India's DPI revolution: World Bank's G20 document lauds transformative impact under Modi government
Explore how India's Digital Public Infrastructure (DPI) has revolutionized financial inclusion and innovation, lauded by the World Bank and driven by visionary policies under the Modi government
India's Digital Public Infrastructure (DPI) is receiving well-deserved recognition on the global stage, with the World Bank's G20 Global Partnership for Financial Inclusion document lauding the transformative impact it has had over the past decade under the Narendra Modi government. This DPI revolution has extended far beyond inclusive finance, fundamentally reshaping the nation's digital landscape.
"The impact of DPI goes beyond inclusive finance—it can support health, education, and sustainability. Amid the COVID19 pandemic, DPI enabled emergency support to be directly delivered to the digital wallets of those in need as well as helped facilitate swift vaccine distribution. The India Stack exemplifies this approach, combining digital ID, interoperable payments, a digital credentials ledger, and account aggregation. In just six years, it has achieved a remarkable 80 per cent financial inclusion rate—a feat that would have taken nearly five decades without a DPI approach," noted Her Majesty Queen Maxima of the Netherlands in the foreword.
"As Honorary Patron of the G20 GPFI, I am delighted with the DPI policy recommendations crafted under the Indian G20 Presidency. This report is essential reading for those embracing digital transformation," she added.
India's DPI approach has achieved what many considered impossible, propelling financial inclusion rates from a mere 25 per cent in 2008 to an impressive 80 per cent of adults in just six years. This achievement has effectively shortened a timeline that would have otherwise taken nearly half a century.
The document underscores the pivotal role played by DPIs in this leap, emphasising the significance of ecosystem variables and policies that built on the availability of DPIs. This includes creating an enabling legal and regulatory framework, national policies to expand account ownership, and leveraging Aadhaar for identity verification.
The impact has been profound, with the number of PMJDY accounts tripling since its launch, reaching an astounding 462 million by June 2022, of which 56 per cent are owned by women.
"Over the last decade, the Government of India has successfully leveraged its robust DPI to support key development priorities, such as financial inclusion and women’s economic empowerment. In particular, the digital ID (Aadhaar)-enabled e-KYC process simplified the opening of accounts under the Pradhan Mantri
Jan Dhan Yojana (PMJDY), or National Mission for Financial Inclusion," the document read.
"This initiative of the Government of India, implemented in 2014 to ensure affordable access to financial services, brought millions into the formal banking sector," it added.
Financial inclusion of women
In a concerted effort to promote the widespread adoption and utilisation of this DPI-powered initiative, Bank of Baroda, India's third-largest public sector bank, joined forces with Women's World Banking (WWB). Together, they introduced an innovative savings solution known as the "Jan Dhan Plus program", which is designed to empower low-income women to initiate savings with amounts as modest as $5 per month.
"The program has reached over 12 million women customers so far (as of April 2023). Further, the savings-engaged women customers are more valuable for the bank, as they reported over a 50 per cent increase in the average balances in just five months, as against the entire portfolio in the same time period," the document noted.
"The JanDhan Plus program highlights the importance of savings-led engagement as a powerful tool to build financial resilience among low-income women and their households. According to a report by Women’s World Banking and Bank of Baroda, it is estimated that by engaging 100 million low-income women in savings activities, public sector banks in India can attract approximately Rs 25,000 crore ($3.1 billion) in deposits," it added.
"Overall, Jan Dhan Plus was instrumental in identifying challenges specific to women, thereby creating numerous opportunities for innovation, and gaining on-ground insights on product performance. As a result, there was a deepening focus on designing a program from a gender perspective, including by building the digital financial capability of women agents who played a critical role in bridging the gap between the usage and adoption of India’s DPI among underserved and financially excluded segments of the population," the document underscored.
Government to Person (G2P) Payments
According to the document, India's G2P architecture, built on DPI, has become one of the world's largest and most efficient digital systems. Over the last decade, it has facilitated transfers totaling approximately $361 billion to beneficiaries across 312 key schemes from 53 central government ministries. This has resulted in savings of $33 billion, equivalent to nearly 1.14 per cent of India's GDP as of March 2022.
UPI (Unified Payments Interface)
The World Bank has also noted in the document that the success of India's DPI is also exemplified by the Unified Payments Interface (UPI), which saw an astonishing 9.41 billion transactions worth approximately Rs 14.89 trillion in May 2023 alone. In the fiscal year 2022-23, UPI transactions amounted to nearly 50 per cent of India's nominal GDP, highlighting the transformative power of digital infrastructure.
"UPI has been widely adopted, benefitting from a user-friendly interface, open banking features, and private sector participation," the document noted.
DPIs' Potential Added Value for the Private Sector
As per the document, DPIs haven't just benefited the public sector; they have also enhanced efficiency for private organizations, reducing complexity, costs, and time for business operations.
Non-Banking Financial Companies (NBFCs) reported an 8 per cent higher conversion rate in SME lending, a 65 per cent reduction in depreciation costs, and a 66% reduction in fraud detection costs. Moreover, the cost of onboarding customers for banks in India decreased from $23 to a mere $0.1 with the use of DPI.
Lower Cost of Compliance for Banks for KYC
The India Stack, which digitised and simplified Know Your Customer (KYC) procedures, has significantly lowered compliance costs for banks, the World Bank document further noted.
Those using e-KYC witnessed a decrease in their cost of compliance from $0.12 to $0.06. This reduction in costs has not only made lower-income clients more attractive for service but has also generated profits for the development of new products.
The document highlighted that the UPI-PayNow interlinking between India and Singapore, operationalised in February 2023, aligns perfectly with the G20's financial inclusion priorities. It facilitates faster, cheaper, and more transparent cross-border payments, promoting global economic integration.
Account Aggregator (AA) Framework
India's Account Aggregator Framework, regulated by the Reserve Bank of India (RBI), aims to strengthen the nation's data infrastructure. The World Bank's G20 document stated that it enables consumers and enterprises to share their data only with their consent through an electronic consent framework.
"Currently, a total of 1.13 billion cumulative accounts are enabled for data sharing through Account Aggregators with customer consent. The cumulative number of consents raised through Account Aggregators has reached 13.46 million in June 2023, registering a monthly growth rate of 28 per cent," the document noted.
"The number of new consents successfully fulfilled in June was 2.9 million, which translates into 97,000 consents per day. As of June 30, 2023, the total number of entities that were live on AA was 248, with 75 FIPs, 231 FIUs, and 11 AAs with NBFC-AA licenses from RBI," it added.
Data Empowerment and Protection Architecture (DEPA)
India's DEPA empowers individuals to take control of their data, allowing them to share it across providers. This fosters tailored product and service access without requiring new entrants to invest heavily in pre-existing client relationships, ultimately promoting innovation and healthy competition.
India's journey with Digital Public Infrastructure under the leadership of the Narendra Modi government is a testament to the power of digital transformation in driving financial inclusion, economic growth, and innovation. As the world takes notice of India's achievements, the nation stands as a shining example of how smart policies, visionary leadership, and a robust digital infrastructure can lead to remarkable progress.