India’s digital architecture: From infrastructure to superstructure

Synopsis: To support our ecosystem for financial inclusion, we need to factor in the enablers and account aggregation.

Introduction

India’s asset monetization initiative, the National Monetisation Pipeline has garnered attention but other two recent initiatives which are far more substantive did not get their fair share of it.

One was the Factoring Bill amendments and the second is Account Aggregator platform.

What is the significance of factoring?

Benefits to MSMEs: It will enable thousands of non-banking financial companies (NBFCs) to buy receivables from Micro, Small and Medium Enterprises (MSMEs).

Removing threshold: Conditions for NBFCs to engage in this business have been removed.

What is the significance of Account Aggregator platform?

Aggregator platform: Account Aggregators (AAs) are ‘data access fiduciaries’ who act as the front end of its Data Empowerment and Protection Architecture (DEPA).

Empowerment of user: Financial data is secured and can be accessed only with the consent of the user and for purposes the user had consented to. The data in AAs hands will be encrypted and can only be decrypted by FIUs.

AAs are trustees of data: With user’s consent they can pass on data from financial information providers (FIPs) to financial information users (FIU).

Ease of doing business: To establish credit worthiness, AAs will collect data. Such as bank statements, insurance policies, mutual fund holdings, etc. Due to lack of information, lenders stick to collateral-based lending. With AA platform, that will change.

Financial inclusion: AAs can become agents of financial inclusion

How’s govt acting as an enabler of Digital revolution in India?

Digital public goods: It started with the PM Jan Dhan Yojana (PMJDY) and Aadhaar. Recently, the Nasscom had brought out a report on India’s digital public goods.

As per PwC, the Unified Payments Interface has taken the Indian payment ecosystem by storm. RBI notes that its Digital Payments Index rose 2.7 times in just three years after March 2018.

Citizen-centric services: In the West, Digital goods are in private hands and have become monopolies. Nasscom added that our digital platforms were developed at low cost and are inter-operable.

The Goods and Services Tax Network has been given in-principle approval to become a Financial Information Provider (FIP) on the AA network. The GST network is a huge repository of information that its being part of data network is a big plus for MSMEs to access finance.

Way forward

Now, GSTN and TReDS should make it automatic that if a buyer accepts an invoice for claiming input tax credit, then the invoice shall be deemed accepted for TReDS purposes too.

Lastly, the only thing that would be pending is an amendment to India’s MSME Act to allow MSMEs to retain their classification until both sales turnover and investment criteria are exceeded, rather than any one of them. That will serve as a strong foundation for durable and long-lasting economic growth.

Source: This post is based on the article “India’s digital architecture: From infrastructure to superstructure” published in Livemint on 7th September 2021.