws and regulations or an Argentina, with poor institutional capacity that precipitated the decline of its economy. In the post pandemic world, regulation of the digital economy will become the dominant factor in measuring development of a country, all the more an argument for focus on institutional development of digital governance. 

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