Mr. Modi goes to Silicon Valley

India is becoming both an important market for tech and a growing source of tech innovation, writes James Manyika on LinkedIn

When India’s prime minister, Narendra Modi, arrives in Silicon Valley on September 26, he will make the case for stronger ties between the US and Indian tech industries. The connection is already strong—the area is home to a quarter of a million self-identified Indians—180,000 born in India—and prominent Indian executives and investors will be on hand to welcome the prime minister. One of Mr. Modi’s first stops will be at a gathering of 20,000 Indians who work in the tech industry. Mr. Modi is looking for more investment from the United States in Indian tech startups. And, while ease of doing business in India is work-in-process, India’s digital revolution is gathering momentum, making it an increasingly easy sell to tech investors.

India is becoming both an important market for tech and a growing source of tech innovation. In 2013, Internet-related expenditure by consumers, enterprises, and the government, as a share of GDP, was just 2.1 percent in India, much lower than that of China, at 4.4 percent and of the United States at 4.3 percent. But penetration and usage are growing. India already has the world’s second-largest base of Internet users—more than 350 million, according to July estimates from the Internet and Mobile Association of India. The McKinsey Global Institute estimates that by 2025, 700 million to 900 million people in India could be online.

My colleagues in India, Noshir Kaka and Anu Madgavkar, have been trying to understand what this means for India. In our 2014 report, India’s technology opportunity: Transforming work, empowering people, we looked at some of the opportunities opening up for tech companies in India. First, there are enormous catch-up opportunities to digitize India’s small and medium-sized enterprises. In a McKinsey online survey of SMEs in the formal sector (27 million of 35 million SMEs operate in the informal sector), 81 percent said they use the Internet, not far below levels in Malaysia (86 percent) and Vietnam (84 percent). But only 43 percent of Indian SMEs that responded to the online survey said they sell online, and only 41 percent purchased supplies and inventory online.

We believe that ubiquitous digital technology can help create a nation of micro-entrepreneurs in India. The mobile Internet and the cloud make it possible for all sorts of small service providers—caregivers, food preparers, plumbers, and drivers, as well as financial planners, accountants, and other freelance professionals—to find customers and offer services in an online marketplace. Consumers would benefit from an explosion of choices, and talented suppliers could build strong local or national reputations. Indians can also use this type of platform to participate in the “sharing economy”—matching real-time demand with spare or underutilized capacity. Consumers could connect to share rides for daily commutes, rent the use of a car, or arrange a last-minute place to stay. Online sharing has many business applications, too—locating spare office space, meeting rooms, or even manufacturing or storage capacity or unused delivery vans.

Providing the tools for millions of entrepreneurs to enter the connected economy is an obvious opportunity for tech investors. There may also be opportunities for more large-scale businesses. Mobile payments, for example, provides a clear route to bringing banking services to 300 million unbanked Indians. Some 90 million farmers could get higher prices for their crops and reduce postharvest losses with access to real-time pricing data, and more than 50 cities in India could have better transportation and more efficient power- and water-metering systems using the Internet of Things.

Mr. Modi’s Digital India mission will provide momentum to India’s Internet journey, and help bring Indians in rural and remote parts of the country into the modern economy. Meanwhile, young, urban India is already moving the country towards a digital transformation, and Silicon Valley investors should take notice.

This article originally ran in LinkedIn.

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