India’s Digital Public Infrastructure: a Success Story for the World?

Author

Senior Fellow - Asia, India

The deployment of India's public digital infrastructure, which has made it possible to provide a biometric identity, an interoperable digital payment interface and a framework for sharing data, including for the rural and isolated population, represents an economic and civic revolution from which Europeans have much to learn. How have public and private players interacted? What are the foundations for the success of this plan to develop a digital public good? What are its residual limitations? Analysis by Amaia Sánchez-Cacicedo.

India’s Digital Public Infrastructure (DPI) story has gained national and global prominence for its substantial achievements in a short time span. Not only has the rollout of the ‘India Stack’ successfully transformed its digital payments. It is estimated that by 2030 the economic value added from DPIs to India’s GDP could reach 2.9-4.2%, already at 0.9% in 2022. Part of its success is linked to its contribution to India’s economic growth: it raised India to the top of the digitalization index of revenue administrations among emergent market economies. The other part is linked to the society-wide transformation of India’s social service provision. It has expanded access to education [DIKSHA] and is currently being developed to provide digital health [ABDM] and agricultural [VISTAAR] services by allowing for digital and financial inclusion.

DPI has become an indigenous Digital Public Good (DPG) as it gained shape.

DPI has become an indigenous Digital Public Good (DPG) as it gained shape, which is crucial to understanding its purpose and impact. More importantly, it is a DPG that India is already exporting to the world, particularly across countries in the Global South. Europe could learn from the Indian example.

Unpacking the India Stack

Despite ongoing challenges linked to the digital divide, as well as the need for better data privacy, the benefits of DPI for the Indian state and its society at large are undeniable. So is its phenomenal scale in record time that has resulted in 96.8% of the Indian population having a digital ID, with a smartphone penetration of 73% and over three-quarters of India’s population over the age of 15 having access to an account at a financial institution or via mobile money.

India Stack’s development is guided by a building blocks approach, as well as on supporting innovation across the ecosystem with a blend of public and private actors involved. India’s digital economy is uniquely based on an open network`, in contrast to the closed payment system in China, for example, dominated by private fintech companies such as Alipay and WeChat Pay. It has been thanks to the "stacking" of programmes on top of each other that it has become the first country to develop all three foundational DPIs: digital identity, real-time fast payment and a platform to safely share personal data without compromising privacy. The Data Empowerment Protection Architecture (DEPA) has been crucial towards data protection; it would not have been possible without the other layers of India Stack built since 2009. Each DPI layer fills a clear need and generates considerable value across sectors. Considering India’s size and diversity, an open standards approach has allowed for tailored solutions with regards to interoperability and functionality.

As noted by Sanjay Anandram, Ambassador at Indian Software Products Industry Round Table (iSPIRT), the evolution of India’s DPI to become a DPG has been crucial to its success. The DPG nature of the India Stack is currently at the heart of Indians’ narrative around its success across government, the private sector and its actual beneficiaries. A DPG implies that it’s non-excludable, non-rivalrous and, by its digital nature, non-depletable. In this vein, the aim is for digital tools to be leveraged to create maximum welfare and ease of living for people, as noted by Vinayak Dalmia, Delhi-based entrepreneur in the critical and emerging technologies (CETs) sector, during an interview conducted by e-mail on November 14th. This conceptualization aligns with the G20 New Delhi Leaders’ Declaration that defines DPI as ‘a set of shared digital systems that are secure and interoperable, built on open technologies, to deliver equitable access to public and/or private services at a societal scale’. India’s DPI further adheres to principles of accountability, collaboration, open standards, transparency and interoperability to prevent vendor lock-in for consumers.

So, how did India’s DPI come to be? The first layer is based on creating a digital identity - target 16.9 of the UN SDGs for 2030 - for India’s vast population, two-thirds of which live in rural and often remote areas. The creation of Aadhaar - which means ‘foundation’ in Hindi - in 2009, a comprehensive biometric identity system, would become the stepping stone to something much grander. This digital card has been able to provide definitive proof of identity to over 1.3 billion Indians, including its large and remote rural population.

The creation of Aadhaar - which means ‘foundation’ in Hindi - in 2009, a comprehensive biometric identity system, would become the stepping stone to something much grander.

Each Aadhaar card includes the individual's name, gender, address, a 12-digit unique identification number, and a photograph - it is backed by biometric data, namely each person’s fingerprint and iris. There is no information contained about citizenship entitlements, which has become a stumbling block in other countries who have sought to implement a digital ID at national level. This was achieved at an extraordinarily low-cost taking into account the scale of India’s population, which was a precursory of its success. India continues to be a lower middle-income economy and the bulk of the beneficiaries of DPI services cannot afford high fees for non-cash payments.

Access to a verified legal identity has given access to a wide range of operations via Aadhaar-enabled payment bridges. This second layer has allowed for the rolling out of the government’s Pradhan Mantri Jan-Dhan Yojana (PMJDY) - National Mission for Financial Inclusion. The historical lack of a verifiable identification, low levels of financial literacy and inclusion, and the absence of historical financial data have historically hindered the provision of financial services to most of the population. Thanks to the Aadhaar e-KYC, the process to access financial services has been simplified and the cost has been lowered: this has ensured access to basic savings and deposit accounts, remittances, credit, insurance and a pension in an affordable manner. Telecom and utilities companies have been able to leverage their services through this channel as well.

Access to the Aadhaar Enabled Payment System (AePS) has further allowed individuals to receive direct payments from the government officials linked to subsidies or even salaries. This scheme was targeting the financially underserved, in particular women in rural areas. In 2011, before the full implementation of the India Stack, only 35% of India’s population above the age of 15 had a bank account; by 2021, this had risen to 77.5% according to the Global Findex Database. India’s demonetization policy launched by Modi’s government in November 2016 to fight tax avoidance by the use of cash further led to an exponential increase in the use of digital means of payment from 2017 onwards.

Secondly, once access to a bank account and a mobile phone has become much more ubiquitous, the next big step has been to build up the payment layer. The latter is based on a mobile payments platform, namely, the Unified Payments Interface (UPI): an instant real-time payments system that enables transfers between two bank accounts via a mobile platform, be it P2P (person-to-person) transactions or P2M (person-to-merchant) transactions. With time, UPI has become the major driving force in the overall growth of digital payment transactions in the countryaccounting for 70% of digital payment transactions in FY 2023-24, way ahead of credit or debit cards. Since its launch in 2016, it has further grown to become the world’s fifth largest payment network by volume, behind only Visa, Alipay, WeChat Pay, and MasterCard.

With time, UPI has become the major driving force in the overall growth of digital payment transactions in the country.

UPI depends on an umbrella organization known as the National Payments Corporation of India (NPCI). NPCI is a not-for-profit company that acts as a middleman for retail payments and settlement systems in India. It came about as an initiative of Reserve Bank of India (RBI) and Indian Banks’ Association (IBA) to create a robust Payment and Settlement Infrastructure in India.

Such ‘National Information Utilities’ (NIUs) institutions, responsible for the technology related aspects of digitalization projects designed by the government, have proven key for the rollout of DPI in India. In the case of NPCI, its server manages messages between 200 of India’s top banks that are connected to the UPI system. At the top are fintech companies that can hereby gain access to consumer and business bank accounts part of UPI. Interestingly, UPI and RuPay Cards (from ‘Rupees’ and ‘Payment’, the first global card payment of India) are now expanding internationally. UPI is fully functional and live in UAE, Bhutan, Oman and Singapore, while it is technically live and pilot tests have been completed for the use of Non-Resident Indians (NRIs) and Indian tourists in Nepal, Mauritius, France, and Sri Lanka; the aim is to deploy it commercially.

Thirdly, the additional implementation of a layer that allows personal information to flow through a consent-based data sharing system has been crucial. The recently launched United Nations (UN) Universal DPI Safeguards Framework includes ensuring data privacy by design and data protection during use as two of the key operational principles for DPI’s success. This means that account holders operating in the previous two layers can control the data trail they leave behind in the digital economy. This has become key to the success of DPI, particularly against the Digital Personal Data Protection (DPDP) Act passed in India’s parliament in August 2023, and currently being implemented.

India’s regulatory stance aims to prevent the weaponization of financial data - due to the risk of loss of agency and sovereignty - while fostering technological innovation. Yet this risk of weaponization of data sharing remains despite the 2023 DPDP Act. The caveat lies in that this second bill, in comparison to the 2019 one, has reduced the obligations for businesses, as well as the protections for consumers. While the regulatory structure is simpler, it gives the central government unguided discretionary powers for any lawful purpose, that is, cases of national security, anti-fraud and sharing of personal data for AI purposes. Reaching a balance between information sharing and existing privacy regulations via the country’s techno-legal framework is a challenge, as noted by Indrani Bagchi, a Delhi-based policy analyst during a 1.5 Track interaction with an Indian think tank, in October 2024 . Data protection too remains a challenge as ransomware attacks on the All India Institute of Medical Sciences (AIIMS) linked to the government’s ABDM show.

Replicable elsewhere? How?

One of India’s ambitions is to export its DPI to the world, particularly Global South countries but not only, via its Citizen Stack. The Modular Open Source Identity Platform (MOSIP), a non-profit initiative, hosted by the International Institute of Information Technology, Bangalore (IITB), is already adopted by twenty countries and has more than 121 million active users. Sharad Sharma and Samir Saran highlight three key conditions for India’s DPI to be successfully replicated abroad:

1) the establishment of independent DPI steward institutions that are responsive, as well as accountable to a broad range of stakeholders, rather than be controlled by a single entity or group;
2) India-led development of global standards through a multilateral dialogue that ensures that the needs of developing countries are met and that they do not fall prey to the Big Tech’s regulatory arbitrage;
3) the need to develop a sustainable financing model, one that is not only led by philanthropic funding. The lack of sustainable financial viability is considered a potential structural vulnerability by the UN DPI Safeguards Framework.

Till now, India has launched a Global Digital Public Infrastructure Repository (GDPIR), a virtual repository for the exchange of information and best practices from countries that have developed DPI at a scale, under the auspices of its G-20 presidency. Australia, France, Singapore and Oman have also voluntarily shared their DPI know-how through this same channel.

One of India’s ambitions is to export its DPI to the world, particularly Global South countries but not only, via its Citizen Stack.

In addition, Prime minister Modi announced the creation of a Social Impact Fund to accelerate DPI implementation across Global South countries during the virtual G20 Summit held in November 2023.

At the heart of India’s internationalization of its DPI know-how is NPCI International Payments Limited (NIPL) of India. The NPCI board identified the need to allocate resources towards creating an international acceptance network for NCPI’s UPI and RuPay products. NPCI has further successfully established partnerships with Discover Financial Services (DFS) in the U.S., Japan Credit Bureau (JCB) in Japan, Union Pay International (UPI) in China, Royal Monetary Authority (RMA) of Bhutan and Network for Electronic Transfers (NETS) in Singapore. Currently, NIPL offers technological assistance through licensing, consulting or infrastructure provision to build real-time payment systems or domestic card schemes across the world. India has further signed a number of Memoranda of Understanding (MoUs) to share its open-sourced DPI. A bilateral agreement was signed between India’s NIPL and the Ministry of Digital Transformation in Trinidad & Tobago in September 2024. Prior to that, India had already signed MoUs with Antigua, Armenia, Barbados, Colombia, Cuba, Kenya, Mauritius, Papua New Guinea, Suriname and Tanzania to support their digital transformation.

Conclusion

New Delhi’s India Stack provides a unique case of an indigenous, open-sourced, public-private-led and impactful digitalisation story with limited resources. The fact that India’s DPI is conceived domestically as a DPG combined with the mission to make it exportable to other countries needs to be given the necessary attention across the world, including by Europe. The European Union (EU) could well learn on how to scale up and export its digital public infrastructure goods or, at the bare minimum, attempt at triangulation with India via the EU Global Gateway. The potential is immense. The fact that the G20, the IMF and World Economic Forum members too seek to learn from India’s experience shows how digital know-how and digital tech transfer is not meant to be unidirectional against today’s shifting world order.

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June 2024

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