Economic Impact of Aadhaar

On 25th November 2016, replying to a parliamentary question on Aadhaar based welfare delivery mechanism, Minister of State for Finance said in Lok Sabha, “World Bank in its World Development Report 2016 in Chapter 3 (Delivering Services) and in Spotlight 4 (Digital Identity) has recognized the use of Aadhaar as a digital ID in India for implementing direct cash transfer programs resulting in savings through reduced leakage and efficiency gains in government expenditures. Further, in order to ensure that the benefits of the schemes reach the actual beneficiaries, payments are made to the actual beneficiaries in their Aadhaar linked bank account through Aadhaar Payment Bridge (APB).” The vital statement made by the Minister proves the commitment of the Government to utilize Aadhaar as the aadhaar of targeting right beneficiaries without much leakages.

The much acclaimed JAM (Jan Dhan-Aadhaar-Mobile) Trinity through the usage of financial and digital inclusion is trying to change the socio-economic condition of society. It is largely helping the disadvantaged and distressed classes of people in availing the benefits of major Government schemes and subsidies. For instance, Schemes like MGNREGS (Mahatma Gandhi National Rural Employment Guarantee Scheme) and PDS (Public Distribution System) have started using Aadhaar card for the purpose of Direct Benefits Transfer and supply of food grains to the BPL people, etc. which has resulted in elimination of ghost beneficiaries and widespread corrupt practices. Aadhaar enabled targeting has resulted in identification of beneficiaries in more fruitful ways from the Government’s perspective.

Even the education sector can be a great beneficiary of Aadhaar enabled payments, for instance in providing the scholarships for students. Aadhaar as a medium of citizen centric governance can prove to be an effective instrument when the schemes like Mid Day Meals and National Nutrient Mission will achieve higher success through this tool. From child welfare to social security and pension, Aadhaar can help the Government in making every rupee count!

Moreover these days, financial services are being linked to Aadhaar at a rapid pace. The banks have been instructed to go for KYC (know your customer) for the functioning of bank accounts which will be also simultaneously linked with PAN Cards. Hence, a system of true checks can be installed upon the banking systems. Due to the impact of demonetization, taxmen have a wealth of information on possible tax evaders. On the one hand, there are 111 crore Aadhaar numbers issued which are linked to PAN Cards and will make it very difficult for tax evaders.

In addition to that, Aadhaar enabled payment system can benefit a large number of farmers who go to sell their produce at the agriculture markets. If payments are made directly to them (Direct Benefits Transfer), it will boost financial inclusion and credit worthiness. The banks can offer those loans and crop insurance which can revamp agriculture sector.

The future of Aadhaar is almost here for us to witness. The 12-digit Aadhaar number could soon be a single point payment address for sending and receiving money without needing to link it to a bank account, once the IndiaPost payments bank becomes operational in September 2017, according to reports from The Economic Times recently.

Aadhaar as an idea provides a single view of beneficiary data and information, aiding in streamlining policy decisions for the state. It will create an enabling ecosystem for data-driven governance in India. To conclude, Aadhaar’s impact on our economy has just started to show results but the future is even brighter and we can expect Aadhaar to be a game-changer!

Abhishek Ranjan is a Research and Policy Analyst to Members of Parliament (MPs) Mr. Ninong Ering and Mr. Dilip Tirkey. He is also working as a Consultant to University of Chicago’s Delhi Center for Anubhav Lecture Series, and is a Policy Consultant for FinTech startup Credy. Earlier, he was a LAMP Fellow and graduated in Engineering from Manipal Institute of Technology.

Aadhaar and digital payments : The power in those 12 digits

Tagged as world’s largest national identification project, Aadhaar is a 12- digit unique identity number issued to an Indian resident on the basis of their biometric and demographic data. The unique Aadhaar number has proved its utility in eliminating fake and duplicate identities which has reduced leakages in many of the Government schemes such as MGNREGS, PDS, etc.

Although Aadhaar neither provides citizenship identification nor guarantees any rights, it is largely seen as a facilitator of various Government subsidies and other targeted delivery of services. The Parliament of India last year passed The Aadhaar bill (Targeted Delivery of Financial and other subsidies, Benefits, and Services) which intends to provide for targeted delivery of subsidies and services to individuals residing in India by assigning them unique identity numbers, called Aadhaar Numbers. The bill provided the legal backing to Aadhaar which was pending from 2010.

Aadhaar Number can be used for verification of identity of a person receiving subsidies or Government services. Any public or private entity can accept the Aadhaar number as a proof of identity of Aadhaar number holder. This step has revolutionized the digital services world too. For instance, one just needs his Aadhaar number to procure a mobile SIM card instead of all the paper work. Many new innovations are coming up in the digital world to proactively use Aadhaar number in an integrated and holistic way.

Till date, 111 crore of total 127 crore Indian population have registered for Aadhaar number which is big success of the Aadhaar program. Post Demonetization, the significance of digital payments is on rise and even the Government launched its own BHIM (Bharat Interface for Money) App which is Aadhaar based app to simplify digital payments. The App would connect to Aadhaar linked bank accounts. Other Aadhaar payment apps have been also introduced by likes of IDFC bank. This will make the payment infrastructure more robust, safe and secure.

The recently introduced AEPS (Aadhaar Enabled Payment System) uses Aadhaar data for the authentication and neither requires your signature nor Debit card. Aadhaar authentication works through fingerprint matching and is highly secure. The beneficiaries of AEPS will be mostly from rural India who will have access to financial services at affordable rates.

In this year’s budget 2017-18 the Government made announcements about Aadhaar Pay. It is a merchant version of Aadhaar Enabled Payment System (AEPS). In the words of Finance Minister, “This will be specifically beneficial for those who do not have debit cards, mobile wallets and mobile phones.” The government has set a target of 2,500 crore digital transactions for 2017-18 through UPI, USSD, Aadhaar Pay, IMPS and debit cards.

The Income Tax department is also working on a project to issue PAN to assesses within minutes by way of e-KYC authentication using Aadhaar, a move that will help bring more people under the tax net by making it easier for people to get Permanent Account Numbers.

Therefore, 12 digits of Aadhaar are going to change the way India is going to transact in near future, especially when 87% population has their Aadhaar numbers. This holds more relevance to rural India where digital infrastructure is just coming up in big way and they will be empowered for financial transaction through usage of their Aadhaar numbers.

Abhishek Ranjan is a Research and Policy Analyst to Members of Parliament (MPs) Mr. Ninong Ering and Mr. Dilip Tirkey. He is also working as a Consultant to University of Chicago’s Delhi Center for Anubhav Lecture Series, and is a Policy Consultant for FinTech startup Credy. Earlier, he was a LAMP Fellow and graduated in Engineering from Manipal Institute of Technology.

E-monetization and FinTech: Future of Finance Has Arrived

FinTech (Financial Technology) is a hot sector right now in Indian startup ecosystem. From e-wallets to robo advisory to online lending, Fintech is seeing innovation and adoption at a rapid pace. There has been a policy and regulatory push towards innovation, at a pace that can match a private sector initiative. The government has rolled out Unified Payments Interface, integrated Aadhaar with many financial services and has given an unprecedented impetus to digitizing the economy by reducing cash usage. Formally connecting most of the remaining unbanked and unfunded Indians to the financial system has sown the seeds for financial innovation to breed and bloom.


Demonetization has resulted in 86% of India’s currency to have returned to formal banking system. India has unusually high rate of use and storage of cash as percentage of the total wealth owned by people. About 98 percent of all consumer payments in India use cash, compared to just 8% in a country like France. This storage of cash leads to slow movement of money and thus restricts the growth potential of economy.

By bringing all the cash into banking system, this stagnation is checked by a great extent. It also speeds up the flow of money which should result in a faster growth rate of the economy. With banks having more cash than ever, the interest rates have begun dropping. This will boost the economy and investments will rise. The temporary dampening of economy of India is due to shortage of cash as it necessary to keep the money flowing into system. The step of demonetization will give a push to the efforts of building a digital economy. With people embracing the use of cards and internet banking, efficiency of money in the system will increase.

The cost of cash to Indian society is significant. The RBI and the commercial banks face a total of Rs. 22,000 crore in currency operations annually. This was 0.4 percent of the total currency in circulation. This cost does not include the cost of storage, transportation, security, detection of counterfeits, etc. The cost of printing and maintaining this extensive amount of cash costs the country nearly 2 percent of its GDP.  Studies show that a moderate growth of cashless transactions by 5 percent a year will save the country more than Rs. 500 crore annually.

Online Lending

National Sample Survey Organisation (2005a) reveals that in 2002 around 50 percent of borrowers were indebted to informal lending agencies, and that a considerable proportion of these loans were made at an interest rate of 30 percent or above. The informal lending is dealt mostly in cash, has been hit badly due to demonetization. Another reason for high rate of informal borrowing is the fact that, in 2001, India had 5.3 bank branches per 100,000 people in rural areas. Today that stands at only 7.8 branches, according to Reserve Bank of India data.

With extra money in the formal banking system post demonetization, interest rates can be expected to come down. This is because there is more money chasing same number of hands, and hence premium charged by lenders comes down. Interest rates in some informal lending sectors have been reported to have dropped from 30% to 5%! This is hitting informal lenders hard, who were using black money to lend to borrowers in cash at high rates. The time is right for lending and borrowing to move online for a more rational lending market.

Online lending and borrowing has numerous benefits. First, it is convenient. Credy, a Y Combinator backed Bangalore-based peer-lending platform, has application process of 3 minutes and approves loans in 24 hours. Entire process can be made digital with Aadhaar based KYC and digital signatures. Secondly, platforms like Credy rely on data and analytics to make better decisions both for themselves and their customers. It also offers a great opportunity as an investment vehicle, for those who want to lend and make good returns. Risk can be diversified by investing in many borrowers. Assuming no defaults or delay in repayments, lenders can typically expect about 16-22% returns from such an investment option.


Fintech is changing fast in India. With BHIM and Aadhaar Pay launched, we will witness a monumental shift in the way payments, lending and authentication is done in India. Linking mobile numbers with Aadhaar was recently given a ‘thumbs up’, making the JAM (Jan Dhan, Aadhaar, Mobile) trinity a powerful agent of change. This is a remarkable time to be in fintech startup space, with potential to use technology and finance domain knowledge to forever change how a common man manages finances. Financial revolution is here.

Credy is India’s first biometrically verified peer lending network. Started by Goldman Sachs alumni, they are backed by Y Combinator in their mission to facilitate credit and economic growth through financial trust, innovation, speed and responsibility. Find more at

Article written for B Hive, a network and coworking space for emerging startups


Digital Payments : The future of transactions in India

When demonetization was announced last year in November, suddenly the debate shifted to ability of India to adopt cashless economy. Many of experts raised concerns against the Government’s promotion of “Digital India” being too urban-centric and narrow in approach. But the Government adhered to its vision and took many steps to facilitate digital payments.

Digital payments are methods to transact between parties electronically which are fast and secure. Banking cards, USSD, AEPS, UPI, Mobile wallets, PoS, Bank Pre-paid cards, Internet Banking, Mobile Banking, Micro ATMs, etc. are few means of digital payments which are easily available and accessible. Hence these modes are being given preference over cash system. The Government also plans to tackle the menace of corruption, black money and terrorism through such steps. The key question remains : that will the rural India or interiors adapt to such a leap in technology?

It is no secret that the tech-savvy class in metro cities has more or less been running on digital payments mode for some time now, be it for paying a cab ride, food ordering or for recharge of their mobile numbers. These means started penetrating to other smaller cities like Jodhpur, Patna, Allahabad, etc. over last few years. However post demonetization, there was a rapid jump in the digital payments and many service provider companies multiplied their customer base. There was steep rise in the download of apps like Paytm, Phonepe, SBI Buddy etc. Both customers and sellers adopted digital payments. Even the street vendors started using digital means to accept payments.

Presently there is a real rural-urban divide in digital payments adoption and usage. But looking at the brighter picture, almost 100 million rural Indians will have smartphones by end of this year who can use it for payments mode. Rural India will greatly benefit from JAM Trinity (Jan Dhan-Adhar-Mobile) strategy of the Government and now direct transfer benefits will become a reality. Schemes like MGNREGS are already using direct transfer to beneficiaries avoiding leakages, and if these people can use their smartphones then the dream of cashless and digital India is not very far.

The Government has been working on a war footing to promote a digital and cashless economy. These include –

  • Approval of the Pradhan Mantri Digital Saksharta Abhiyaan (PMGDISHA) to make 6 crore rural households digitally literate.
  • Organizing scores of Digi Dhan Melas to create awareness among people to use digital means for payments
  • Initiation from NITI Aayog for schemes such as Lucky Grahak Yojna and Digidhan vyapar yojana to use BHIM (Bharat Interface for Money) app for digital payments.
  • Many ministers of the Union Government have themselves taken the lead to promote it and urged people to go digital.

Such positive steps by the Government are laudable and present a strong case for India’s effort at going digital.

According to Indian Council for Research on International Economic Relations (ICRIER) Survey, if mobile penetration increases by 10% then GDP would increase by 1.2%. If broadband connection increases by 10% then GDP would rise by 2.7%. If all the Government services are provided through mobile phones then the GDP would increase by 3.2%.

The case for a digital India and it’s long term benefits are strong. The future of digital payments is very bright, and the numbers support it. India is experiencing a remarkable growth in digital payments. In 2015-16, a total of Rs. 4018 billion transacted through mobile banking as compared to Rs. 60 billion in 2012-13. The percentage of the digital payments through other modes is also increasing at a significant speed. We will surely witness a “digipay revolution” very soon as India has more than 100 crore active mobile connections and more than 22 crore smartphone users as of March 2016.

Abhishek Ranjan is a Research and Policy Analyst to Members of Parliament (MPs) Mr. Ninong Ering and Mr. Dilip Tirkey. He is also working as a Consultant to University of Chicago’s Delhi Center for Anubhav Lecture Series, and is a Policy Consultant for FinTech startup Credy. Earlier, he was a LAMP Fellow and graduated in Engineering from Manipal Institute of Technology.

Week in monetary policy review : RBI focus on inflation

What happened

The Reserve Bank of India on 8th February 2017 kept its key policy rate or the repo rate (which is the short term lending rate) unchanged at 6.25 percent for the second time in a row. This was against the consensus view in the market hoping for a 25 bps rate cut. All other rates i.e reverse repo rate, the marginal standing facility rate and the bank rate, were left unchanged.

Key things RBI noted

The RBI said that this decision of the MPC is consistent with a neutral stance of monetary policy with the objective of achieving consumer price index (CPI) inflation at 5 per cent by Q4 of 2016-17 and the medium-term (2 year) target of 4 per cent within a band of +/- 2 per cent, while supporting growth.

The RBI noted that while retail inflation measured by the CPI has come down for 5 consecutive months, this is driven mainly by deflationary price movements in food items (vegetables and pulses). However, the non-food , non-fuel inflation also needs to come down in order to achieve the target of bringing overall inflation below 5%.

Outlook regarding inflation

  • The MPC is of the view that persistence of inflation ex-food and ex-fuel could set a floor on further downward movements in headline inflation and trigger second-order effects.
  • For Q4 2016-17 headline CPI inflation is likely to be below 5 per cent.
  • Favorable base effects and lagged effects of demand reduction due to demonetization may mute headline inflation in Q1 of 2017-18. Thereafter, it is expected to pick up momentum, especially as growth picks up and the output gap narrows.
  • Base effects will reverse and turn adverse during Q3 and Q4 of 2017-18. Accordingly, inflation is projected in the range of 4.0 to 4.5 per cent in the first half of the FY and in the range of 4.5 to 5.0 per cent in the second half with evenly balanced risks on either side.
  • The MPC noted three significant upside risks to the baseline inflation path – the hardening of international oil prices; volatility in the FX rate due to global market developments, which could speed up domestic inflation; and the effects of the house rent allowances (HRA) under the 7th Central Pay Commission which have not been factored in the baseline inflation path.

What it means

Most major banks cut their lending rates in January post demonetization and inflow of cash reserves. With this policy review from RBI, banks may not cut rates further for a while.


This was the RBI’s sixth bi-monthly and last policy for the year 2016-17 and the third by the Monetary Polciy Committee (MPC). The next policy meet will be on April 5-6.

Here is the press release from RBI.

India Budget 2017

The Finance Minister of India, Arun Jaitley, gave his annual Budget speech for 2017-18 today.

The Government is thinking seriously about pushing the economy into a “digital direction”. Here are some interesting announcements and observations related to digital payments –

  • Cash transactions above 3 lakh Rupees will become an offense
  • Target of 20 lakh Aadhaar based swipe machines by 2020
  • Demonetization will lower borrowing costs and increase access to credit
  • 125 lakh people downloaded BHIM app of the Government
  • Aadhaar Pay system to be launched soon
  • Service charge on e-tickets booked through IRCTC will be withdrawn.
  • Duty exempted on various POS machines and iris readers to encourage digital payments.
  • Proposal of creation of a six-member Payments Regulatory Board in the RBI.

Also, check out Budget highlights from The Hindu here.