eKYC is giving a big push to banking and financial services, e-learning addresses the big gaps in our education system, DigiLocker ends document-fraud to a large extent, and Aadhaar-based DBT makes consumers of the country’s poor ... the potential is truly huge
When India does 10 million eKYCs using the Aadhaar platform every month, you know something has changed. When digital payments on the phone using mobile wallets primarily rise to, in roughly just the last year, 15% of those made by debit and credit cards—in terms of volume, it is more that 60%—you know something has changed. When just under 13 million government documents—like Aadhaar and PAN cards, Class X marksheets and driving licences—were uploaded into the DigiLockers of citizens last month, it is clear something has changed.
Any conversation on whether GDP growth will pick up, not surprisingly, gets stuck on the low, and falling, levels of investment and savings. With investments at 27% of GDP, clearly India cannot grow beyond a point, even an 8% growth rate looks like a stretch. The fact that investment levels were around 33% (and that’s with the older method of calculating GDP) in the high-growth years of 2008 and 2009 makes this obvious. And when you look at stressed corporate and bank balance sheets, it makes it clear the ability to grow investment is restricted, though it is true the insolvency laws are beginning to work. In the meanwhile, the government is hiking its investment levels, but that is no substitute for private investment—if overall investment in FY13-17 rose just 56% over FY07-12 versus the target of 2.3 times, it was because private investment grew just 45% versus the target of 3.1 times.
Yet, at the same time, there are big changes taking place that can, theoretically, boost India’s productivity levels so that the same levels of investment can deliver more growth. It is not clear how fast this productivity boost will kick in, and whether this can supplant the need for greater reforms which result in more investment, but more productivity is critical to increased growth. Apart from the higher investment levels, increased productivity due to the telecom revolution of the early 2000s was an imprtant reason for the boost in growth in later years.
eKYC, or electronic Know-Your-Customer verification, is a good example of this. Every time an Airtel, or a Vodafone or an RJio, acquires a new customer, it needs to do a KYC. Done in the traditional way, this could take a few days. But with the Aadhaar-based eKYC, you are talking of a few minutes, using a small fingerprint scanner that talks to the Aadhaar database via a mobile connection.
Now imagine what happens in the case of a mutual fund seller. In the traditional KYC model, the mutual fund company needs to have a representative/office to get physical signatures; the cost of the office/representative then decides just how fast the fund can grow and what size of customers it finds attractive. Substitute this with eKYC, where the signature is replaced by an OTP over the phone—linked to your Aadhaar number—and the banking and finance business is ready for its next big leap.
And while firms paid a lot of money to get digital signatures, via a dongle which authorised representatives kept with them all the time, this can now be replaced with an Aadhaar-based digital signature that costs just `2 per signature.
When, thanks to Aadhaar and the eco-system that has got built around it—loosely called the India Stack—the phone is no longer just the instrument for talking, digs such as India having more mobile phones than toilets, though still true, lose their sting.
And while it is true the data revolution unleashed by RJio is really about giving subscribers the ability to watch video—mostly movies and television shows—at high speeds and at dirt-cheap rates, think of the potential this has to revolutionise India’s education sector since video-based learning, and interactive classrooms, are bandwidth guzzlers. KPMG and Google estimate the online education market can rise from around $250 million right now to nearly $2 billion by 2021 and, of this, higher education will rise from $33 million to $184 million and reskilling/certification from $93 million to $463 million. Classroom learning is great, but Coursera gives you the best of global universities. With this, despite all the talk of India’s education system being one of poor quality and inadequate in terms of number of schools/colleges, India can hope to have an adequately educated/skilled workforce, ready to mee the needs of modern maunfacturing/services.
And, as telemedicine takes off, and millions of Indians are able to take care of their health needs, a healthier population will be a more productive one.
Millions of merchants baulk at the thought of paying debit/credit card companies commissions as high as 1%, more so when their margins aren’t more than 3-4%, but when an Aadhaar-based QR code can do the same at a fraction of the cost, things can look quite different. The fact that a Google has now got into the business and that a WhatsApp is looking to do the same tells you how India’s payments space is getting revolutionised.
And as merchants start accepting more digital payments and SMEs start selling on platforms like Amazon and Flipkart—and GST is accelerating this formalisation—they will generate reams of data on their cash flows. A growing tribe of fintech firms—and established banks are also looking at using the same techniques—are fine-tuning flow-based lending models. When SMEs and merchants get formal credit, just think of what this does for their bottomlines.
When a few hundred million Indians get government subsidies directly into their bank accounts, think of what that does to consumer markets, especially since this regular inflow also makes them good customers for bank loans. When a few hundred million farmers are covered by insurance, where payments are made instantaneously based on satellite/drone data coming 24×7 to insurance firms, think of what this does to rural well-being.
DigiLocker is, on the face of it, just a smaller Dropbox account owned by the government, but its impact can be quite far-reaching. Since, in this case, the government delivers digitally-signed certificates into your account—marksheets, land records, etc, over a period of time—there is much less of a chance of the documents being forged, making it that much easier for banks to give loans, employers to hire people and so on.
If India had more labour reforms, if tax rates were competitive, if doing business was genuinely easy, if all government permissions were easy to get, if interest rates were lower, if the rupee was stronger, if our infrastructure was better … it is the obvious the economy would then be in a much stronger position. But, with even the expected slow progress on those fronts, the impact of Digital India can be quite transformative.