India’s Move Towards A Digital First Economy

Digital economy

Digital economy refers to an economy that is based on digital computing technologies. The digital economy is also sometimes called the Internet Economy, the New Economy, or Web Economy. Increasingly, the “digital economy” is intertwined with the traditional economy making a clear delineation harder.

According to Thomas Mesenbourg (2001), three main components of the ‘Digital Economy’ concept can be identified

  • e-business infrastructure (hardware, software, telecoms, networks, human capital, etc.),
  • e-business (how business is conducted, any process that an organization conducts over computer-mediated networks),
  • e-commerce (transfer of goods, for example when a book is sold online)

Digital economic activity results from billions of online connections among people, businesses, devices, data, and processes. The backbone of the digital economy is thus hyper-connectivity which creates interconnectedness of people, organisations, and machines that based on the Internet, mobile technology and the Internet of Things.

The internet of things, which is known as the infrastructure of the information society connects physical devices, smart devices, buildings, and other items embedded with electronics, software, sensors etc. to engage in the exchange of data.

India has opted for a digital pathway to move at an unprecedented rate into the future

For India, the digital channel in most of the cases remains the only channel of access and nothing brings it out more powerfully than the Jan Dhan, Aadhaar, Mobile (JAM) trinity. This, because mobile phone for an average Indian is not just merely a voice device, it is a gateway to many services including banking.

Initial stage of India Toward Digital-First Economy

  • On November 8, 2016, the government decided to remove 86% of the country’s currency notes by value from circulation. Over the months that followed, more than 1 billion people participated in a “reboot” of the country’s financial and monetary system.
  • Demonetization isn’t the only high-profile economic act India’s government has undertaken recently. It has also implemented what was arguably the largest-scale tax reform ever implemented at a single time
  • The  second stage was replacement of a complex web of 17 different taxes with a single Goods and Services Tax (GST). In the first month after the introduction of the GST, over 1 million businesses registered with the system.


Aadhaar: The Base of the India Stack

  • In broad terms, digital disruption by government has not kept pace with digital disruption in business. Of the systems that have broken the 1-billion-user mark, many originated in the U.S. and are private-sector efforts — Facebook and Google being among the prominent examples. An exception is Aadhaar, which means “foundation” or “base” in a number of Indian languages, including Hindi.
  • To state the fact directly: Aadhaar is both the only non-U.S. technical system globally to have broken the 1-billion-user threshold and the only such system to have been developed by the public sector. Due in part to its unique public-sector origins, Aadhaar has the distinction of having reached 1 billion users the fastest; the services built on Aadhaar, through the interoperability that defines the India Stack have, in turn, built their own record of scale and scope.

Using Technology to Go from Identity to Financial Inclusion

  • Among the first actions the Modi government undertook was to launch the Pradhan Mantri Jan–Dhan Yojana (PMJDY, or Jan Dhan) financial inclusion program on August 28, 2014. On the very first day that Jan Dhan was implemented, the government created 10 million bank accounts using existing Aadhaar IDs in a paperless manner, at a fraction of the minimum previous customer acquisition costs.
  • Having a biometrically-verifiable identity number and a bank account created the potential for adding another layer to the service stack: mobile payments.
  • In India this digital infrastructure is nicknamed the “JAM” trinity, referring to innovative interlinking of Jan Dhan (low-cost bank accounts), Aadhaar (identity), and mobile numbers.

The India Stack could now have four layers

  • an identity layer,
  • a documents layer,
  • a payments layer, and
  • a transactions layer.

In the last two years, the number of investment proposals for electronics manufacturing has gone up more than 9 times or about 938 per cent

 BHIM became one of fastest-downloaded financial payments applications in recent history. The Universal Payments Interface system is very inclusive, such that it serves both smartphone and non-smartphone users, so every Indian can access banking and make payments digitally.

The result

  • To begin with quantitative outcomes, the Indian economy is operating with about $45 billion less cash than if demonetization had not taken place. Banks have far greater liquidity, SME lending is at an all-time high, and digital transactions have multiplied 760 times over in some cases.
  • The implication of this policy change meant an opaque and irrational system that had developed over decades, and that varied across states, was replaced by a simple, transparent system applicable nationwide. For this reason, the slogan that the government of India adopted for the introduction of GST was “One nation, one tax.”

Building a Digitally Empowered Society

  • India is adding almost 110 million smartphone users every year, and is on the verge of launching Aadhaar-compliant devices with biometric authentication built into phones and tablets.
  • The power of the JAM trinity will come into full force when transactions are enabled using Aadhaar and biometric authentication, creating a system that is not only cashless but cardless. Already, a new entrant into telecommunications service in India has succeeded in using the India Stack to enroll 108 million consumers in 170 days with a totally paperless, mobile-centric manner — in the process achieving customer acquisition costs of less than $1 (USD) per customer, compared with the prior industry standard of $25.

The reality is that India is moving into the future at an unprecedented rate. And the path it is taking to get there is digital.

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