DPI: A catalyst for private sector innovation
This paper is authored by Anit Mukherjee, Ashwini Joshi, ORF, New Delhi.
Over the past decade, India has built an interoperable, open-source digital public infrastructure (DPI) that is operational at population scale. The key building blocks, commonly known as the “India Stack” include issuing the digital ID (Aadhaar), accelerating financial inclusion (Jan Dhan), enabling digital payments (Unified Payments Interface – UPI), transforming health, education and skill development, and envisioning an open network for future urban mobility and digital commerce.
By enabling a policy framework that fosters data privacy and empowerment, mandates interoperability of digital assets and transactions, and promotes market participation, India’s DPI has expanded the market for goods and services. Over the last decade, this approach has transformed and dramatically increased the country’s financial inclusion, helping India accelerate progress to achieve the Sustainable Development Goals (SDGs).
One of the key value propositions for countries to invest in DPI is that it will build an innovation ecosystem that will attract private capital, promote startups, and provide incentives to entrepreneurs to build locally relevant solutions, thereby generating gainful employment in the emerging digital economy. It is, however, not a given. For DPI to achieve its transformative potential, it is important to understand the pathways through which the governance of DPI enables private investment in the digital economy, thereby creating a virtuous cycle between regulation and innovation that India has witnessed over the past decade. As India’s experience illustrates, the government can not only be a regulatory entity but also drive digital innovation and adoption in sectors that are critical for inclusive growth and development, such as financial inclusion.
DPI has been instrumental in the transformation of India’s financial sector. In the area of financial inclusion, the proportion of population above 15 years of age having a bank account increased from around one in three in 2011 to almost universal in 2021, largely due to the use of electronic Know Your Customer (e-KYC) through Aadhaar verification. This has coincided with the creation of the UPI in 2016 — a bank led, protocol-based payments infrastructure that has propelled India to becoming a leader in instant digital payments globally. With the basic foundations in place, India has become a hub for innovation in digital payments and financial technology, or “fintech,” more broadly.
While the numbers are indeed impressive, how India’s policy and regulations created the conditions for private sector investment is not well understood. First, the paper will provide a framework to assess the roles of public and private sectors to create an innovation ecosystem leveraging the power of DPI. Then it charts India’s recent history of regulatory measures to accelerate financial inclusion and digital payments, encouraging private sector investment (including venture capital) and innovation in financial products and services. As the DPI approach has gained currency globally, the authors conclude by distilling the lessons from India’s experience to provide a roadmap for countries as they create their own.
This paper can be accessed here.
This paper is authored by Anit Mukherjee, Ashwini Joshi, ORF, New Delhi.
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