Accelerating development with India’s digital highways

Now is an opportune time to see how we can take our population-scale shared infrastructure to go beyond its role of ‘identifying and authenticating’ to solve for contemporary challenges that are impeding the competitiveness and resilience of the Indian economy.

Authors: Rohit Kumar and Aishwarya Viswanathan
Published: March 31, 2023 in Hindustan Times

With growing consensus around its role as a driver of innovation and inclusion at population scale, Digital Public Infrastructure (DPI) has found its way into key priorities at the highest levels of policy making in India. The tech that has been developed under the DPI banner (Aadhaar; UPI etc.) has today become the bedrock of the digital economy.

The Finance Minister’s budget speech this year very clearly articulates the importance of digital public infrastructure in furthering development in India and for raising the country’s profile globally. DPIs are also a key agenda of the Indian G20 Presidency.

While the first phase of creating the core, foundational digital public infrastructure in India – DPI 1.0 – has been a big success, the current phase of building sectoral infrastructure – DPI 2.0 – requires careful thinking on governance architectures and models of financing to ensure sustainable and equitable outcomes for citizens.

Over the last decade, every one of us has watched India Stack, and its foundational ID and payment layers i.e. Aadhaar and UPI, transform the way we interact and transact. The Economic Survey 2023 notes that Aadhaar has authenticated more than 8,600 crore transactions so far, and UPI accounted for 52% of financial digital transactions in FY22 – clearly indicating how this DPI 1.0 movement that built the ‘horizontal’ or foundational layers has transformed life for the common man.

It’s now an opportune time to see how we can take our population-scale shared infrastructure to go beyond its role of ‘identifying and authenticating’ to solve for contemporary challenges that are impeding the competitiveness and resilience of the Indian economy. The ‘open’ tech nature of DPIs and their protocols-based approach has tremendous potential and here is where DPI 2.0 or the next generation of ‘sectoral’ DPIs come into the picture.

Take for instance, the market for credit that is riddled with costly and time-consuming lending practices. CIBIL estimates that only 8% of the 400 million people aged between 18-33 years have access to credit. In the MSME sector, a key driver of the Indian economy – the credit gap is about Rs. 20-25 lakh crore. To address this problem of finance in the Indian economy, the latest additions to India Stack – the Open Credit Enablement Network (OCEN) and the Account Aggregator (AA) framework that operate as its credit and consent layer respectively – can be promising interventions. By facilitating interactions between players in the credit value chain, OCEN and AA can together enable individuals and small businesses who may lack traditional collateral, to leverage their own digital financial footprint (in the form of tax receipts or sales invoices) to secure credit in an easy manner.

Similarly, in the e-commerce market, around 1.2 crore Kirana stores account for 80% of the retail sector in India, and 90% of them remain unorganised, or self-organised and digitally excluded. The Open Network for Digital Commerce (ONDC), currently in the early stages of rollout, can enable such retail players by shifting the model of the e-commerce market from a platform-centric one to a facilitator-driven, interoperable network – making it easier for smaller players to enter and be discovered.

In all these examples, the DPI 2.0 movement leverages the digital infrastructure set up in the DPI 1.0 phase, the now ubiquitous ID, payments and data exchange layers, to enhance service delivery experiences across sectors and boost consumer ‘choice’. While this is tremendously exciting, we still need to get the foundation right to ensure accountability and sustainability of development outcomes.

First, we need to ensure that mainstreaming of DPIs across sectors is accompanied by adequate protections for citizens and the increasing reliance on tech does not lead to greater exclusion. In this regard, laying out a comprehensive framework to secure the data rights of users through protections under the law becomes critical. Recent evidence also suggests that the rate of increase in internet penetration is in fact slowing (after the uptick we saw during the pandemic). Even in terms of device ownership, while 61% men had a mobile phone, only 31% women owned one at the end of 2021. Therefore, it is essential that physical and human touch points complement digital endpoints to ensure inclusion.

Second, we need to ensure accountability and grievance redressal. While this is true of all population scale systems, it becomes particularly important in the context of DPIs, whose inherent architecture enables a wide set of actors in the ecosystem to participate in service delivery, without their necessarily being a central authority to hold all actors responsible for the outcomes they drive.

Finally, it is important to ensure that the DPIs we develop have financing mechanisms that are both sustainable and resilient. Budgetary allocations need to account for not only the upfront costs of design and development, but also the ‘lifetime costs’ of operations and maintenance, as well as the ‘non-tech costs’ of building and sustaining robust governance and community engagement. Philanthropic and multilateral capital can indeed play an important role in catalysing new DPI, but self-financing mechanisms that include a nominal fee for service provision or creating a fund with contributions from both government and private actors may need to be considered as long-term solutions.

While it is good to see India being recognised as a pioneer of the DPI movement globally, the next couple of years are a great window of opportunity for India to leverage its tech prowess to build solutions across a range of sectors that place the ‘rights’ and ‘choices’ of citizens at the heart of its digital economy. If done well, not only will this preserve the momentum of such a path-breaking agenda, it will also cement India’s image as its custodian.

Rohit Kumar is founding partner and Aishwarya Viswanathan is Analyst at TQH consulting.