Bred as we are of a post-Marshall Plan world, many of us took some comfort in this year’s Budget announcement of a boost to government capital expenditure. We all know the theory around public infrastructure investments: For every rupee the government spends building a railway, the economy makes back many more in the pockets of construction workers, the fruit-sellers they buy from, the passengers who save by using the train, their spends in turn, etc. These multiplier effects are powerful motivators to justify the public expenditure of many lakh crores of rupees.
Yet, in the internet age that we are living in, there is another way to get to tempting multiplier effects that even John Maynard Keynes could not have foretold—and at a fraction of the cost. Just as we build physical infrastructure, India can also double down on building digital infrastructure.
Digital roads, bridges, and highways are cheaper to build and can be scaled up effortlessly for millions to use; half a page of well-crafted public code can create billions of dollars in market value and growth.
At this point, eyes roll. Sure, software is eating the world, but the public sector is hardly the glutton. Government websites are tiresomely buggy, and CAs get nightmares about IT and GST portal changes. The government is famously bad at catching up to digital, right? And even if the portals work, since when has a new department portal solved anything?
This is where it is key to differentiate the long line of new ‘Digital India’ project ribbons cut from the fraction that are functioning powerfully as true digital infrastructure and generating disproportionate market value. Well-crafted digital infrastructure doesn’t attempt to replace a private market failure completely with public-service provision (e.g, by introducing a government job-matching website no different than the existing private sites). Rather, true public digital infrastructure introduces an enabling intermediate service or capability that allows some final service (e.g. a digital MSME loan, health insurance, a virtual lesson, etc) to be more easily or affordably provided by the private players. Physical infrastructure builds roads, not cars. Similarly, true digital infrastructure helps solve the why-behind-the-why of market failures in service delivery to rejig unit economics for private providers. The elegance of this strategy is that unlike cumbersome physical infrastructure, digital highways behind new-age inclusive digital services are often light and minimal to introduce; the heavy lifting of their adoption and of service delivery is competitively privately managed.
India is startlingly good at this kind of digital infrastructure. Russian bankers are surprised to learn that we have a national eKYC platform that allows any bank or mobile operator to securely access basic identification data to open a new account if the individual chooses to share it; each bank still repeats its own fresh KYC there. Americans are impressed with UPI, an open digital protocol for payments that allows any tech company to offer a payments app, enabling real-time settlement across any bank account—in the US, they still rely on a dated variant of IMPS and the locked-in private network of Venmo for mobile payments with delayed settlements. The British are curious as to how we designed our own technology standards to underpin Open Banking, and actually got the biggest banks to embrace and implement the Account Aggregator (AA) data sharing capabilities. For India’s banks, it was a no-brainer: once RBI announced AA data-sharing standards, they hired tech teams to adopt these themselves, recognising that lack of seamless and secure access to data was the core bottleneck to growth of their micro, small, and medium enterprise (MSME) credit portfolio.
Naturally, building physical infrastructure will continue to be necessary for India. But in the post-Covid world, seamless, contact-less, and affordable digital access to healthcare, financial, employment, or B2B services will also be transformative for the economy’s productivity and efficiency. India has drafts for many more small but critical digital infrastructure building blocks in the pipeline that could create powerful multipliers in these private services. In contrast to bulky schemes, many of them would cost little or nothing to announce or implement: allowing PAN-based eKYC, enabling MSMEs to access and share their GST data via Account Aggregator to prove their income, digitally signing MSMEs Udhyam certificates rather than issuing a PDF, adding names and PANs of partners/directors to a GST certificate to enable verification; a digital process standard for credit (known as OCEN), a standard for health e-prescriptions and e-bills, extending the machine readable COWIN vaccination certificate format to proof of schooling and work experience, and so on. Many of these were announced in the Budget while work on others is quietly underway.
Unfortunately, the progress of digital infrastructure is obscured by red herring digital projects which cost thousands of crores of rupees yet produce negligible value. But with a few discerning policymakers identifying and accelerating the right kinds of digital infrastructure projects, India would be a lot closer to achieving its dream of becoming a $5-trillion economy and with a much lower taxpayer price-tag than Keynes could have predicted.
Pai is chairman, Aarin Capital, and Sharma is co-founder, iSPIRT Foundation.