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Viewed from Silicon Valley, the progress that India has made in building a digital infrastructure, evokes awe. The American technology industry fancies itself as the global leader in innovation, yet India has leapt far ahead. Silicon Valley's technology investors hype complex technologies such as bitcoin and blockchain. But India, with simple and practical innovations and massive grunt work, has built a digital infrastructure that will soon process billions more transactions than these do. India is about to skip two generations of financial technologies and build something as monumental as China's Great Wall and America's interstate highways.
Though few people in the West know of Aadhaar, it has been the largest and most successful information technology project in the world. There was widespread scepticism about whether a billion people could be provided with a verifiable digital identity, yet it has occurred, in a short span of six years. Hundreds of millions of people who were doomed to live in the shadows of the informal economy can now participate as equals in the global economy. Thanks to Jan-Dhan Yojana, they also have bank accounts; these already have Rs 69,000 crore in deposits.
The reason investors are pouring billions of dollars into technologies such as bitcoin is because it provides a secure way of linking users and recording a transaction.But bitcoin requires massive, wasteful computing resources to do what is called mining: transactions' mathematical verification. And this complex computing infrastructure also needs constant improvement.
The simple design of India's digital payments infrastructure, Unified Payments Interface (UPI), allows banks to transfer money directly to each other based on an Aadhaar number or, a mobile-phone number plus pin. Yes, this doesn't have the anonymity of bitcoin, but I would argue that anonymity is mainly for money laundering and tax evasion -which need to be eliminated. There is almost no overhead in UPI, and transactions happen within seconds rather than the 10 minutes that bitcoin takes. In the US, users pay an indirect tax of 2-3% on consumer transactions because of the use of credit cards. Companies such as Visa, Mastercard and American Express don't even manage the money or provide banking services, all they do is to act as an intermediary between banks. The merchant has the responsibility of verifying the identity of a customer.With UPI, India doesn't need credit cards or middlemen, it can build the next generation of finance.
The instant and non-repudiable proof of identity that Aadhaar's know-your-customer technology -e-KYC -provides, gives India a big advantage. Most people in the US have drivers' licences and social security numbers. But these are not verifiable with biometrics or mobile numbers, so complex verification technologies need to be built into every financial system. Indian entrepreneurs building applications don't need to worry about all this.
Going beyond money, India Stack provides a digital locker through which to store and share personal data such as addresses, medical records, and employment records.With this, the government is providing a public service that is the digital equivalent of roads and electricity. I don't know of any other country that has anything comparable.
Nobel Prize-winning economist Joseph Stiglitz said in Davos that the US should follow Prime Minister Narendra Modi's lead in phasing out currency and moving to ward a digital economy, because it would have "benefits that out weigh the cost". Speaking of the inequity and corruption that is becoming an issue in the US and all over the world, he said: "I believe very strongly that countries like the United States could and should move to a digital currency so that you would have the ability to trace this kind of corruption".
Yes, India is ahead and America can learn from it.
(The writer is a fellow at the Carnegie Mellon University Engineering at Silicon Valley)
SOURCE: Economic Times
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