India's digital economy contributes roughly 12–13 percent of GDP and could approach one-fifth of the economy by 2030. The scale of this transformation is remarkable. India has more than 1.28 billion mobile subscribers, over 1.06 billion broadband connections and nearly 970 million internet users. Aadhaar has become one of the world's largest digital identity systems, while UPI processed more than 241 billion transactions worth over Rs 314 trillion in 2025–26. The country's software exports remain globally competitive, Global Capability Centres continue to expand, and nearly 1.98 lakh recognised start-ups generate more than 21 lakh jobs.
These achievements have made India a digital success story. Yet the scale of digital adoption does not, by itself, reveal how much technological capability lies behind it. A country can become highly digitalised while remaining dependent on external sources for many of the technologies that enable that transformation. The difference between using digital technologies and producing them therefore becomes important, because the two do not always advance at the same pace.
Digital Production and Digital Transformation Are Different
The challenge begins with a deceptively simple question: what exactly counts as the digital economy?
At its core is digital production: the industries that create digital technologies and services, including software, telecommunications, cloud infrastructure, data services and digital hardware. These activities form the productive foundation of the digital economy because they generate the technologies that others use.
Yet digital technologies increasingly shape activities far beyond these sectors. Online commerce, digital payments, platform-based work, app-based services and digitally enabled finance all depend on digital technologies without necessarily producing them. Beyond this lies a third layer: the digital transformation of conventional sectors such as manufacturing, agriculture, logistics, education and public administration, where digital tools reshape how economic activity is organised and delivered.
This becomes important because recent estimates increasingly combine all three layers. The OECD's layered framework recognises this reality by separating digital production, digitally enabled activities and broader digital transformation. The further one moves from producing digital technologies to using them across the economy, the more difficult it becomes to isolate genuinely digital value creation from the activity those technologies enable.
Consider India's most widely cited estimate. The ICRIER study placed the digital economy at 11.74 percent of GDP in 2022–23. Yet only about 7.83 percent originated from core digitally enabling industries. The remainder came from digital platforms, intermediaries and selected sectors that had undergone significant digital transformation.
The broader approach captures an important reality: digital technologies are becoming embedded across the economy. But it also means that rising digital economy estimates increasingly reflect the spread of digital transformation rather than the expansion of digital production alone.
What the Numbers Leave Out
A country can become highly digitalised while remaining dependent on external sources for many of the technologies that enable that transformation..
The contrast becomes visible in India's electronics trade profile. The trade deficit in electronic hardware widened from about US$23 billion in 2014 to more than US$44 billion in 2024. Imports of integrated circuits rose from US$1.5 billion to nearly US$24.5 billion over the same period, while semiconductor-related imports account for an increasing share of total electronics imports. These trends point to a persistent dependence on imported components and technologies that sit at the foundation of the digital economy.
This does not diminish India's achievements in software exports, engineering services, Global Capability Centres or digital platforms. The challenge is that some of the technologies likely to shape the next phase of digital development, including advanced semiconductors, AI infrastructure, cloud computing and industrial digital systems, remain areas where domestic capabilities are still evolving. These technologies matter because they increasingly determine who captures value within digital ecosystems. Countries that develop them gain greater influence over innovation trajectories, standards, intellectual property and the infrastructure on which future digital growth depends.
The outcome is a curious imbalance. India increasingly resembles a digital transformation leader, having achieved extraordinary scale in the adoption and use of digital technologies. Yet its position as a producer of some of the technologies that support this transformation remains less secure.
This is more than an accounting exercise. Digital payments, online commerce and digitally enabled services generate substantial economic benefits, but they do not necessarily strengthen a country's position in the technologies that make those activities possible. As digital systems become increasingly central to economic activity, questions of technological capability, control over critical infrastructure and cybersecurity become closely linked to questions of growth, productivity and economic resilience.
From Digital Transformation to Digital Capability
India's digital transformation has rightly attracted attention because of its scale and speed. Yet the next phase of digital development may be shaped less by how widely technologies are adopted and more by who develops the technologies on which that adoption depends. The distinction between digital transformation and digital production therefore becomes increasingly important as economies compete for technological leadership, productive capability and long-term resilience.
A clearer separation between the two would help policymakers distinguish between the use of technology and the creation of technological capability. This, in turn, would allow industrial policy, innovation policy and digital policy to pursue different objectives with greater precision. One reflects the reach of digital technologies across the economy; the other reflects the depth of the capabilities that enable and sustain that reach.