Digital Dividend

ON AUGUST 28, 2014, 509 million Indians did not own a bank account. That was the day the Union government launched the Jan Dhan (no-frills bank accounts) Yojana. Nine years later, they do—trans­forming India from the most unbanked country to among the most banked in the world today.

Broadly, the staggering gains of financial inclusion accruing from the ongoing Jan Dhan programme as of August this year are as follows:

– 50.09 crore Jan Dhan accounts opened (as of August 9, 2023);
-55.6 per cent (27.82 crore) Jan Dhan account holders are women;
-66.7 per cent (33.45 crore) of Jan Dhan accounts are in rural and semi-urban areas.

According to a research paper published by the Bank for In­ternational Settlements (BIS), the bank of central banks head­quartered in Basel, Switzerland, this scale of financial inclusion will normally take a country 47 years to achieve. And this in turn would require per capita income to grow from $5,000 to $20,000.

How did India manage this incredible makeover in financial inclusion?

Is it an outcome of the reinvention of the public policy frame­work? Not really. This, despite the mission-mode efforts of the Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA). Yes, that was a necessary condition, but it required some­thing else to complement this effort.

This is the much-overlooked weapon, newly acquired, in the public policy arsenal, which when wielded effectively has proved to be transformative in the change that it ordained.

And this instrument is Aadhaar—the foundational identity owned by 1.3 billion Indians. Its legal ring-fencing and accelerated adoption since 2014 enabled banks to employ eKYC (or Know Your Customer electronically). Exactly why In­dia managed a record financial inclusion in the nine years since.

Aadhaar is also India’s first digital public good (DPG). A DPG is nothing but an open digital high­way which anyone can use. Every DPG solves for a specific function—like Aadhaar did for foun­dational identity. All these DPGs together have a moniker: Digital Public Infrastructure (DPI).

By banking half-a-billion people in just nine years, India provided very compelling proof of concept for the use of DPGs to leapfrog devel­opment. And this was no one-off achievement. Two years ago, India delivered two billion-plus Covid-19 jabs seamlessly employing another set of DPGs.

Not surprising then that the world sat up and took notice. According to a 2016 study by McKin­sey Global Institute, digitalisation in the finan­cial sector increases productivity and economic growth—adding a potential $3.6 trillion to the GDP of emerging economies.

On September 9, the summit meeting of the G20 group of countries in New Delhi unanimously voted to adopt the Indian DPI as the global template for employing DPGs to do public good at population scale.

This is a huge leg-up for India and the very game-changing idea of DPGs.

DATA DEMOCRACY

To its credit, NDA, ever since it took charge in 2014, boldly under­took an ideological pivot in the development strategy. It gradu­ally started to place greater emphasis on empowerment over en­titlement—the continuation of the rural employment guarantee scheme only confirms that instead of making a binary choice, NDA preferred both options, but with a greater preference for empowerment.

This ability to walk the talk on teaching people how to fish, instead of handing them fish, was made possible because of the DPG framework that Aadhaar spawned. Combined with a strate­gy universalising material basics like electricity, housing, cooking gas, and so on—for long considered a privilege—it has succeeded in achieving unprecedented socio-economic transformation.

Effectively, the DPG framework has enabled India to forge a ‘Data Democracy’ wherein a billion-plus people are taking ad­vantage of their digital footprint to make verifiable claims, and digitally access services, products and opportunities.

The brilliance of India’s DPG framework is that all these digital blocks are interoperable—unlike platform apps like Amazon and Facebook which restrict users to their domain. Think of them like the wooden building blocks for children. Similarly, these DPGs can be mixed and matched to solve for more functions. The list of DPGs include Unified Payments Interface (UPI) for pay­ments, CoWin for the vaccine, One Nation One Ration Card to enable beneficiaries access subsidised foodgrains anywhere in India, and so on.

The beauty of this unique digital econ­omy being forged by India is twofold: one, it is based on an open digital architecture. In other words, it provides a state-of-the-art digital highway that anyone, government or private sector, can use to create innova­tions either for mass or niche use. Second, it enables universal access by lowering the cost of onboarding, thereby building for in­clusion and scale, something so critical for India with a population size of 1.3 billion.

X FACTOR

The outcome of India monetising an individual’s identity and using it to democratise access to payments, health, social wel­fare, and most recently, Covid-19 jabs is proving to be a game-changer—including for women’s empowerment. As each of these gains feeds off each other, it triggers a reinforcing effect which only accelerates empowerment.

Take for example the Jan Dhan-plus initiative undertaken by the Women’s World Banking and the Bank of Baroda (BoB). It was launched initially as a pilot by BoB in cities, including its branches in Chennai, Mumbai, and Delhi in 2019. The initial success inspired BoB to expand the programme to its rural and peri-urban branches located in the Shahjahanpur region of Uttar Pradesh (UP). By March 2022, there was enough evidence to suggest that this programme could be scaled. Consequently, it was rolled out in the entire state of Uttarakhand and western UP after drafting two other banks, Indian Bank and the Union Bank of India.

According to the World Bank, the pilot has since grown into a programme and has reached over 12 million women customers as of April this year.

Significantly, the pilot programme showed that these customers reported over a 50 per cent increase in their average bank balances in less than six months of their being brought under the pilot programme. This improved financial status drew the attention of business correspondents cross-selling micro-insurance and pension schemes—the attention this received in the rest of the community led to a doubling of enrolment for the Jan Dhan-plus pilot.

By banking half-a-billion people in just nine years, India provided very compelling proof of concept for the use of DPGs to leapfrog development. And this was no one-off achievement

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Based on the initial success, the Women’s World Banking and BoB estimate that this could engage 100 million low-income women in savings activities, which in turn could result in the public sector banks (PSB) attracting approximately ₹25,000 crore ($3.1 billion) in bank deposits.

The government has leveraged this financial inclusion to weave a targeted safety net for those at the bottom of the pyramid. It did so by combining the Jan Dhan account, Aadhaar and mo­bile of an individual to create an ‘economic GPS’ to identify the beneficiary—JAM.

The gains from this have been staggering.

USING JAM

As a result, by the time the Covid pandemic struck, India had a faceless public delivery system—based on JAM— in place. Since social contact was frowned upon for most of the first two years of the pandemic, delivering public goods would have been a challenge without JAM. To put it differently, India, like several other coun­tries, would have been devastated.

JAM enabled massive Covid relief as cash transfers from the government in the first two years of the pandemic.

These direct benefit transfers (DBT) rose from ₹2.4 lakh crore to ₹3 lakh crore in 2020-21. It is one of the reasons India fared better compared to other countries in providing Covid relief.

A collateral gain from all of this is massive savings to the exchequer.

Cumulatively so far, DBT has saved the exchequer about ₹3 lakh crore—that is twice the size of the first Covid relief package and thrice the annual budget for the rural employment guarantee programme.

CRITICAL MASS

To be sure, it is not just India that has been creating DPGs. Other countries too have been experimenting with similar initiatives.

The big difference though is that India’s DPG framework is more versatile, transparent and can solve for population scale challenges—like inoculating one billion-plus Indians with two rounds of vaccines. Most importantly, it allows the private sector to innovate on these public digital rails—within the guardrails of regulation which is embedded.

Examples of other countries include Argentina, which launched Payments by Transfer (PCT) to promote open and universal digital payments; Bangladesh uses eKYC linked to ‘Parichay’, their national identity equivalent of Aadhaar, to make welfare payments to 30 million beneficiaries; the UAE has intro­duced a UAE Pass as its national identity; and you have Pix, an instant payment method in Brazil which allows customers to use a QR code to pay for the purchase of services or goods.

It is clear that an idea of India has won global appreciation. The endorsement by G20 means that it has got sanction for adop­tion in other countries, especially developing countries seeking to emulate India and leapfrog development.

About The Author

Anil Padmanabhan

Anil Padmanabhan is a Delhi-based journalist who writes on the intersection of politics and economics in his weekly column ‘Capital Calculus’

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