India – The Emerging Tech Giant

Economists widely accept that technology is the key driver of economic growth, explaining the intense focus on the growing “tech cold war” between the United States and China. However, China is not the only developing country making major advances in technology. India, already an economic force with the sixth-largest economy in the world, has the foundation in place to emerge as a major technological power in the coming decades. The Indian government and private industry have utilized technology to innovatively provide basic economic services to India’s extremely large low-income population. To leverage India’s newfound growth, U.S. policymakers should seek to increase technological and economic ties between the two countries.

A Digital Foundation

While economic reforms designed to liberalize the economy in the early 1990s sparked rapid development, India remained a fairly poor country into the late 2000s. Only 17 percent of Indian adults possessed bank accounts in 2009, leaving hundreds of millions out of the formal economy. The root of this problem was that an estimated 400 million Indians lacked official identification, thereby making customer onboarding economically unfeasible for Indian banks.

India used technology to implement an innovative solution— the Aadhaar ID program. Aadhaar, which translates to “foundation,” is a digital ID that any Indian citizen can receive by providing basic demographic information and biometric data such as a photo and fingerprints. This simplicity combined with an effective onboarding system have made the Aadhaar program a smashing success, with 1.31 billion IDs generated to date. The World Bank estimates that the Aadhaar ID program decreased the customer onboarding cost for Indian banks from $23 to just $0.15, thereby bringing millions of Indians into the formal financial system. 

All About the Money

To make using these newfound bank accounts cheaper, India modernized another common economic function – payments. Low-income consumers can be extremely price-sensitive, and even minimal transaction costs can deter non-cash payments. In response, India developed the Unified Payments Interface (UPI), which connects banks, businesses, and consumers so they can conduct transactions. UPI is secure and free to use, saving millions in transaction fees and allowing businesses to focus more resources on customer acquisition and innovation. Similar to Aadhaar, UPI has been a tremendous success – just five years after launching, the network now processes over $100 billion in transactions per month.

Internet for All

Like bank access, India lagged behind considerably in Internet adoption – in 2009, only 5% of Indians utilized the Internet. To realize the full potential of the Aadhaar and UPI programs, low-income Indians needed an affordable way to access the Internet. Understanding the increasing returns to scale in technology markets, Jio, a subsidiary of India’s largest company Reliance Industries, sought to address this untapped market.

Over the course of several years, Jio spent $33 billion dollars developing an extensive 4G infrastructure across India, then leveraged the massive size of the Indian market and the low marginal costs of data to offer the cheapest mobile Internet in the world. Since launching in 2016, Jio has attracted over 425 million subscribers. This has contributed to a massive increase in overall Internet usage in India, which currently boasts over 550 million Internet users. Projections estimate the nation will reach 800 million users by 2023.

A Pathway Forward

While these achievements are impressive, they primarily provide services which developed countries have maintained for decades. However, their development exemplifies a larger source of potential for India — “Frugal Innovation,” or the focus on developing new products for low-income consumers.

India’s digital foundation has well positioned it to exploit Frugal Innovation. Market size positively influences innovation, and, due to programs such as Aadhaar, Indian companies now have hundreds of millions of newly connected low-income consumers to target. Further, Indian companies can expect limited competition from foreign firms in this arena. The vast majority of technology research and development (R&D) occurs in developed economies, which would ostensibly be the primary source of competition. However, as companies tend to succeed most when prioritizing their domestic market, this R&D is primarily going towards products for consumers in those developed economies and will be unaffordable for most Indian consumers. In contrast, Indian companies are not only heavily incentivized to prioritize Frugal Innovation to serve their domestic market, but have the opportunity to sell those same products in other developing economies which house billions of low-income consumers.

Indo-American Relations

With India well-positioned to rapidly develop technologically and economically, the U.S. government should strengthen government and business ties. This should include expanded student and professional exchanges, which currently benefit the U.S. greatly. Almost 75 percent of recipients of H1-B visas are Indians, and Indian-born CEOs lead major U.S. tech companies such as Google, Microsoft, and IBM. Further, closer ties offer the U.S. the opportunity to learn how to deliver services to its own underserved citizens, a stated objective of President Biden. As many as 21 million American adults lack any form of government ID, while an estimated 7.1 million do not possess a bank account. Though directly copying the Aadhaar ID program and UPI may prove difficult due to legacy systems and privacy concerns from average citizens, the U.S. could benefit from understanding Indian digital services which offer novel ways to innovatively solve problems.

A clear example of the innovative solutions these Indian digital services enable is the “e-Authentication” interface, which allows developers to leverage the functionality of the Aadhaar ID system. Using this interface, an application or website could verify a user’s identity or demographic information by querying the e-Authentication database. Designed to not return any Personal Identifiable Information (PII), this service provides a pathway for solving certain issues in Internet policy today, such as verifying children’s ages on social media sites. While ID systems in the U.S. such as Social Security Numbers could not necessarily be used in the same manner, this demonstrates the innovative potential of this new digital infrastructure.

Although maintaining these strong ties is crucial, the United States must also be willing to push back against growing issues in privacy and censorship in Indian Internet regulation. In the last several years President Modi’s administration has taken several actions which have sparked human rights concerns, such as shutting down Internet access in Kashmir amid unrest. Further, India has passed a law requiring foreign Internet companies to have Indian-based employees, ostensibly so that they can arrest those employees if the companies do not comply with their content moderation and data access requests, while seeking to pass laws which experts have sharply criticized as undermining privacy protections. The founding principles of the Quadrilateral Security Dialogue state that technology must reflect members’ democratic values. As a partner and fellow democracy, the United States must continue to champion open and equitable Internet access across India and the world.