Nandan Nilekani, Non-Executive Chairman, Infosys and the chief architect of Aadhaar shares how India is going digital and transforming into a Post Paid Economy using Data at AIMA’s 62nd Foundation Day 2018. Excerpts –
Today I’ll speak about ‘Disrupting the Disruptor: Finding the next Big Idea’ and I’ll try to give you an idea of what’s happening in India in the world of digital technology, and why is it so special and so unique and why it has such a big impact on our business.
I will talk about three fundamental trends and I would put the facts and figures at your disposal on how India is becoming digital, which means it is becoming paperless and cashless; how is GST becoming business compliant and why is it so strategic for the economy, what’s the impact of that; and what is the role of data in India’s future because data is the most strategic asset of the 21st century. Today, huge battles are being fought all over the world for data. The big issue is the rise of the internet Giants who have huge amounts of data and on that data, they are able to apply AI and keep getting better. So fundamentally what is India’s strategy in terms of data to be a powerful country in the age of data and AI and machine learning?
So I’ll talk about three different things, first is how India is going digital, what’s important to understand is that India’s digital journey is happening at population scale which means it is touching a billion people. It’s not about a few people in one part of the country, but the entire country is becoming part of this Digital Revolution. Just to give you the numbers, 1.21 billion mobile connections, 1.19 billion people with Aadhar, 582 million unique bank accounts, 462 million internet users, 375 million people on social media. We are witnessing for the first time, technology at the population scale, a billion people are getting impacted by technology in some way. Jan Dhan Account, a program of the new government, has gone up 10 times in 3 years, from 30 million accounts to 300 million accounts. Around 582 million unique accounts, 850 million accounts have been seeded with Aadhar number. So there’s a dramatic expansion in the bank accounts and the use of Aadhaar authentication. In 2017, Aadhaar authentication did 10 billion transactions in one year, which is 5 times more than the number of card transactions we have at PoS machines. This is now the largest transaction processing system in the country with 10 billion transactions coming from all kinds of users. This is a huge jump in just one year.
Aadhar is being used to open a bank account or buy a sim card or mutual fund, last year the total number of transactions for KYC was 3.2 billion. There has been a dramatic expansion in the use of KYC as it also reduces the cost of acquiring a customer. Teledensity has gone up dramatically, over 1.19 million with a huge increase in speed. It could be the JIO effect. Indians became the world’s largest consumer of mobile data in the last one year. UPI did more transactions than credit cards in last 18 months. Credit cards took 18 years to reach a certain volume and UPI has reached the same volume in 18 months, that is the speed of disruption which is happening in India, and demonetisation played a big role in this. Before demonetisation the transaction volume of UPI was only 100,000 a month but after demonetisation and the government pushing for Digital transactions and launch of Bhim App. Last month in January, UPI did 152 million transactions. I expect that by December of 2018 UPI will be doing 1billion transactions a month, and India will truly be on the road to a cashless transaction.
This all is happening on the consumer side, the second thing is what’s happening on the business side and why GST is important? Not just creating a single market but the technology and data implications of GST are very important. Obviously, with GST there may have been challenges in operationalization, but the fact of the matter is for the first time 10 million businesses are on one single database which includes about 6 million B2B businesses and 4 million retail and composition scheme businesses. Means, a large company and the neighborhood hairdressing Salon who’s paying Service Tax are on the same platform. For the first time, we’ve unified the system to create one database of 10 million businesses, and this system has already collected $50 billion in taxes in 6 months. This is really a huge success, this system is based on a single tax and a fundamental principle that the buyer gets input tax credit on the tax paid by the supplier, and it’s all powered by an API based platform called the Goods and Service Tax network. The current government is looking to make it as simple as possible, that rather than making tax filing a separate activity, can tax filing be a byproduct of business activity? The idea is that as and when you create a sales invoice you upload it to the GST system, the buyer accepts, input tax credit is given, and you get tax benefits. Then you don’t even have to prepare the return, the system can generate the return based on the invoices that are there.
This is very important for the society as it will create rich digital footprints for businesses because the biggest challenge is how do we give small businesses access to credit. For the first time the data available with the GST system can be the basis for credit, because when you file a return with the GST, you’re filing at an invoice level, saying these are the invoices that I ship and these are the payments I made, and you can then ask the GST to give your own data which you can then give to your lender. In theory, all the 10 million businesses on GST will have deep digital footprints that they can use to get a loan from the banks or NBFCs. This is going to be a very big thing, the same thing is going to happen with other systems. So suddenly data is going to be used as a basis for credit and this is not data about assets, this is not collateral-based lending, this is data on business flows, this is a flow-based lending. So fundamentally, a small business with no assets can still use its flow to get credit because you democratize access to credit to small business on the basis of data.
Today India is a prepaid economy, 99% of mobile connections are prepaid. Prepaid is a great invention of a mobile industry where you pay in advance for using services because you don’t have a credit history. In the next 10 years, India will go from being a prepaid economy to a postpaid economy. Both consumers and businesses will get access to credit. Data will enable small business to get access to credit so they’ll grow faster, data will enable consumers to get credit because they’ll have a payment history. So both the buyer and the seller will get access to credit based on data, that’s going to be the source of growth. So we’re seeing a whole new era where data will be used for these things.
Indians are becoming data rich, it’s very important to understand how India is different from the west on data. When the west implemented technology, the individuals were economically rich before they were data rich. In other words the per capita income in the USA in the year 2000 maybe $40,000 and therefore the business models that emerged, the Facebooks and the Googles, used data to sell ads to you or to sell products to you, and that’s how they created this half a trillion dollar valuation companies. So the Business model that emerged was people using data to sell to you and making money from that. So your data was used to sell to you. But in India, Indian consumers and Indian businesses will be data rich before they are economically rich. If your per capita income is $1500 to $2,000 per head, the data that you as an individual will have will be same as an American because you are using the same smartphone and same digital payments. So the data is the same but your per capita income is 120th of theirs. The Indian consumers and Indian businesses will be data rich before they are economically rich. Therefore, the business model of the future is not using your data to sell to you but to use your data to improve your life, and lending is an example of that. I will use my digital footprints to get a loan, I will use my healthcare records to get better health care, I will use my degree certificates and skills to get better skills. So India will be the only country in the world where the data is becoming inverted and the benefit of the data will go not to the larger companies or the government but to the individuals and small businesses. This is unheard of anywhere else, which is why we have to visualize how this will be. This is going to create a huge amount of opportunities for Indian businesses.
This is all powered by Digital layers, identity with Aadhar, we now have a system of making everything paperless. Payments are going electronic, all the tax layer happens through GST, so B2B businesses will have electronic records. We have something called a ‘Consent Layer’ which allows an individual or a business to ask for his own data. For example, if I’m a small business, I can ask the GST system to give my invoice data which I can then share with the bank and get a loan. So all this is Digital Stack, its called the India stack and is at the heart of the disruption. India is the only country in the world which has a payment architecture which uses no credit card or debit cards, but everyone has access to it.
There are three categories of people in India, people who have smartphones, people who have feature phones, and people who have no phones. And we need to make sure that every one of them can participate in the economy. So, UPI for Smartphone can be used by anybody with a smartphone, WhatsApp and PayTM and phone Pay, are examples of smartphone applications. But that is used by only 250-300 million people who have smartphones. But what’s interesting, and this once again is a consequence of demonetisation, that now feature phones can also do payments, the same UPI payment you can do on a smartphone you can do the feature phone. So the 350 million people who have feature phones can also do UPI payments, and they can be inter-operable. I can be on a Smartphone and somebody else can be on a feature phone and we can make payments to each other. So that means 600 million people can make UPI payments, and then for the people who don’t have a phone they have Aadhar numbers, and with Aadhaar number they can do an e-KYC and open a bank account. And then using the Aadhar number and the bank account, they can go to any merchant who has Aadhar Pay, which is a mobile phone with a biometric reader, and they can either withdraw cash or make a payment.
So what you have is a stack which allows billions of people to participate in the payment industry. No other place in the world has such thing, and this again was a consequence of the Demonetization, when India had to build something very quickly. The government has been promoting Direct Benefit Transfer (DBT) now there are 314 government schemes that use DBT. 400 million Indians have received subsidies into their bank account. For the first time money is being spent electronically directly from the government into a person’s account. This is a revolution that is happening on the ground and 100,000 crores or more has gone into people’s account. DBT is used for various subsidies like LPG subsidy, scholarships, fertilizers. So over time, more and more products will be sold at market price and the difference will go to the bank account.
The next phase of DBT will be used by the state governments. There is a proposal that all state governments should give electricity subsidy as DBT. If the electricity goes as DBT, then the electricity board is no longer responsible for subsidies and they can operate on market principles. Government is unbundling the subsidy from the product. Electricity and water in the next 5-10 years will go to DBT. The entire economy will unbundle the subsidization of people from the product industry. And that will allow companies to compete on price and competition and value, and those who need to be subsidized will go the cash route. It is a very important structural change and it will impact business.
With the India stack, the cost of delivery has suddenly come down. Earlier, KYC for a mutual fund costed about 1000 rupees, now it costs only 5 or 10 rupees. Unless the investment was 3,00, 000 it was not worth getting a the Mutual Fund because the cost was so high, today if somebody with thousand rupees buys a mutual fund, a company can still make a profit, which means the market grows from 5 million households to 100 million households. That’s why, you will see the financialization of the economy as more and more people have access to the low-cost products, like bank accounts, loans, Mutual Funds, etc. There are already 80 flow based lending companies, that are trying to figure out how to take advantage of this. The mutual fund industry has added 83 billion dollars, just the SIPs is adding 1 million dollars a month from domestic mutual funds. This is possible because it has become so simple to get a new customer into the system. And of course, KYC being used by Vodafone and JIO is the dramatically accelerating the pace of this thing and there has been a 9X growth in mobile data. This means we will go through massive financialization, where people will have low-cost access to financial products, which will be a huge thing.
India will go from being data poor to data rich very quickly. Indians will use a massive amount of data for their own benefit. India has ‘Electronic Consent’ which means a consumer can ask a data producer to give his data to the lender. I can ask my Bank to give my bank statement to the lender, I can ask to give my GST record to the lender, I can ask income tax department to give my TDS returns to the lender, and my lender can construct a very rich digital image of my financial activity and then decide if I am worthy of a loan and all this is done in real time. Because that is how we will bring the economy back on track. When millions of small businesses using the data get access to credit, the economic revival will happen. And credit at scale is really going to unlock the Indian economy because you’ll have millions of borrowers, thousands of lenders, and this is already being done. Several companies Bajaj Finance, HDFC, and startups are already doing this. You are going to see very exciting times.
It is not just about credit, the same infrastructure can be used for health. The bigger challenge is to create an interoperable system of health records. The US spends trillions of dollars on Healthcare and is not able to solve this but we have a chance to solve it because today you get your Lab reports, you have a hospital record, you have all kinds of things on different papers. Tomorrow, using this infrastructure of Consent you can get all these aggregated and combined into a single health record. So I will get my Lab reports electronically from two labs and give it to my doctor for a special consultation. This ability to create electronic health records is possible with the infrastructure that we have in India. So the impact of this will not be just on credit, but also on Healthcare and many other spaces. The key to this is consented data sharing, and that’s why the term used is Data Democracy.
The Indian strategy on data is about how to use data to empower people and small businesses. How do small businesses and individuals who are data rich, but economically not so well off, can use the data to improve. It’s not about a few companies accumulating data to sell to you, it’s about how millions of companies and a billion people can use their data to improve their life. And this will happen in lending, healthcare, financial products and education.
On this massive data, we will use machine learning, deep learning, and AI to provide very accurate services to everyone based on the unique needs. This will show the world how to create change. And it is non-linear, suddenly something will change. We saw that with the UPI, it had just hundred thousand transactions in October of 2016 before November 8 and then by January it was 152 million transactions a month and by December 2018 it will be 1 billion transactions per month, suddenly everything will be paperless. The change will happen very quickly, and the price of services will drop, and data will be available for people to use to improve their lives or improve their business. This is the kind of change which will happen in financial services, health, television, et cetera, and therefore when you think about disruption for the next 10 years, we need to understand this unique infrastructure of digital innovation that India has and how it will be transformational in every business that we do.
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