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IN SEPTEMBER, INDIA launched its most ambitious plan to economically empower individuals and small enterprises by leveraging their personal data. The Account Aggregator (AA) framework enabling this monetisation of personal data was launched at a virtual event hosted by iSPIRT, a group of technology evangelists based out of Bengaluru who helped create the India Stack architecture powering UPI or the Unified Payments Interface—something that has created a world-class digital payments system. The first batch of the eight authorised entities include the State Bank of India, IDFC Bank and ICICI Bank.

The AA framework enables consent-based monetisation of data, particularly of individuals and small enterprises. Once Parliament signs off on the pending data privacy law, all elements of the strategy to accelerate inclusion will be in place.

This exchange of verified individual data will not only spur another round of financial inclusion—with more individuals and small enterprises empowered by their personal data to access credit—and the ongoing FinTech revolution in India, but it could also stoke a fresh boom in consumption, something India so desperately needs in a post-Covid world.

Indeed, it is yet another step redefining inclusion within the guardrails of empowerment as opposed to the previously accepted principle of entitlement. Together, they are poised to effect an unprecedented makeover of the Indian financial architecture, especially in using data to redefine risk.

Consequently, it will disrupt decades-old lending practices and replace them with a new architecture—in which collateral is not the only metric—whereby entities will take credit to those who need it on a real-time basis. And it proposes to do this by monetising an individual’s or company’s data. Hitherto this value was either unrealised or the data was being harvested for free by various online platforms. Something that Nandan Nilekani, the former head of the Unique Identification Authority of India (UIDAI) and a key backer of AA, often sums up so succinctly: Indians are economically poor but data-rich.
The launch of AA is yet another move to bridge these two extremes. This time, through data empowerment.

If there is one thing which is central to the new paradigm of inclusion, it is Aadhaar—the 12-digit unique identity number issued to every resident of India by UIDAI. Aadhaar or the biometric digital identity enables the creation of a digital infrastructure, which in turn allows people to access any service from anywhere in the country. It is part of the technology stack driving UPI (enabling transfer of money to anyone using a mobile phone), One Nation, One Ration Card, and most recently, the One Nation, One Jab project.

While Aadhaar’s popular history is associated with the period after 2009 when Nilekani, co-founder of Infosys, was appointed to roll out the ambitious identity project, the fact is that it has far more modest origins. It was first proposed by Arvind Virmani, economist and long-serving technocrat in the Union

The enabling Account Aggregator framework comes at a time when FinTech companies have already begun to focus on metrics other than collateral. The new set of psychographics being deployed include the mapping of cash flows or GST receipts accruing to an MSME Government, during his stint with the Planning Commission.

The idea appealed to the then Bharatiya Janata Party (BJP)-led National Democratic Alliance under the stewardship of Atal Bihari Vajpayee. Consequently, Virmani was appointed as head of a working group of the 11th Plan. The report titled “Entitlement Reform for Empowering the Poor: The Integrated Smart Card System” argued that the new regime should be based on the idea of a Unique Identification Number: “The concept of a unique national level citizens’ identity number developed from these initiatives as well as aspirations for a pan-India e-governance system. This unique ID could form the fulcrum around which all other smart card applications and e-governance initiatives would revolve.”

In 2009, the Planning Commission under the then Congress-led United Progressive Alliance (UPA) issued the notification to create UIDAI—a big blunder as subsequent events showed.

The enabling Account Aggregator framework comes at a time when FinTech companies have already begun to focus on metrics other than collateral. The new set of psychographics being deployed include the mapping of cash flows or GST receipts accruing to an MSME

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However, the project ran into problems almost immediately. From within UPA, there was a strong resistance to the idea; and making matters worse, a former judge of the Karnataka High Court, K Puttaswamy, filed a public interest litigation in the Supreme Court seeking to nix the project, claiming it violated an individual’s privacy and that UIDAI did not have statutory backing to collect this data. Frankly, the former judge had a point: UIDAI is the repository of key personal information of individuals and, therefore, at a big risk to breach of privacy.

The project almost ran aground though a determined lot of technocrats managed to reveal the potential of Aadhaar by using it to transfer cooking gas subsidy directly to the consumer by linking their Aadhaar and the bank account. However, with the legal cloud over it, the Aadhaar project was mostly in limbo even though a large segment of the population had already been issued an ID.

By then, NDA-II under the leadership of Prime Minister Narendra Modi had taken charge. Almost immediately they saw the immense potential that Aadhaar offered, which went beyond the initial mandate of delivering government programmes. But for that, it had to first extricate the project from the legal tangles, especially since an interim order by the Supreme Court effectively hamstrung Aadhaar by ruling that it was not mandatory for access to key government programmes, even as it referred the issue of privacy to a five-judge Constitution bench.

Accordingly, NDA first filed an appeal against the interim order and initiated the process to provide statutory backing to UIDAI. Parliament passed the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Bill in 2016, ringfencing UIDAI from the charge of illegally collecting personal data. And then the Government committed to enacting a privacy law. The strategy worked and the legal challenge faded, clearing the decks for tapping Aadhaar’s potential—especially with respect to inclusion.

AMONG THE FIRST projects to deploy Aadhaar was the direct benefit transfer or DBT on a large scale and a real-time basis. And this rested on the foundation of the JAM trinity—Jan Dhan, Aadhaar, Mobile. Effectively, it provided an economic GPS for the Government to identify a beneficiary.

Yes, the JAM idea was seeded under UPA but remained stillborn due to a lack of support within the Government and the legal challenges posed by various interest groups. The real story of the weaponisation of Aadhaar commenced only after 2016.

The implementation of DBT using JAM was kicked off with respect to cooking gas or LPG. In the very first year, 2014-15, PAHAL (Pratyaksh Hanstantrit Labh) or direct benefit transfer of LPG (DBTL) had identified 151 million beneficiaries and transferred ₹ 29,000 crore—little over a third of the normal disbursements–directly to their bank accounts.

Prior to this, consumers purchased LPG at a subsidised price, while commercial establishments had to pay market rates. This led to the creation of a dual market and leakage of subsidies by the creation of ghost accounts. Under PAHAL, a consumer was identified on the basis of JAM—eliminating ghost accounts—and paid the market price; the subsidy was transferred directly to their bank account in three days. It was a case of killing two birds with one stone: not only did the beneficiary not lose the subsidy, but one price nixed the black market for LPG.

Alongside, the Government soon discovered that the bulk of the universally distributed subsidy accrued to the affluent. Its internal assessment revealed that 97 per cent of LPG was consumed by the richest 30 per cent households. This set the stage for weeding out the rich consumers and restricting the subsidy to the poor—a powerful message in empowerment.

Simultaneously, the Government launched a similar exercise with Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGA), the largest safety net programme for rural India which guarantees employment on demand. The annual spend in 2020-21—also the year which was devastated by Covid-19 originating in Wuhan, China—topped a staggering ₹ 1 trillion.

With the beneficiaries clearly identified, the use of JAM to make payments under MGNREGA returned substantial savings to the exchequer—according to the finance ministry, the new system reduced leakages by 14 per cent and fund disbursal by 38 per cent, even while showing no reduction in the amount of work done under the programme. And since the payments were now being made in real time by the Government, it reduced the share of float money by a fourth. The reduction in idle funds, which entail an interest cost as the Union Government borrows the money, saved key resources to the Central exchequer.

Enthused by the initial success, NDA went into an overdrive on DBT. According to the Government, in 2019-20, DBT was used for 426 schemes entailing a transfer of ₹ 3.81 trillion in benefits. Significantly, the savings on leakages at the end of March 2020 was ₹ 1.7 trillion—sufficient to fund the first Covid-19 relief package announced last year, and clearly demonstrating the opportunity cost of corruption.

A collateral gain was the creation of bank accounts for a population that was largely unbanked. In just six years, the number of no-frills Jan Dhan accounts grew from 12.5 crore on January 31st, 2015 to 42.25 crore on April 14th this year. By including an additional 300 million people in the formal banking system so quickly, India once again demonstrated its ability to efficiently implement projects of scale.

One of the most high-profile applications of the India Stack has been the creation of UPI, the digital architecture allowing for inter-operable payments on a real-time basis. It had the potential to change the game for consumers and small businesses

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The headstart provided by Aadhaar is unlocking immense opportunities for India to leapfrog in its efforts to beat underdevelopment. Among them, the most standout innovation is the creation of the India Stack by iSPIRT.

It is a set of Application Programming Interface (API)—the bridge that allows two software applications to engage with each other—which permits businesses, government or any developer to tap into the digital infrastructure built on the foundation of Aadhaar.

The India Stack enabled this pathbreaking innovation by leveraging four pillars: Presence-less (digital access and verification-using Aadhaar); Paper-less (digital records allowing portability); Cash-less (one interface allowing for inter-operable payments between bank accounts and wallets); Consent (allows entities to access an individual’s data).

One of the most high-profile applications of the India Stack has been the creation of UPI, the digital architecture allowing for inter-operable payments on a real-time basis. It had the potential to change the game for consumers and small businesses, especially since most of them do not possess the temperament to operate a bank account even though they are very comfortable working social media applications.

In the old system, a person making an online payment would have to login to give the go-ahead to the custodian of their money. What UPI did was to unbundle this process and allowed for consent to be vested with third-party operators like PayTM, PhonePe and so on. In turn, these intermediaries were able to enable this process allowing for phenomenal ease of use on a real-time basis, providing an unprecedented fillip to online financial transactions.

Initially, the response to UPI was tepid. However, the situation transformed dramatically after the boost to the digital economy through the implementation of demonetisation of high-value currencies in 2016. According to RBI, the monthly volume of transactions using UPI has grown exponentially in the last three years. It was 189.3 million in May 2018, 733.4 million in the same month in 2019, before surging to a staggering 2.54 trillion in May this year. Though designed for e-commerce, the scope of UPI has widened dramatically in the business of payments.

GOING BY THE success of UPI, the innovations using India Stack are now poised to log a new benchmark in inclusion. The launch of the AA framework is looking to productionise the audacious idea of monetising personal data to generate credit lines, the obverse of the current practice of collateral-based lending.

Among the first uses for AA will be in creating first-time credit opportunities for demographic segments like micro, small and medium enterprises (MSMEs). Despite contributing to about a third of the country’s national income, employing a quarter of the country’s 400 million-plus workforce and possessing an impressive appetite for risk, their access to formal credit lines are limited.

It is estimated that at present only about 8 per cent of MSMEs get access to formal credit. This is largely because of the informal nature of their economic status, which limits their ability to generate the metrics to be eligible for conventional loans from banks.

In just six years, the number of no-frills Jan Dhan accounts grew from 12.5 crore on January 31st, 2015 to 42.25 crore on April 14th this year. By including an additional 300 million people in the formal banking system so quickly, India once again demonstrated its ability to efficiently implement projects of scale

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This is what the AA framework is poised to change. The enabling AA framework comes about at a time when FinTech companies have already begun to disrupt the business of lending by focusing on metrics other than collateral. The new set of psychographics being deployed by these FinTech companies to map a borrower include the mapping of cash flows or Goods and Services Tax receipts accruing to an MSME.

This transaction will be consent-based and the AA is data-blind—neither can these entities view the data passing through them, nor can they store it. And companies who wish to use this data for commercial use will have to pay for it—the tariff for which will vary depending on the frequency of use.

First-time collateral-free business loans and flexi working capital to fund seasonal business—largely small sachet loans—to MSMEs will create a formal credit history for this new class of borrowers of formal credit. This alone will partially de-risk them in the eyes of more conventional lenders. Analysts estimate the business potential of such small-sachet, flow-based loans to grow to ₹ 25 trillion in the next three years.

This kind of credit empowerment, which can also be extended to individuals, can only translate into more business activity. A win-win for all.

An equally compelling use of the AA framework could be how the over 100 million beneficiaries of the ₹ 1 trillion-plus rural employment guarantee scheme can use their data capturing wage receipts from the Government to avail of the loans. At the moment, this is not possible since borrowing is presaged on collateral and data on cash flows is not shared.

The exceptional nature of the India Stack innovation is that it can be replicated across sectors. Yes, while so far its success has been so well demonstrated in FinTech applications, work has begun to expand its use in strengthening India’s health fabric.

The aftermath of the Covid-19 pandemic is forcing the Government to advance the rollout of the National Digital Health Mission. It will exploit the existing digital highway to connect the various stakeholders in the healthcare ecosystem. The pilot project launched in the Union territories of Chandigarh, Ladakh, Dadra and Nagar Haveli and Daman and Diu, Puducherry, Andaman & Nicobar Islands, and Lakshadweep last year has yielded sufficient evidence for the Centre to now roll this out nationally. On September 27th, the prime minister formally launched the programme nationally. Going forward, all stakeholders in the health system will now be on the same platform.

Essentially, what is envisaged is the creation of a national health grid ensuring people’s access to healthcare in a holistic manner. A patient can use their digital footprint to tap tele-consultancy, digital delivery of medicines, access to labs and health professionals anywhere in the country. Together with Ayushman Bharat, the health insurance package for the 600 million people at the bottom of the pyramid, the portability of health records will add to the inclusion stack.

It is then clear that an indigenously developed technology backbone, yet world-class product, has made it possible for India to redefine and accelerate inclusion. And most importantly, it is achieving this by weighing in favour of empowerment without abandoning the existing principle of entitlement. Not only will this enable trading up for these demographic segments, it will also secure the social fabric of India.

About The Author

Anil Padmanabhan

Anil Padmanabhan is a Delhi-based journalist who writes on the intersection of politics and economics in his weekly column ‘Capital Calculus’

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