The Indian Economy is all set to become the 3rd largest in the world by 2030, reveals a Morgan Stanley report. The report focuses on three key points which would be the driver for the Indian Economy in the next decade – 1) Offshoring, 2) Digital Differentiation and 3) Energy Transition. Though all points are equally important, we would inform you about Digital Differentiation.
The digital revolution has greatly transformed Indian society, be it documentation, investing or payment systems.
What Does the Morgan Stanley Report Say?
The Morgan Stanley report titled ‘Why this is India’s decade?’ says, “India is all set to become the world’s third-largest economy and stock market by the end of this decade”.
It says, “India has the conditions in place for an economic boom fueled by offshoring, investment in manufacturing, the energy transition, and the country’s advanced digital infrastructure”. It estimates that “these drivers will make it the world’s third-largest economy and stock market before the end of the decade”.
The digital infrastructure has been mentioned as a growth-driver unique to India. It particularly highlights ‘India Stack’, a public utility instrumental in the Indian model for economic digitalisation.
The official website of India Stack defines it as “the moniker for a set of open APIs and digital public goods that aim to unlock the economic primitives of identity, data, and payments at population scale.”
Nandan Nilekani, the co-founder of Infosys wrote in 2018 “The India Stack is, in essence, the combining of NPCI’s projects for digital payments and Aadhaar’s identity and authentication prowess via APIs”.
The Morgan Stanley report says that India Stack is a decentralised, low-cost public infrastructure with many use cases – some prominent ones include ONDC, OCEN and Aayushman Bharat.
IndiaStack has three layers: 1) the identity layer, backed by Aadhaar, 2) the payments layer, which allows paperless and cashless payments to anyone, anywhere (backed by bank accounts), and 3) the consent and data empowerment layer, focusing on securely sharing data.
The foundation of these three layers are application programming interfaces (APIs) created using public infrastructure and private innovation.
The report says that over the last six years, the digital payments ecosystem in the country has grown multifold, driven by the government’s commitment to encouraging digital inclusion to attract private participation in investment and innovation”.
India saw the fastest growth in digital inclusion over 2014-2017, second only to Indonesia due to schemes such as Digilocker,e-KYC, GSTN, etc.
The report predicts that by 2031, internet penetration will increase to 65%, online shopping penetration to 70%, and digital commerce penetration to 11-12%.
It talks about specific digitisation trends which have boosted the Digital India campaign.
Direct Benefit Transfer
In 2013, the Indian govt. undertook the Direct Benefit Transfer (DBT) scheme to re-engineer the dissemination of welfare benefits and services. It aimed to ensure a targeted delivery system while avoiding fraud and middlemen.
Total DBT transfers since FY14 stand at ₹25.7 trillion. In FY22, a total of ₹6.3 trillion were transferred as DBT with cash transfers accounting for ₹2.7 trillion and in-kind transfers totalling ₹3.6 trillion.
The report says that at 1.8 billion, the number of beneficiaries peaked for both cash and in-kind transfers for FY21.
“State-wise performance rankings depict Haryana as leading on overall DBT performance, followed by UP, while Assam and West Bengal are the two weakest states”, it said.
The Unified Payments Interface (UPI) was launched in 2016 to enable seamless financial transactions across banks around the clock.
The report describes the positive role UPI played during the Covid-19 pandemic. It states, “monthly transactions surged to an average of more than ₹3 trillion from Apr-Dec 2020 while they tracked below ₹2 trillion in 2019”.
The momentum of UPI transactions continued to accelerate even in 2022 and zoomed to an all-time high of ₹11.1 trillion in September 2022.
Morgan Stanley predicts, “We expect overall retail digital merchant payments to grow at a 35% CAGR over next five years, led by UPI – this would amount to 42% of GDP and 71% of consumption expenditure in India by FY27”.
Similar to Aadhaar and UPI, the govt. is working on initiatives using the building blocks of APIs already created under India Stack. It includes – 1) Open Network for Digital Commerce (ONDC), 2) Open Credit Enablement Network (OCEN) and 3) Ayushmaan Bharat Digital Mission (ABDM) for healthcare and insurance.
The Open Network for Digital Commerce or ONDC is based on a protocol built using ‘open-source methodology’ and open specifications.
Businesses/sellers can register with the open protocol, allowing them interoperability across platforms that choose to become compatible with the open network.
The report describes it as the first of its kind globally. It aims to help merchants with dynamic pricing, inventory management, and optimisation of delivery costs.
Open Credit Enablement Network or OCEN is an initiative by India Stack to ensure easy credit is accessible to MSMEs and small businesses through Loan Service Providers.
An LSP is any customer-facing digital platform that can source borrowers. The LSPs will have the OCEN APIs on their platform, enabling borrowers to receive credit seamlessly and within a short duration to meet their business requirements.
Lenders who will be onboarded on the LSP platform will get a new area/set of borrowers, while the LSPs will benefit from a new channel of business on their platform, which until now had high entry barriers.
The OCEN will be much more convenient than the traditional lending system.
Similar to previous population-scale initiatives like DBT, UPI and Fastag, OCEN will improve the speed and convenience of credit delivery.
The Ayushman Bharat platform will help to create a digital healthcare ecosystem — Ayushman Bharat Digital Mission.
It will bridge the gap amongst various stakeholders – hospitals, clinics, labs, pharmacies, and patients- by integrating technology and healthcare on a single platform.
There are three key registries of ABDM: 1) Health ID, 2) Health Professional Registry (HPR), and 3) Health Facility Registry (HFR) and digital infrastructure for data exchange.
As per the report, “it will be a game-changer and provide timely and hassle-free medical care to people all over India”.
According to Health experts, the biggest advantage to users would be that they would not have to repeat certain investigations since there would be a unified format and standards in the digital system.
The wider adoption of digital health IDs and the consequent buildup of health-related data would also result in increased health insurance delivery and coverage.
The Digital India mission has done wonders for the nation since its implementation. Unlike several other digital models in China, the US and Europe, which are revenue-based or regulation-oriented, the Indian digital model is people-centric, inclusive and democratic.