How India Is Moving Towards A Digital-First Economy
On November 8, 2016, India’s government did something that no other government had attempted before at the same scale: It decided to remove 86 per cent of the country’s currency notes by value from circulation. Over the months that followed, more than one billion people participated in a “reboot” of the country’s financial and monetary system.
An active debate has since ensued as to how the transition unfolded. Some have seen calamity for the economy, while others, like us, see something quite different: a threshold moment in India’s digital transformation. Consider, for example, a government payment system created in 2016 that was processing 100,000 transactions per month in October of that year, prior to the sudden demonetisation.
A year later, after demonetization, the same system is processing 76 million transactions per month.
Meanwhile, according to India’s Ministry of Finance, the country’s economy is operating with US$45 billion (FJ$93b) less cash than it did prior to demonisation.
India’s digital infrastructure is coming to life, with a combination of policy and technological innovation having played an important role. The country is moving rapidly toward a digital-first economy. One of us, Arvind, is head of technology for Indian Prime Minister Narendra Modi’s BJP party, and has been for the past seven years.
His views on digital transformations include his experience as a member of the research team that developed the first web browser (Mosaic, the predecessor to Netscape) in the early 1990s and as a technology entrepreneur. The other, Philip, is an economist whose most recent book traces processes of digital disruption over the long arc of human history. We collaborated here to describe what we see as a truly unique story of government-led digital disruption. Demonetisation isn’t the only high-profile economic act India’s government has undertaken recently. It has also implemented what was arguably the largestscale tax reform ever implemented at a single time: the replacement of a complex web of 17 different taxes with a single Goods and Services Tax (GST).
Once again, predictions of dire consequences preceded the move, and critiques of the implementation of the policy have followed since.
Yet the fact remains that, in the first month after the introduction of the GST, over one million businesses registered with the system. In only the first few weeks after implementation, the increased transparency and digital data availability that are integral to the GST began to open up new sources of lending to small and mediumsize enterprises (SMEs). However haltingly, and with whatever inevitable difficulties occurring along the away, the bottom line is that a process of rationalisation of the tax code is, after decades of delay, under way at last.