In a working paper titled ‘Stacking up the Benefits lessons from India’s Digital Journey’, the International Monetary Fund (IMF) has said that India has developed a world class digital public infrastructure to support its sustainable development goals with its journey having lessons for other nations embarking on their own digital transformation.
The DPI (Digital Public Infrastructure) refers to a set of shared digital building blocks such as applications, systems and platforms powered by interoperable open standards and specifications.
India Stack is the collective name of a set of commonly used DPIs in India. It consists of three layers-unique identity (Aadhar), complementary payment systems (UPI, Aadhar Payments Bridge, Aadhar Enabled Payment services) and data exchange (Digilocker and Account Aggregator).
“Together, they enable online, paperless, cashless and privacy respecting digital access to a variety of public and private services. The benefit of this investments is felt across the country and served India well in the pandemic”, the paper said.
The India Stack has been used as a platform to foster innovation and competition, expanding markets, close gaps in financial inclusion, boost revenue government collection and improve public efficiency.
The IMF continued by stating that using this digital infrastructure, India was able to quickly provide support to an impressive share of poor households during the Covid-19 Pandemic.
The Indian Government also played a catalytic role, acting as an anchor client and establishing institutions to ensure continuity in India’s Stack operations.
The Working Paper further revealed that using a digital backbone, allowed India to scale its vaccine delivery quickly and overcome challenges such as large scale internal migration.
In addition, the paper lauded the Pradhan Mantri Jan Dhan Yojana (PMDY) which was launched by Narendra
Modi government and said sound policies led to a competitive, open and affordable telecommunications market and lowering of cost of mobile data by 90 percent lead to a jump in data usage.
Further, the IMF through the working paper said that demonetisation led to a greater use of other forms of payment such as the UPI (Unified Payment Interface).
The digital payments are now ubiquitous and UPI accounts for 68 percent of all payment transactions by volume.
The Aadhar helped facilitate the transfer of social safety net payments directly from the government treasury accounts to the beneficiaries’ bank accounts helping to reduce leakages curb corruption and provide a tool to effectively reach households to increase coverage it said.
The use of digital payments has expanded the customer base of small merchants documenting their cash flow and improving access to finance. Roughly, 4.5 million individuals and companies have benefited from easier access to financial services through Account Aggravator since it was launched in August 2021 and its adoption is increasing rapidly, the paper said.
Digitalisation has also supported formalisation of the economy, with around 8.8 million new taxpayers registered for the GST between July 2017 and March 2022, contributing to buoyant government revenues in recent years.
The Government position is streamlined. For example, citizens can access documents issued by the state and central governments through one platform. The India Stacks have digitised and simplified the Know Your Customer (KYC) procedures lowering costs of compliance from $12 to six cents.
The decrease in costs made lower income clients more attractive to service and generated profits to develop new products. India Stacks development is guided by a foundational building blocks approach across the ecosystem.
This process involves unbundling the components of the solutions to a set of problems and identifying a common core. For a large and diverse nation like India, the building blocks approach provides those closer to the problems with basic tools to create tailored solutions.”
In India, interoperability was supported through open standards, allowing anyone to utilise the functionality provided by India Stack. These principles are applied to other DPIs in education and health, including the Covid-19 vaccine and distribution platform (CoWIN).
By using the DPI to provide social benefits, the government encouraged to take up by individuals and gave service providers the comfort of access to a large client base. The government also encouraged the use of technologies as utilities and created a category of not for profit companies with a public purpose.
The National Payments Corporations of India, an initiative between the RBI (Reserve Bank Of India) and the Indian Banks Association which unites and operates retail payments and settlement system is example of such company.
“This is one strategy to strike a balance between the curbing monopoly rents and providing the services effectively and efficiently, without the various human resources and procurement challenges that often plaque the large government projects.
The tax administrative also played a pioneering role in rolling out a Tax ID (PAN) and using an innovative PPP (Public Private Partnership) from where important lessons were drawn to develop Aadhar.
The IMF Paper further explained in 2014, there was a push by the government to provide access to a no-frills, a low cost bank account that doubled the coverage of individuals with bank accounts. This scheme has identified and targeted the financial underserved section-(especially rural women).
In late 2016, India enacted a demonetisation policy where large number of currency notes were invalidated. The in-house development of Aadhar supported by the system integration firms was feasible in India as due to high level capacity in IT within its domestic labour market.
This allowed the India to avoid vendor lock in and lack of interoperability and created a need for sufficient resources and capacity to continue building and developing the infrastructure.
These type of resources and knowledge sharing initiatives mean that the government with the shallow IT capacity to implement the DPI.
To access the full functionality of the India Stack, the individuals need to have access to a smartphone and a bank account. For other countries with low adoption of smartphones and lack of access to banks, payments systems based on mobile money that can be used on a feature phone are the dominant form of digital payment,” the paper said.
It said to maximize India Stack’s potential there are challenges to be addressed.
“Despite significant progress, digital literacy remains low in India, and represents a barrier to engaging with DPI-based solutions. The digital divide appears along familiar geographic, gender and income lines.
A mere 14.9 per cent of rural households have internet access, compared to 42 per cent among urban households.
Women are more likely to be digitally illiterate, particularly among low-income groups. The authorities are working to address this issue through various training initiatives as well as public access outlets, where users are supported to access government services.”
The IMF paper said DPI can also help support efforts to make social assistance more resilient and adaptable.
“For an example, the Aadhaar can be used to exchange data between various schemes across states.
Finally, leveraging the DPI, India could improve significantly the timelines, quality, and coverage of the general government fiscal reports, enhancing at the same time fiscal transparency for its citizens, a key issue to improve public sector accountability,” the paper said.
The IMF Senior Resident Representative to India, Luis.S. Breuer said in a tweet that India’s digital public infrastructure is transforming people’s lives.
