India has high digital ambitions despite considerable poverty, the digital divide, and continued high currency usage. Digitalisation has caused both excitement and fear in India – government and companies are excited about an increase in efficiency, closing the leakages, customer confidence, and satisfaction. The present study examines the role of digitalisation in the Indian economy, especially in creating a unique Digital ID (Aadhaar) and its impact on the economic, financial, and payment infrastructure. The study finds major innovations in cheque processing, real-time gross settlement, national electronic fund transfer, and other payment methods have considerably reduced the cost of banking facility in India. The Indian capital market has already witnessed electronic trading and settlement and has recently witnessed emergence of no-brokerage companies which can change the fundamental dynamics of the investment industry in India. The retail trade market, especially e-commerce, ride share market in India reflecting global trends, has also witnessed considerable “multi-homing.”
TopIntroduction
India has high digital ambitions despite the fact around 30 per cent of the population is below the poverty line (GOI, 2014). The Prime Minister of India, Mr. Narendra Modi remarked that “digital India is now a way of life”1.Unlike other countries in the world, the Indian government was an “early adopter” of digital technology for authentication, public service delivery, financial sector transactions, tax filing, etc. Developing countries like India spend billions of money for economic and social welfare programmes. India had no nationally accepted way to prove identity and hence the majority of the intended beneficiaries had to resort to bribery to access welfare programmes. Studies have shown the money, which was supposed to have gone to the poor are stolen by rent-seeking officials and the estimates show such leakages of funds are as high as 70 to 85 per cent (Niehaus and Sukhtankar, 2013; Muralidharan et al., 2016). In fact, there was a need to develop a strategy to enhance digital capacity, based on the idea of “highly digital” and “cash lite” society (RBI, 2018).
Digitalisation is, broadly speaking refers to the proliferation and integration of computers and associated technologies into various spheres of everyday life (Hagberg and Kjellberg, 2020). The existence and availability of the World Wide Web have made the internet infrastructure as a club good and has equalised opportunities for global citizens -the world has become “flat” (Friedman, 2006). Based on that the digital infrastructure which the Government of India (GOI) undertook was a program to give each resident an identity card called “Aadhaar” card, which has biometric, along with demographic, information about residents (Sharma, 2010). This is the major initiative which changed the “digital landscape” and “game changer” for e-governance in India as it facilitated the creation of an “authentication process” of beneficiaries and audit of government service delivery (Sarkar, 2014; Banerjee, 2016;Chaudhuri & König 2018). Aadhaar is a multisided digital platform which provides avenue for “multihoming” where public and private entities can use it for customer authentication with no cost to the user. The Economist magazine in its editorial on September 5, 2020 issue commented on India Digital ID record as follows:
Creating a digital ID system is hard and expensive. Yet India, a gigantic and largely poor country, had managed it. Its “Aadhaar” biometric system has created digital identities for 1.3 bn people..(p12).
Digitising is also pushed in India as a strategy of pushing an economy with less reliance on and as a strategy of bringing the formal economy into the foreground and reducing the role of the informal economy (Lahiri, 2020). The strategy adopted by GOI called JAM trinity - consisting of Jan Dhan Yojana a bank accounts for everyone (financial inclusion), a unique electronic Aadhaar identification, and mobile banking facilitated by the unified payment interface (UPI). The UPI is an instant real-time payment system developed by National Payments Corporation of India facilitating inter-bank transactions on mobile platforms. The volume of financial transactions done through the UPI jumped from 17.9 million in 2016-17 to 12,518.6 million in 2019-20.The use of beneficiary identification through Aadhaar ID, digital payments and mobile banking have made cash transfers simple and enhanced the “capacity of the state” to deliver government programmes directly and without much leakage. Claims by GOI is that Aadhaar authenticated “direct benefit transfer” (DBT) of government programmes has led to “targeted assistance”, considerable cost saving and efficient delivery of programmes. With COVID-19 pandemic, digital infrastructure and its technology have become the backbone of the economy. Covid-19 pandemic created health-risk for the population, but has also provided substantial opportunities for new ways of conducting shopping, business and government service delivery.
TopMain Focus Of The Chapter
This chapter critically examines India’s unique digitalisation record, especially the role of Aadhaar in developing multi-sided market and innovation in payment systems (like bank accounts, investment accounts, mobile banking, virtual banks etc.) and its impact on consumers, business, government and economy. The chapter is organised as follows: Section 2 provides an overview of the digital capacity building in India. Section 3 provides a review of the literature on Aadhaar multi-sided platform. Section 3 provides an analyisis of Aadhaar centred digital platform in India and the last section summarises the conclusions of the paper.