The following guest article was submitted by Mikheil Shengelia, Research Analyst at Eagle Alpha, an alternative data aggregation platform providing supporting advisory services for data buyers and vendors. Eagle Alpha hosts monthly legal webinars with expert guests to discuss various topics.
Introduction
India’s economy is experiencing rapid growth with the IMF calling it “the world’s fastest-growing major economy” with an expected increase of 7% in 2024. Currently the fifth-largest economy, India’s growth is driven by its large population, technological advancements, higher capital investment, and increased worker productivity. With a low dependency ratio over the next two decades, India has a key opportunity to expand its manufacturing and services sectors while continuing to invest in infrastructure.
The country is emerging as a key hub for business operations in the APAC region due to its strategic location and skilled workforce. Positioned at the crossroads of East and West, India offers an ideal base for managing logistics and supply chains across the region. This central location allows businesses to efficiently reach key markets, enhancing their responsiveness to market demands and opportunities.
For more information on topics relating to alternative data sourcing and compliance and to learn more about how Eagle Alpha is assisting financial institutions with their alternative data strategy, please contact us.
Market Trends in India
Over the last ten years, India’s economic engines of consumption and production have both expanded and diversified. One of the key drivers of this transformation has been a substantial increase in government spending, particularly on infrastructure. The Indian government has invested approximately $800 billion in the development of roads, bridges, railways, and other large-scale construction projects, averaging around 3.6% of GDP annually.
Wealth creation in the domestic economy also affected disposable incomes. By 2027, around 100 million Indians are expected to earn over 10,000 USD annually, up from 60 million today. This increase in wealth is boosting discretionary spending in sectors like travel, jewelry, and services. India is projected to become the world’s third-largest consumer market by 2027, driven by a young population and a growing middle class.
The rise in disposable incomes has also led to increased investment in equities, property, and gold, with the country’s stock market becoming the seventh largest globally. Credit card usage has also more than doubled since 2019, with the digitization of payments driven by the younger generation.
India is taking steps to impose stricter regulations on its equity derivatives market, which has grown to become the largest in the world by trade volume. The rapid expansion of the derivatives market has been fueled by a pandemic-era influx of retail investors, who have significantly increased trading activity. By March 2023, the turnover in Indian index options contracts had skyrocketed to $135 billion, a sixfold increase from four years earlier.
FDI and Startup Ecosystem
Structural reforms and improvements in the ease of doing business are attracting more international investors. Reforms such as the Goods and Services Tax (GST) and production-linked incentives have bolstered India’s potential, attracting global investors. Growth opportunities are seen across various sectors, including banking, real estate, and manufacturing.
Foreign Direct Investment (FDI) has significantly shaped India’s economic landscape, with a 20-fold increase over the past 23 years. India is aiming for $100 billion in annual FDI, supported by initiatives like Startup India, Make in India, the Investment Clearance Cell (ICC), and One District One Product (ODOP).
The Startup India initiative, launched in 2016, has driven significant growth in India’s startup ecosystem, expanding from 400 startups in 2016 to over 118,000 by 2023. The program offers funding through schemes like the Credit Guarantee Scheme for Startups (CGHS) and the Startup India Seed Fund Scheme (SISFS), supporting startups at various stages. By May 2022, India reached 100 unicorns, and currently, its 117 unicorns have collectively raised over $100 billion, with a combined valuation of $353 billion.
In 2024, the Indian tech startup ecosystem is expected to see an overall increase of 36% in funding, despite global economic challenges (see Figure 1). Global funds are increasingly setting up in India, while venture capital is gaining traction, especially in emerging sectors like electric vehicles. However, caution remains, with investors carefully evaluating opportunities amidst geopolitical and economic uncertainties.
Figure 1: Indian Tech Startup Funding (Source: Inc42)
India has also become a key destination for IT and business process outsourcing (BPO) giants, which have established capability centers there. These companies span industries such as consumer durables, automobiles, and mobile phones, and are setting up manufacturing units as alternatives to locations like China and Taiwan.
Prime Minister Modi’s economic policies include a push for digital governance, which has enhanced economic stability and efficiency. The digital revolution has streamlined transactions and reduced corruption, while major infrastructure projects have modernized the country’s facilities.
However, the benefits of these policies have not been universally experienced. Many of India’s 1.4 billion people, especially those in informal sectors, continue to face economic hardships. Job creation remains a critical issue, with high unemployment among educated youths and slow growth in manufacturing. The pandemic and past policy decisions have exacerbated these problems, leading to uneven growth and increased inequality.
The Alternative Data Landscape in India
India is one of the world’s global fintech leaders, with over 2,500 startups spanning various sectors such as payments, lending, stockbroking, and insurance. Key enablers of this expansion include a tech-savvy younger population, substantial capital availability, and supportive government policies. Innovations such as Universal Payments Interface, digital banking, and Buy Now Pay Later (BNPL) are transforming the financial landscape.
Government initiatives like demonetization and GST have accelerated the shift from cash to digital transactions, fostering growth in fintech. Notable advancements include paperless lending, mobile banking, and secure payment systems. Financial inclusion, literacy, and insurance technology are major focus areas, with startups driving these innovations.
In August 2023, India’s Digital Personal Data Protection Act 2023 (DPDPA) was enacted and marked the country’s first comprehensive data protection law, replacing existing fragmented regulations. The DPDPA aligns closely with the GDPR, regulating digital personal data processing within and outside India when linked to Indian residents. It introduces significant changes for companies, including new rights for individuals and specific obligations for data fiduciaries, with substantial penalties for non-compliance.
While it streamlines obligations for businesses, compliance remains challenging, particularly for startups facing increased costs and operational complexities. For example, startups may need to implement systems for managing user consent and data rights, conduct data protection impact assessments, and appoint Data Protection Officers (DPOs).
Initial drafts of the law proposed stringent regulations on cross-border data transfers, including local storage requirements and additional compliance measures. However, the enacted version allows data transfers unless restricted by the government, which has yet to specify any blacklisted territories.
The DPDP Act may require businesses to meet additional compliance requirements before transferring data to certain countries. The Act’s open-ended approach contrasts with the European Union’s GDPR, which provides clear guidelines for cross-border data transfers.
The data market in India is developing with startups in the fintech space starting to offer data products. Snapbizz, a software solution provider for retailers, captures point-of-sale (POS) data and delivers detailed raw data on customer transactions from large and medium grocers, providing valuable insights across various categories and brands. With data from over 1 million stores and detailed customer visit patterns, Snapbizzz offers a comprehensive view of purchasing habits, especially valuable in India’s Kirana store-dominated FMCG sector.
Bobble AI, a marketing software provider, delivers consumer insights derived from smartphone usage, including web and app search queries, app sessions, text intent, and keyword analysis. Using AI and machine learning, they analyze this data to predict consumer behavior such as purchasing and churn, optimizing customer acquisition costs (CAC) and return on ad spend (ROAS).
Conclusion
India’s economy is growing rapidly, driven by strategic government initiatives, rising incomes, and increasing foreign investments. The country’s evolving financial ecosystem, supported by structural reforms and technological advancements, is attracting global investors and fostering innovation, particularly in fintech. However, challenges such as job creation, urbanization, and regulatory compliance need to be addressed to ensure sustained growth.
In the face of these developments, India’s Fintech and alternative data industries are starting to gain traction. Given the rapid growth of the overall economy, startup activity, and increases in foreign investments, we suspect the alternative data sector will continue to exhibit significant growth in the coming years.
For more information on topics relating to alternative data sourcing and compliance and to learn more about how Eagle Alpha is assisting financial institutions with their alternative data strategy, please contact us.