Introduction:
I have been following the Indian Government’s digital financial and social innovations initiatives for a long time and I am extremely proud to belong to a country which has successfully launched such large scale and low-cost disruptive technologies, never done before. But what motivated me to write this blog was a recent news in the newspaper which said that the marksheets and migration certificates for 10th and 12th standard 2023 batch were available on the Digilocker platform and provided a simple way to access those documents. It made me think of the amazing interoperability of ‘The India Stack’, a vision of our Hon. Prime Minister Shri Narendra Modi.
Disclaimer: It is worthy to note here that this blog is nowhere politically motivated and should be treated only as an educational piece.
This blog is an introduction to India Stack and is the first in the series which I will be writing with the same name. The aim of this blog is to break down the idea/thought behind this concept of India Stack not only for people from tech/fintech background but to a much larger audience so that we can appreciate the sheer scale and originality of the said disruptive technologies and keep an open mind to what the future holds for us as Indian citizens.
To appreciate the India Stack, it is important to revisit the Indian digital space just a few years back:
- Absence of a uniform, formal, national identification: Data says that till 2008, only one in 25 people in India had formal identification1. Moreover, even those who had some form of identification in the form of PAN card, Voter ID card or a state issued driving license etc., none of the documents could be categorized as national identification like the SSN in the US. There is enough evidence worldwide that identification is the key element in a country’s journey to financial inclusion. Similarly, for a country to provide last mile benefits in healthcare, education and other social welfare schemes, identification is crucial.
- Excessive paperwork: Despite the best efforts of Indian financial institutions in going digital, the documentary paper work that the organization, citizens, and the government had to maintain was humongous. Add to that, several layers of verifying each document. This created layers and made the system very complex to navigate.
- Low interoperability: We had digital systems prior to the launch of India Stack (not limited to financial systems), but given the low interoperability, systems did not talk to each other. So, the perceived benefit of going digital was minimized by traversing the manual processes.
- High cost of onboarding for financial organizations: A roadblock to financial inclusion was the high cost of customer acquisition and onboarding, particularly for banking and non-banking financial services. In person verification and huge paperwork for KYC and AML regulations made the whole KYC process extremely costly. This was equally true for big and small lending institutions.
Given the above landscape, a BIS 20191 Paper roughly estimated that it would have taken 47 years for India to achieve Financial Inclusion (i.e. 80% of adults with a bank account), if it took incremental steps rather than a leap forward.
What is India Stack?
Let us understand few key terms first:
India’s Open API Policy: An open API often referred to as a public API, is a publicly available Application Programming Interface (API) that provides programmers with programmatic access to a propriety software application. India adopted an open API policy to enable ease of integration and interoperability.
Open protocols: Open protocols means a set of publicly available standards that allow two or more entities of a given system to communicate with each other. Example is IP /TCP Protocol.
Digital public goods: These are Open source software, open data, open AI models, open standards and open content that adhere to privacy and other applicable laws and best practices, do no harm, and help attain the SDGs of a country.3
With the above understanding, the definition of India Stack is as under:
India Stack is the moniker for a set of Open APIs / Open Protocols and Digital Public Goods that aim to unlock the economic primitives of identity, data, and payments at population scale.2
To understand this term better, like any Technology Stack, India Stack is also a set of independent technologies which are interconnected and therefore can be termed as ‘Stacked’ upon each other for a common goal. The independent technologies can be equated to ‘Platforms’ although they are more than this as they are Open APIs which are freely available for use to Public and Private sectors.
The three pillars or rails of India Stack:
As explained above, these platforms can be grouped together into “Rails” as they serve as an infrastructure for other applications to run on top of1.
These rails are:
- Identity Rail: Where Aadhaar allows the authentication of identity on demand without the need for a physical presence, as well as e-KYC (verification), eSign (digital signature) and DigiLocker (online document depository).
- Payment Rail: Where the UPI is a single interoperable interface to bank accounts effectively granting everyone mobile access to the payment system and allowing financial transactions to take place instantly, on demand, and in fiat money inside the formal financial system.
- Data – Sharing Rail: Where data privacy is ensured and customer data facilitate financial transactions, while moving efficiently and securely based on customer consent.
Timeline/ Evolution:
Design Principles:
Although I did not find the design principles of India Stack explicitly mentioned, based on the literature and freely available White Papers that I came across, one can easily attribute the architecture to the below design principles:
A synergy of stakeholders:
Mr. Nandan Nilekani (Non-Executive Chairman Infosys, Ex. Chairman UIDAI) and Dr. Pramod Verma (CTO EkStep, Ex. Chief Architect of AADHAR) have said this in multiple forums that the India Stack is not owned and managed by one entity or body. It was possible because all the relevant stakeholders came together to make it happen. The diagram below shows this synergy among the stakeholders:
What have we achieved so far?
The achievements of India’s Digital Program are phenomenal and the below list does not do justice to it. I have listed few key achievements supported by data here. Given the diverse Indian demographics, and a low financial and social inclusion baseline, this feat is commendable, which is applauded equally by Indian and global Financial/Tech experts and world leaders.
- Aadhar based authentications crossed 71 Billion and e-KYC transactions cross 11.5 Billion:
In 2021-2022, the cumulative Aadhar card generation crossed 1.3 billion which is a great metric to assess a country’s progress towards identity and social inclusion of a population of 1.4 billion people.
Source: UIDAI Report 21-22
In the same year Aadhar based authentications crossed 71 Billion which clearly indicates the amount of paperwork and time saved while authenticating people manually.
Source: UIDAI Report 21-22
Similarly, the e-KYC transactions crossed 11.5 Billion indicating how well the India Stack rails are performing and how the financial eco-system is efficiently utilizing the Stack.
Source: UIDAI Report 21-22
2. Big leap towards Financial Inclusion:
The World Bank report shows the pattern of account ownership in Indian Population ages 25+. The graph shows how drastically the numbers have increased since 2014. As of 2021, 81% of Indian Population ages 25+ had bank accounts.
This is the result of targeted welfare schemes backed by a strong Digital Program.
Also, RBI introduced India’s Financial Inclusion index (FII). The index ranges between 0 and 100, with 0 meaning complete financial exclusion and 100 meaning complete financial inclusion. RBI tracks 97 indicators and divides them into three sub-indices – access, usage and equality – with weights of 35, 45, and 20, respectively.
In March 2021, the FII saw a huge jump from 43.4 to 53.9.
3. Indian digital economy got a big boost by UPI transactions:
In big and small Indian cities, it is a common sight that from vegetable vendors, to Pani Puri stalls, to cobblers and rikshaw drivers, having common QR codes for UPI based transactions. The elegance and scalability of this technology has made it so popular.
In May 2023, NPCI reported 9.41 billion transactions through UPI with Rs. 14.89 Lakh Crore transaction amount. This volume indicates reduced cash transactions. For consumers it means clean, accountable and hassle-free transactions.
4. Ensuring last mile benefit by DBT scheme:
India like many other developing nations had a huge gap between the rollout of a benefit scheme and that scheme actually reaching the last mile. One of the main reasons was off course an absence of a formal identification system which has been bridged by Aadhar. Another part of the problem was that the eligible population for that scheme had no bank accounts, hence the benefit had to go through several channels leaving hardly anything for the beneficiary. The Indian government tackled this problem under the Pradhan Mantri Jan Dhan Yojna scheme (PMJDY). As of August,’22, out of total 46.25 crore PMJDY accounts, 37.57 crore (81.2%) are operative.
PMJDY has brought the unbanked into the banking system, expanded the financial architecture of India and brought financial inclusion to almost every adult4.
To achieve targeted delivery of welfare schemes Government of India launched the Direct Benefit Transfer (DBT) through Aadhaar Payment Bridge (APB) and other channels. JAM (Jan-dhan, Aadhaar and Mobile) trinity combined with the power of DBT has brought the marginalized sections of the society into the formal financial system, which has revolutionized the path of transparent and accountable governance by empowering the people4.
5. Changing the Lending landscape:
Pre-COVID, only about 8% of the total MSMEs in the country had access to formal finance; the other 92% are likely taking loans at onerous terms from ad-hoc sources, and are regularly facing working capital shortages.5
To change the lending landscape the Government of India under the RBI launched Account Aggregator (AA) which went live in 2021 with 8 key banks of India. Although the AA has huge applications in the financial sector, for the lending space it aims to transform access to much-needed working capital credit for micro enterprises, particularly when bundled with OCEN (Open Credit Enablement Network) and DEPA (Data Empowerment and Protection Architecture) for lending.
Note: For the unversed, I will be creating detailed blogs on both OCEN and DEPA subsequently. For now, understand them as Open Standards and APIs for lending.
6. Winning the COVID battle with CoWin:
In 2020, the government of India launched one of the world’s largest vaccination programs to combat COVID-19. Although, we lost lives and received economic setback, we still could manage this black swan event much better than most of the developed countries. The Indian leadership and bureaucracy worked hand in hand with the Public and Private Health system of India to fight this pandemic. To expedite the vaccination program, COVID-19 Vaccine Intelligence Network (CoWIN) was launched in 2021.
India Stack being the basis of this platform, CoWIN displayed the high interoperability of the 3 rails which we discussed earlier. Registration, appointment scheduling, identity verification, vaccination, and certification was handled with this platform. CoWIN was launched in a short span of time because it used the already live digital public goods like Aadhar, Digi Locker etc.
Impact Enablers:
I could not find conclusive data to corelate the enabling factors to the above impact, but anecdotally we can attribute below three enablers to the digital program:
The TRAI report shows huge jump in internet subscribers from 2016 to 2023 (All figures in Millions).
A big factor for this jump was the launch of JIO in 2016. This is evident from the below two comparable charts in 2016 and 2023. As of March 2023, Reliance JIO market share was 52%.
Source: TRAI GOV March’17 and March’23 Subscription data
As a common man why should I care?
Many of you may already be using India Stack platforms, and may wonder why I need to know the thought behind it or the future of India Stack. In my opinion, this understanding will lead to:
Are there any concerns?
The wide applications of India Stack in the present and in the near future are surely not debatable. Nor is the usage or the last mile reach. We all have witnessed it. But, what is a concern are the media coverages on data leakage. As citizens, we may not know what the reality is but there have been speculations on the data security and data privacy. Like the AADHAR data breach or very recently the COWIN data breach. Although as a citizen this concerns me, but I am also hopeful that the government is taking cognizance of the matter and taking necessary steps.
The way forward:
By the end of this blog, you may have realized the huge potential of India Stack and the wide applications for us as citizens. Few of the developments to watch out for in near future are:
- Account Aggregator as it finds its application in Insurance, NBFC and Lending
- Open Network for Digital Commerce (ONDC)
- UHI in Health as UPI in Finance
- Digital Program as it extends to Education
- Potential to go global
And many more….
If you liked this piece, please share your comments and thoughts on what are the areas where you would like to see the applications of India Stack. Also, watch out for more such blogs on India Stack technologies.
Disclaimer: Views expressed here are my own and are not related in anyway to the company I work with.
References:
- BIS Papers- The design of digital financial infrastructure: lessons from India
- India Stack Website – https://indiastack.org/
- Wikipedia Definition – https://en.wikipedia.org/wiki/Digital_public_goods
- Press Information Bureau – https://www.pib.gov.in/
- DEPA- Book
- https://www.exemplars.health/emerging-topics/epidemic-preparedness-and-response/digital-health-tools/cowin-in-india
- India Stack: The Bedrock of a Digital India https://medium.com/wharton-fintech/the-bedrock-of-a-digital-india-3e96240b3718
- The Internet Country – How India created a digital blueprint for the economies of the future:
https://tigerfeathers.substack.com/p/the-internet-country