Digital Inclusion for the 85%

2016 was a transformative year, marked by the e-commerce sector’s challenges following the Indian government’s Press Note 3. This led to innovative business models and growth in related industries like logistics and warehousing. The year also saw Aadhaar enrolment surpass 1 billion, laying the foundation for India’s digital transformation. The introduction of India Stack, particularly the Unified Payment Interface (UPI), revolutionized digital payments. However, the focus shifted towards including the larger, underserved population in the digital economy, highlighting the need for a balanced policy framework that respects privacy while leveraging data-driven decision-making.

This article was first published in The Mint. You can read the original at this link.

This column doesn’t really lend itself to retrospectives, but as we draw to the close of a tumultuous year, I feel one coming on. After all, as much as 2016 has been a year I’d rather see the back of, it has, in many ways, been transformative.

The big story this year was e-commerce. After an extended purple patch, the sector well and truly lost its sheen. When the government issued Press Note 3 towards the end of March, it immediately plunged the industry into chaos.

For the rest of the year, e-commerce companies scrambled to comply, concocting stranger and stranger business models—while their investors set about nervously re-calibrating valuations.

But even as the poster-boys of the digital economy came unstuck, the various symbiotic businesses that had developed in lockstep with the e-commerce juggernaut, hit their stride. This was the year that logistics, after-market support, warehousing and packaging enterprises successfully diversified operations to cater to the burgeoning demand for food, grocery and medicine delivery services as these niche businesses looked to improve the efficiency of their operations. As a result, this was the year that India finally experienced the full benefits of the on-demand service economy.

It is tempting to assume that these ecosystem businesses will power the next phase of India’s digital growth story. After all, their algorithm-mediated demand-supply calculations have delivered the sorts of innovative solutions to the e-commerce sector that traditional infrastructure has failed to provide. But despite all the hype, the impact that the e-commerce industry will actually have on India is marginal at best.

The fact of the matter is that the e-commerce entire industry only addresses a very thin creamy layer—the less than 200 million Indians who earn Rs30,000 or more a month and who can afford luxuries like smartphones. For the remaining 85% of the population, digital inclusion is just aspirational.

This is the narrative that changed during the course of the year and is the transformation I believe 2016 will be remembered for.

Sometime towards the beginning of this year, Aadhaar enrolment figures crossed 1 billion, making it the largest biometric database in the world—and the foundation for India’s digital transformation. We soon discovered that identity was just a small cog in a much larger flywheel.

Over the course of the year, various application programming interfaces (that would eventually become India Stack) were released, offering a broad range of Aadhaar-powered solutions. The most significant of these was UPI, the unified payment interface, through which anyone with a bank account (including the 300 million odd citizens whose bank accounts have already been linked to their Aadhaar numbers) could directly transfer money using a smart phone at costs far lower than any other form of electronic payment.

In many ways, UPI is a payment system unlike any other and was, at least in part, the reason why digital payments in India received such a massive push over this year.

India Stack is made up of various other elements that are just as useful.

Aadhaar-based authentication APIs already power subscriber enrolment in telecom companies, allowing them to deploy e-KYC (know your customer) solutions that rely on biometrics instead of documents to verify identity. It is estimated that this has reduced the cost from Rs1,500 per subscriber to just Rs10. The digi-locker API offers a repository for electronic records, allowing them to be securely accessed (and verified), by multiple service providers. Each of these services has the potential to be a building block for radical innovations that can, at scale, address the underserved 85%.

Take, for example, health records. We already know that outcomes can improve significantly if doctors are able to review the patient’s entire medical history. In reality, this is near impossible to achieve as the effort involved in collating records generated by multiple doctors, hospitals and laboratories over the lifetime of a patient is non-trivial.

Even where health records exist in an electronic form, they are usually stored in silos, incapable of interacting with each other. This is where an Aadhaar-based system that uses biometric authentication and digi-locker security could come into play and, at scale, be truly transformational. It isn’t hard to conceptualise similar applications in the context of financial inclusion and education.

There is no doubt that all these solutions will have serious implications on personal privacy and the access to personal data. We need to strike a balance between the benefits that data-driven decision making offer and the harm that it can cause. While I anticipate that, in the coming years, more and more businesses will use India Stack to target the 85%, I can only hope that the government is able to develop a policy framework appropriate for the sort of country-scale transformation that we are about to witness.