How India using digital technology to project power
Analysis by The Economist

WORLD  06 June 2023 - 08:02

The Economist has published an article claiming that Prime Minister Narendra Modi sees his country’s digital public infrastructure as an Indian Belt and Road Initiative. Caliber.Az reprints the article.

Narendra Modi aspires to turn India—and by extension himself—into a vishwaguru, or “teacher to the world”. But what pedagogical gift, beyond its prime minister’s charisma and sage-like appearance, does a rapidly growing and ambitious India have for other countries?

Technological prowess is the Modi government’s clear answer. In a little over a decade India has built a collection of public-facing digital platforms that have transformed life for its citizens.

Once collectively known as the “India Stack”, they have been rebranded “digital public infrastructure” (dpi) as the number and ambition of the platforms have grown. It is this dpi that India hopes to export—and in the process build its economy and global influence. Think of it as India’s low-cost, software-based version of China’s infrastructure-led Belt and Road Initiative. “The benefits of digital transformation should not be confined to a small part of the human race,” Mr Modi declared at the g20 summit held in Indonesia last year.

dpi involves a triad of identity, payments and data management. It started with the appropriately named “Aadhaar”, or “foundation”, a biometric digital-identity system rolled out under the former Congress-led government in 2010, which now covers nearly all of India’s 1.4bn people. Next came the Unified Payments Interface (UPI), which makes digital payment as easy as sending a text or scanning a QR code.

From a standing start in 2016, the platform accounted for 73 per cent of all non-cash retail payments in India in the year to March. The third dpi pillar involves data management. Using their 12-digit Aadhaar number, Indians can get access to online documents whose authenticity is guaranteed by the government. This system, called “Digilocker”, is connected to tax documents, vaccine certificates, high-school mark sheets and more. To make payments, verify her identity and get access to crucial personal documents, an Indian can ditch her wallet and rely on her phone.

For the relatively affluent, such innovations are extremely convenient. For millions of others, they have been transformative. Vendors of everything from coconuts to jewellery now accept digital payment. This has made their working-lives easier, more profitable and less vulnerable to coercion and theft. The hundreds of millions in India’s welfare system receive “direct benefit transfers” straight to their Aadhaar-linked bank accounts, an arrangement that has slashed losses to corruption. The IMF reckons India saved a total of 2.23trn rupees, or 1.14 per cent of GDP, as a result of such transfers between 2013 and 2021. The system also helps rapidly disburse funds at times of emergency, such as during the pandemic.

Several other digital platforms have recently been launched or soon will be. The Open Network for Digital Commerce (ONDC) is a newish government-backed non-profit dedicated to helping e-commerce services work together. The idea is to provide a platform where India’s millions of small businesses can connect to third-party payments and logistics providers. Sahamati, an NGO, is setting up a platform to allow “account aggregators” to enable individuals to share their financial information in a standardised format with, for instance, lenders. It hopes this will mitigate the need for the forests-worth of documents that applying for a loan in India entails.

The digital ecosystem behind these developments is vast and complex. Its members include government agencies, regulators, tech firms, quasi-public corporations, foundations, NGOs and universities, all of which are building different elements of the digital edifice. Aadhaar is run by the government; UPI is managed by a public-private venture, the National Payments Corporation of India (NPCI). Other platforms, such as for health and sanitation management, are created by non-profits and sold to city, district and state governments. Many of these public technologies have been designed by it experts with private-sector experience.

India everywhere

India now wants to coax other developing countries to follow its lead. Beyond reaping mutual benefits, it views this as a means to cement its status as the leader of the developing world. Partly to that end, India invited 125 such countries to a “Voice of the Global South Summit” in Delhi last January. “I firmly believe that countries of the global south have a lot to learn from each other’s development,” Mr Modi told their representatives, offering dpi as an example.

The Indian sales pitch is attractive. Starting without the legacy systems of the 20th century, such as credit cards and desktop computers, developing countries can leapfrog the West. The digital prize, as India has demonstrated, is a means to accelerate connectedness, social-service provision, growth prospects and, ultimately, the building of a state and civic identity. Significant investment in digital infrastructure is required. But, as India’s example also suggests, it is liable to be cost-effective. It also need not require the massive splurge on 4g networks that India’s biggest private company, Mukesh Ambani’s Reliance Industries, has conducted.

India aims to make headway on its digital offer through its current year-long leadership of the g20. At the club’s meetings and working groups, delegates are attempting to hammer out a consensus on a definition of dpi. India is also trying to establish a multilateral funding body to implement dpi projects around the world. It hopes both endeavours will be included in a declaration issued at a g20 leaders’ summit in September, which will mark the end of its presidency.

India’s claims for its technology have been widely endorsed. “The key idea behind dpi is not digitalisation of specific public services,” reads a recent IMF paper. “But rather building minimal digital building blocks that can be used modularly…to enable society-wide transformation.” Central to that vision is the notion of private innovators and firms accessing and adding to the infrastructure, as they do in India. dpi is “infrastructure that can enable not just government transactions and welfare but also private innovation and competition,” says C.V. Madhukar of Co-Develop, a fund recently launched to help countries interested in building dpi pool resources.

An emerging cohort of Indian organisations is dedicated to exporting the technology. NPCI International, a subsidiary of the NPCI, was set up in 2020 to deploy India’s payments systems overseas and create links between the Indian system and foreign ones.

The International Institute of Information Technology, a university in Bangalore, launched the Modular Open Source Identity Platform (MOSIP) in 2018 to offer a publicly accessible version of Aadhaar-like technology to other countries. The Philippines was the first country to sign up to it; 76m of the country’s 110m-odd people have been issued with digital ids using MOSIP‘s technology, says its boss, S. Rajagopalan. Morocco conducted a trial of the technology in 2021 and has now made it available to 7m of its 36m people. Other countries using or piloting MOSIP include Burkina Faso, Ethiopia, Guinea, Madagascar, Sierra Leone, Sri Lanka and Togo.

Such countries can customise whatever bits of dpi they want. Morocco, for example, had an existing database of fingerprints, which MOSIP’s platform, therefore, had to be integrated with. “We are not going to tell countries: ‘Here is a health system, here is a payment system.’ What we are trying to do is get them to build their own systems with building blocks which are interoperable,” says Mr Rajagopalan.

India is offering its technologies and platforms free of cost. Yet it stands to gain in manifold ways from propagating them. Indian companies can expect bumper development and maintenance contracts. And just as Europe’s influence on global technology has been boosted by its regulatory power, so India’s will grow if dozens of countries adopt Indian-made digital systems.

Some hope that influence might one day extend to an Indian alternative to the Western-run global financial plumbing, which includes the swift messaging system upon which thousands of banks rely for cross-border transfers and clearing systems in New York. America’s weaponisation of this system after Russia’s invasion of Ukraine last year, which included sanctioning most Russian banks, spooked governments from Brasília to Beijing. The exit of Western payment systems such as Visa and MasterCard from Russia was less extreme but also disruptive.

In the event of a future crisis, domestic payment systems based on UPI could be insulated; they would be harder for American sanctions to target. Cross-border linkages of such systems could potentially bypass America’s financial architecture. In February NPCI connected UPI with Singapore’s digital payments systems, PayNow. In April it did the same with the United Arab Emirates’ system. Indians should, in theory, now be able to use upi in shops and restaurants in Dubai. “India is self-sufficient on the domestic payments. We would like to be self-sufficient on cross-border payments and remittances as well,” says Dilip Asbe, npci’s boss.

That is a distant prospect. For now, the main benefit to India may be in terms of boosting its global prestige. “India usually wants something from outside. Now we have something others may want,” says an Indian participant in the g20 meetings. “That is quite powerful when it comes to foreign policy.” By promoting its technology as a means to transform the prospects of poor countries, India hopes to position itself as a neutral third force between what it sees as the transactional West and an authoritarian China.

There are risks to that. India’s reputation as a country full of software engineers is especially strong among developing countries. Bulelani Jili, a Harvard academic who studies technology in Africa, recalls a Kenyan official gushing about India’s institutes of technology. Yet dpi technology can be unreliable. Aadhaar has performed poorly in places with bad internet connections and many manual workers with worn finger pads. The system has also suffered multiple security breaches. Experts say it is trivially easy to access it with false credentials or spoof fingerprints. India’s technology offer to the world, says one analyst, includes a lot of “hot air”.

Such problems could lead India’s projection of digital power to backfire. Especially, some argue, because there is an underlying uncertainty in Africa and elsewhere about its intentions. “India has not done enough on the continent for people to have formed judgments,” says Mr Jili.

In that context, the Modi government’s continuing assault on pluralism and democratic institutions could be a turn-off. For that matter, dpi’s success in India is not without controversy. The government does not allow UPI apps to charge a fee to either consumers or businesses, giving the system an edge over rivals such as Visa and MasterCard. Though Aadhaar was supposed to be optional, it has become hard to function in India without it. India’s technology exports could in such ways carry a taint of its vishwaguru’s growing authoritarianism.

Yet trust and state efficiency are relative qualities. India’s reputation, if imperfect, is much better in the global south than America’s or China’s. And its digital public offering, if sometimes glitchy, looks like a huge improvement on the largely analogue state systems operating in most African and other developing countries. India’s own digital progress is proof of that. It seems likely that many poor countries will want to emulate it, to their advantage—and India’s too.

Caliber.Az