By Arvind Panagariya, Columbia University
While digital technology now touches most Indians, there is insufficient appreciation of how far India has come within a short period. Digital infrastructure has greatly reduced friction in transactions whether financial or otherwise. This infrastructure and what will be built on it in the near future promise significant productivity gains.
The best-known components of India’s digital infrastructure, of course, are what we now call the JAM trinity. It consists of the Jan Dhan bank accounts, Aadhaar biometric identity and mobile telephony. While these three components represent the front end, there is a lot more to our digital infrastructure.
Two additional important columns of this infrastructure are Public Finance Management System (PFMS) and Unified Payments Interface (UPI). PFMS is an end-to-end solution for processing, tracking, monitoring, accounting, reconciliation, and reporting of financial flows into and out of the central government.
It constitutes a unified platform for tracking releases of financial flows and their utilisation down to the last mile. Through the banking system, it connects the central government financial flows digitally to state governments, businesses and even households.
The UPI is a platform that allows real-time transfer of funds between two bank accounts whether located in the same or two different banks. Created by the National Payments Corporation of India, it is an entity promoted by the Reserve Bank of India. As of February 2019, 134 banks subscribed to it.
Therefore, it links nearly all bank accounts, whether held by the central and state governments, businesses or households. It has full interoperability among different user interfaces, meaning that the sender and recipient may have different apps on their mobiles and they may have accounts in different banks and yet they can transact directly with each other.
It was on the strength of this system that recently Prime Minister Narendra Modi could transfer Rs 2,000 each to bank accounts of 10 million farmers under PM-Kisan scheme with a few clicks of a mouse. Today, government transfers can be initiated from PFMS and can directly flow to bank accounts of state governments, vendors and individuals with no intervention whatsoever by banks.
Unlike credit cards such as Visa and MasterCard, UPI-based transactions have minuscule cost. As a result, in the longer run, they have the potential to largely replace credit cards. Already, private sector players are helping businesses and customers transact digitally on a vast scale using their own wallets as well as UPI-based transfers.
Digital wallet Paytm alone has 300 million registered users of which 80 million use the service actively. It also has seven million merchants as users. Entry of Jio in telecom market, which has knocked down the price of high-speed broadband to a few rupees per gigabyte, has turned India into one of the top consumers of data worldwide.
Goods and Services Tax Network (GSTN) has emerged as yet another major component of India’s digital infrastructure. Currently, it has 12 million registered taxpayers. Banks can use the information generated by it to evaluate businesses for loans. Recently launched online loan approval platform of public sector banks for small and medium enterprises illustrates the point.
Using information generated by GSTN and other data, the platform provides approval of loans in less than one hour. According to a recent report by Credit Suisse, in less than three months, the platform has emerged as the largest online lending platform. It has already approved loans worth Rs 300 billion.
Among other important publicly provided digital platforms in India are digital locker, which allows users to freely store and verify their documents and certificates; e-National Agricultural Market, which allows farmers to electronically auction their produce to the highest bidder; and Unified Mobile Application for New-age Governance or Umang, which packs 350 digitally available services provided by the central, state and local governments into a single application. Bharat Net has connected 1,24,315 gram panchayats with optical fibre cable to bring Wi-Fi to them. Wi-Fi has been installed in 41,139 of the panchayats.
Alongside this digital infrastructure, India has also seen digital entrepreneurship take off. According to CB Insights, a tech market intelligence platform, as of January 2019 India already had 13 unicorns, defined as start-ups with valuations of $1 billion or more. Another source places this number at double the level. This latter source also notes the existence of 31 soonicorns, enterprises that are in the race to become unicorns soon.
One weakness of digital startup ecosystem in India, however, has been that nearly all unicorns and soonicorns operate in the services sector. In digital technology products, India has come up with several low-cost innovations such as iBreastExam, which can detect breast cancer with great precision for just $1, and Sanket, which is a matchbox size electrocardiogram machine that sells for less than $100. But none of our digital technology product enterprises has been able to scale up commercially to achieve the status of a unicorn.
Notwithstanding this one area where a clear success has eluded us, we can take great satisfaction in the overall progress we have made in recent years in building digital infrastructure and entrepreneurship in a short span. The key to future growth in this space is to remain open to the flow of foreign technologies and capital.
(The writer is Professor of Economics at Columbia University. Views expressed above are his own)
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