When I wrote about the Account Aggregator framework, my objective was to showcase its revolutionary potential and how we at Dezerv are integrating it into our services. This innovation was just the beginning. I then explored the Ayushman Bharat Digital Mission (ABDM), a transformative initiative in healthcare, followed by the Open Credit Enablement Network (OCEN), another groundbreaking development.
As I researched these digital marvels, I found myself diving deeper into the rabbit hole, uncovering a complex and interconnected web of innovations. These seemingly magical services that simplify our lives aren’t isolated achievements. They are part of a grander vision to transform India into a digital utopia—a nation that thinks digital-first. This vision is the essence of India’s Digital Public Infrastructure (DPI), which forms the backbone of our digital revolution.
Let me give you the scale of impact for some of these –
- 97% of our population is mapped to Aadhar – a whopping 1.3 billion people!
- 97% of all car owners are using FASTag – over 94.5 million FASTags as of June ’24. At an average of ~INR 5800 Cr/month, by the end of 2024, India is set to collect INR 70,000 crore in tolls digitally
- 100% of companies are mapped to the GST network – yielding a record INR 2.1 lakh crore of GST collection in April ’24
We are digitising at an incredible pace, and it’s fascinating to think that the day may not be far when we’ll be going to the hospital without a physical file, there will be no toll booths on highways, and entering the pharmacy without a paper prescription will be the norm.
India’s Digital Public Infrastructure (DPI) is truly a gift from India to the world, with endorsements from numerous countries and international organisations, including the International Monetary Fund (IMF) and the G20. Currently, around 30 countries are adopting India’s DPIs, such as UPI, Aadhaar, and Beckn, to boost social and financial inclusion.
So, where did it all begin?
Tackling a deep-seated challenge
It goes back to 2009, when only 17% of Indian adults had a bank account. This left hundreds of millions of people disconnected from the formal financial system, which meant significant losses in productivity, tax revenue, and socio-economic development.
More shockingly, until 2009, an astonishing 400 million Indians were estimated to lack any form of individual identity document or identifier.
These challenges led to the birth of DPI in India (or India Stack as it came to be known a few years later).
India Stack was conceptualised against this backdrop by ISPIRT (Indian Software Products Industry Round Table), a think tank for the Indian software products industry.
Now, let’s dive deeper into India’s DPI framework.
What is Digital Public Infrastructure (DPI)?
- DPI functions like roads, forming a digital network that connects people and enables access to a wide range of services.
- These services play a critical role in fostering economic opportunities across sectors such as finance, health, and agriculture.
- Digital ID, payments, and data exchange within DPI form a cohesive network that supports economic opportunities and secure delivery of social services.
India’s approach to DPI
India’s approach to DPI is based on 3 facets –
- Open-source – open for anyone to use and build upon
- Interoperable – compatible with different platforms
- Scalable technology that is also transparent, accountable, and manages governance.
It was realised that a completely government-built digital infrastructure would mean that a single entity governs everything. Moreover, innovation would slow down significantly if left to a single entity and governance would become siloed among different ministries managing different aspects.
On the other hand, a fully private development would lay the control of data and privacy in the hands of private players, which would mean a very capitalistic approach.
Therefore, a unique marriage between both was conceptualised, which included the best of both worlds.
How does the India Stack function?
India’s DPI is built in three layers ‘stacked’ atop one another, with each layer addressing specific challenges. The unison of these three layers forms the DPI umbrella for India, a.k.a. the India Stack.
Here’s how each layer addresses a specific challenge and unites with the others to create a larger digital ecosystem for the benefit of the nation’s citizens:
Layer 1 – Identity layer – Aadhar
- Inclusive and scalable enrollment: Aadhaar makes identity accessible with minimal documentation.
- Sustainable and trusted digital identity: Aadhaar’s open architecture lowers costs and ensures scalability. It facilitates trusted transactions and maintains privacy by not collecting purpose-specific data.
Layer 2 – Payments layer – Unified Payments Interface (UPI)
- Low credit card penetration and need for UPI: Although credit cards had been around for over 40 years at the time, India had only 20 million credit cards and 2 million digital payment points by 2015, which was obviously disproportionate to the vast population.
The National Payments Corporation of India (NPCI) identified the need for a low-cost, high-volume digital payments system, leading to the creation of the Unified Payments Interface (UPI) in 2016. - Inclusion and flexibility through UPI: UPI’s open architecture and flexibility to create customised payment apps support diverse user needs, including those without smartphones.
UPI also adds flexibility by allowing open-source APIs (application programming interfaces) managed by various government agencies. This enables developers to create software that offers customised products to users.
Layer 3 – Connecting both layers – Data Empowerment Layer (DEPA)
- Harnessing data in the digital economy: Building on Aadhaar’s role in financial inclusion and UPI’s facilitation of digital transactions, DEPA allows the harnessing of data trails users leave behind as they continue transacting in the digital economy.
- Consented data flow with Account Aggregators (AA): In 2021, SEBI introduced a new class of financial intermediaries tasked with overseeing the transfer of user data. AAs act as ‘consent managers’, facilitating data exchanges between entities only with explicit user consent.
Analysing the impact of DPIs on the Indian economy
DPIs can be broadly categorised into 2 major buckets:
- Mature DPIs – those that have achieved widespread adoption and made a substantial economic impact
- Budding DPIs – those that show promising concepts and are ready for broader adoption.
Arthur D Little, a management consulting firm, has developed a ‘Maturity Framework’ to assess the impact of DPIs on India’s economy.
This framework incorporates the following factors to determine the impact of each DPI:
- Recency – Number of years since launch
- Indirect benefits – financial and social inclusion, productivity, savings, etc
- Direct benefits – transaction volume and value
- Total addressable market (TAM) – the size of the population the DPI benefits
- Reach – the penetration of each DPI as a percentage of TAM
Some very interesting insights come to light –
- While FASTag and GSTN are mature DPIs, their TAM is among the lowest. This is because individuals far outnumber the number of cars in use and the number of companies operating.
- It is also worth noting that the government’s GST revenue through the GSTN increased 20% year over year between 2018 and 2023.
- Until August 2023, the Open Network for Decentralised Commerce (ONDC) has gained significant traction since its inception, onboarding 150k+ merchants, touching 40k+ orders per day and integrating big tech companies.
- The Ayushman Bharat Digital Mission (ABDM) has laid the groundwork for the digitisation of Indian healthcare, reaching over 28% of the population and already linking 293 million health records.
DPIs have had a lasting impact across various sectors
Future of DPI and opportunities for investment
According to the report India’s Digital Public Infrastructure by Nasscom and Arthur D Little, successfully adopting both ‘mature’ DPIs and ‘budding’ DPIs (those with a proof of concept ready for mass adoption) could help India achieve its goal of becoming a USD 1-trillion digital economy. Additionally, it states that the economic value added by DPI could increase to between 2.9% and 4.2% of GDP by 2030.
According to the report, the Ayushman Bharat Digital Mission (ABDM), which aims to support India’s digital health infrastructure, is expected to drive much of this value growth.
Moreover, the Open Network for Digital Commerce (ONDC), an open e-commerce platform established by the Department for Promotion of Industry and Internal Trade, is anticipated to boost retail spending.
For affluent investors, DPI presents several investment opportunities. The technology and infrastructure sectors are poised for growth as the government continues to invest in and expand DPI. Companies providing digital solutions, cybersecurity and fintech firms are well-placed to address the rising demand for digital infrastructure in the country.
Moreover, the rise of DPI has given birth to several innovative startups in the digital space. Venture capital and private equity firms are increasingly looking at these startups as lucrative investment opportunities.
In summary:
Reflecting on my two-decade journey of managing wealth for India’s wealthiest individuals and families, I see a profound transformation in how we manage wealth and interact with financial services today. The integration of DPI has not only made processes more efficient but has also opened up new avenues for growth and investment.
My experiences have reaffirmed my belief that embracing and investing in DPI is not just a strategic move but a necessity in the evolving economic landscape. By embracing digital innovation, we can unlock new opportunities and achieve greater financial success.
“Just as physical infrastructure is essential for economic growth, digital public infrastructure has emerged as a fundamental driver of social transformation and progress. If accessed in an inclusive way, it facilitates equal opportunities in every aspect of our lives. The trajectory of India exemplifies this,” said Dennis Francis, President of the 78th session of the UN General Assembly in April 2024.
Disclaimer:
The information contained herein is for educational purposes only and should not be interpreted as soliciting, advertising, or providing any advice.