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India’s Digital Transformation to Re-structurize and Revolutionise Nation’s Economic Landscape

Submitted by admin on March 28th, 2024

Larger firms and businesses with tangible assets have greater access to the credit market in India. On the other hand, small businesses find it difficult to access formula credit. India’s MSMEs (Micro, Small, and Medium

enterprise sectors) have a significant credit gap of $250-$300 billion. Even if this group finds a lender, the business loan terms and conditions are not favorable or fail to fulfill their needs.

Account Aggregator 

Account Aggregator is a new launch in India to revolutionize the credit architecture across the country, making it easier for individuals and businesses with asset-backed collaterals and limited assets to access credit from formal financial institutions.

To achieve this goal, DPI (Digital Public Infrastructure) has been established to forge a public-private partnership. DPIs are digital stepping stones characterized by interoperability with standards and specifications easily accessible by various organizations and institutions.

The India stack has three interconnected layers to assign everyone a digital identity while making digital transactions easy, mobile-first, and cost-free. These layers are the building blocks of AA architecture. Each layer creates a unique ecosystem the stack uses to develop an architecture projected to fertilize and foster India’s credit landscape.

First Layer: Identity Creation 

Until 2010, the majority of the Indians had no form of reliable formal identification. It was a big obstacle for the public and private sector to provide essential services to Indian citizens, especially in the rural and remote zones. The Indian Government introduced a unique identification number, called the Aadhaar number, in 2010. This number is issued by UIDAI (Unique Identification Authority of India). With this, India turned a new leaf in its journey towards digital transformation.

Aadhaar is an easy, ubiquitous, and quick authentication that has replaced several Government IDs such as cover cards, ration cards, PAN cards, and passports.

Before Aadhaar, only 4 percent of people had any form of government-accepted formal authentication and only 25 percent of people had bank accounts.

Second Layer: Payments

In 2016, UPI, or Unified Payments Interface, an instant payment system, was introduced.  The NPCI (National Payments Corporation of India) is a not-for-profit organization, governed through a public-private partnership. It formed UPI as a consortium of the Government of India, the Reserve Bank of India, and public and private banks. In India, previous payment methods including Rupay, NACH, NEFT, VISA, RTGS, and Mastercard were mostly used by the well-to-do block of society, with the less privileged section unable to experience the benefits of the digital payment technologies.

UPI has addressed the problem by incorporating the benefits of all previous payment mechanisms and standardized payment systems. It utilizes IMPS (Immediate Payment Service) to provide a round-the-clock, channel-insensitive payment method that is easy to access via internet, smartphone, ATM, and USSD (Unstructured Supplementary Service Data) on basic phones featuring low-speed mobile internet access.

Third Layer: Data Governance

The Indian Government takes a comprehensive approach to securing sensitive data.

The GOI is planning to put all the control buttons in consumers’ hands, while allowing for data collection from multiple sources, to empower them. In this context, DEPA (Data Empowerment and Protection Architecture) plays an important role.

DEPA has three key points:

• A personal data protection bill
• An electronic consent artifact
• A newly regulated entity called account aggregator