Friday 10 / January / 2025
New Delhi: In the early 2000s, one could not even imagine the digital transformation India would experience in the next two decades. The multi-layered digital transformation that India is going through is backed by three major components - a comprehensive, unique digital identity system for each citizen called Aadhar; a robust digital payment infrastructure supported by the National Payments Corporation of India (NPCI); and the data empowerment and protection architecture facilitated by MeITY and the Reserve Bank of India that enables safe data transfers.
To put it simply, the Aadhar number provides a unique identity to its citizens. The possession of Aadhar cards was seen as an opportunity to ease the customer identification of the banks through eKYC. Thus, a path for a good development strategy was laid where one government action is complemented by other public and private initiatives. The Jan Dhan programme complemented Aadhar and commercial banks used Aadhar to ease the process of opening bank accounts.
Moreover, the government used Aadhar-linked bank accounts to transfer benefits directly, thus avoiding wastage and misallocations. The results speak for themselves. As per a study by two development economists, weekly payments received by people into bank accounts in rural India led to higher savings than for those who received payments in cash.
Now for the identity layer which was laid by linking the bank and Aadhar card, another payment layer was added using Unified Payment Interface (UPI). By drastically reducing the transaction cost in terms of money and time, UPI smoothens individuals’ participation in the market by allowing swift contactless transactions.
Aadhar further adds to the ease by ensuring the authenticity of the individual. Many fintech startups used the opportunity of linking themselves with commercial banks as well as providing digital wallets to customers, making UPI a success. This is where robust ecosystems play their role in ensuring effective implementation of government policies.
The market soon witnessed the rise of many public as well as private retail payment systems and digital wallets like GooglePay, BHIM, PhonePe, and PayTM to name a few, under robust supervision and regulation of the RBI.
Again, we see a complementarity between these payment apps. They are interoperable. If transacting individuals have two different apps, they can still make transactions as these apps are interoperable with other UPI applications. What one needs is just a QR code. Again, as successful development strategies should be inclusive and sustainable, it was witnessed that markets are undergoing innovation every day to ensure a maximum number of people can get the benefits.
Recently, Google Pay has enabled UPI activation using an Aadhar number without the use of a debit card. Such measures take financial inclusion one step ahead. The rise of UPI has made access to the remotest parts of the vast expanse of land much swifter, bringing down the bottlenecks faced in transactions and participation in the marketplace. UPI, UIDAI, and other digital schemes like e-NAM mandi have transformed the rural Indian economy and entrepreneurship.
India stack has helped in stabilizing rural economies and the informal sector. The journey of digital public goods began with Aadhar, which was subsequently complemented by a series of government welfare measures and private sector innovations for the benefits of the largest section of society.
Now, with the third layer of Data Empowerment & Protection Architecture (DEPA), the democratization of data with the prior consent of the users allows fintech firms to access high-quality data and ensure easy access to financial services like credit provision for the informal sector. Apart from UIDAI, UPI, and the rise of data access fiduciaries, India’s citizen centric technology space has seen the rise of many other inter linked platforms.
These include but are not limited to Government e-Market Place (GeM), digital infrastructure for knowledge sharing (DIKSHA), Digilocker and UMANG. Government e-Market place (GeM) is another feather to India stacks’ hat. By acting as an online platform for the procurement of goods and services by government organisations, GeM enhances transparency and speed of government procurement.
The model of India stack is not just a national public good, rather, it is meant to be a global public good. India recently signed a MoU4 with countries of the Global South, including Armenia, Sierra Leone, Suriname, and Antigua and Barbuda, to share its digital infrastructure.
As per Rajeev Chandrasekhar, Union Minister of State of Electronics and IT, India Stack 2.0 aims to develop a robust ecosystem of startups and developers for more highly sophisticated innovation. According to the Union Minister, India has acquired an outward-looking role with its digital public infrastructure, intending to help other countries to innovate and implement digital transformation as per their own needs.
As mentioned in an IMF report, various components of India stack are not unique as many countries have unique identity numbers and digital payment infrastructure. However, the backward and forward linkages established by India make it a comprehensive and inclusive economy.
The sheer size of digital public infrastructure developed by India in the span of less than two decades and the rampant increase in the number of people consuming this public good renders India Stack its uniqueness. The digital infrastructure’s architecture has not only revolutionised the financial inclusion ecosystem in India but has also acted as a harbinger of social change, ensuring social and economic inclusion of the last person standing.
The development and expansion of the massive public digital infrastructure, popularly called ‘India Stack’, is a classic example of such development strategies.
This India Stack could become a role model for the economies which are trying to catch-up with development and modernization where digitalization facilitates minimum leakages in the system for maximum welfare of citizens.
