India's Digitisation Journey Holds Lessons For Other Countries: IMF
Digital public infrastructure is estimated to boost GDP growth by 1–1.4% by 2030 in low- and middle-income countries.
India's experience with building digital public infrastructure—anchored by the India Stack—highlights lessons for other countries embarking on a digitisation journey, according to a March working paper from the International Monetary Fund.
India Stack is the collective name for a set of application programming interfaces that enable payments via the Unified Payment Interface, Aadhaar-based identity verification and data sharing.
"In the case of Aadhaar, the unbundling as well as the minimal information collected (name, age, gender, address, biometrics) enabled its rollout at speed and scale," the working paper said.
In contrast, other countries have hit stumbling blocks with their digital ID rollout when these IDs convey an entitlement, such as citizenship, it said.
Perhaps the most powerful being the underlying principles guiding India Stack's development: a foundational building blocks approach and a focus on supporting the ecosystem. These principles drove design decisions such as: interoperability, fostering competition, and minimalist design.Stacking up the Benefits: Lessons from India’s Digital Journey, IMF Working Paper No. 2023/078
Building the digital public infrastructure on open standards and specifications—as was the case with the India Stack—not only increases interoperability but it can lower costs, foster competition, provide an opportunity to tailor solutions to the local context and enhance flexibility to adapt to changing needs, according to the paper.
"By using Aadhaar and Aadhaar-linked accounts to provide Direct Benefit Transfers, the government encouraged take up by individuals and gave service providers the comfort of access to a large client base," the paper said, referring to how the government's role as an anchor client also made the success of India Stack possible.
A vibrant startup ecosystem and broader private sector has also been a key factor to India's growth in the use of digital public infrastructure. The high adoption of UPI is in large part due to the investments made by payment apps like PhonePe, Google Pay and PayTM, it said.
"The experience of other countries demonstrate that each layer of India Stack is useful by itself and that there is no correct sequencing; the lack of a national digital ID does not stop the development of a payments layer," the working paper said.
India has managed to scale its digital public infrastructure, but in other countries, which have a low adoption of smartphones and lack of access to banks, payments systems based on mobile money that can be used on a feature phone are the dominant form of digital payment, it said.
Key Challenges
Although the India Stack is transformational for India, a few challenges need to be resolved to further maximise its potential, according to the paper.
These include:
Bolstering digital literacy, the lack of which represents a barrier to engaging with digital public infrastructure-based solutions.
A robust data protection framework to safeguard user information.
Adoption of a specific digital public infrastructure data layer for government financial reporting can improve financial transparency and reporting.
Addressing the limits of the identity verification layer to help prevent the exclusion of genuine beneficiaries.
"Considering only two channels—financial inclusion and lower leakages from social programs—digital public infrastructure is estimated to boost GDP growth by 1–1.4% by 2030 in low-and middle-income countries," the paper said.
