Technology in its various shapes and forms has transformed the way humanity has gone about conducting its life. Prior to the industrial revolution, across the world the production of manufactured goods was largely done in the homes of contracted workers. In the eighteenth century, industrial technology revolutionized production and paved the way for the creation of factories i.e. centralized locations where large machines were installed and where workers would congregate to use the machines to produce manufactured goods. In the late twentieth and early twenty-first centuries, the widespread use of computers and the Internet increased the efficiency of workers in factories and offices multi-fold.
Interestingly, in all these instances, the economic upside of technology adoption was found to be the greatest when these benefits were shared across all sections of the economy—i.e., not just among the owner-industrialist class but also among the worker class. In the eighteenth century, initially the factory owners were the clear beneficiaries of the newly introduced industrial technologies. However, as workers became skilled in their use of machinery, their efficiency increased and so did their incomes. In the twentieth century, the Western economies reaped the benefits of another bout of technology innovation centred on the use of computers and automation in the factory and in the office.
As Daron Acemoglu and Simon Johnson have pointed out in Power and Progress: Our Thousand-Year Struggle over Technology and Prosperity (2023):
After World War II, much of the Western world, and some countries in Asia, built new institutions supporting shared prosperity and enjoyed rapid growth that benefited almost all segments of their societies. The decades following 1945 came to be referred in France as the ‘les trente glorieuses,’ the thirty glorious years, and the feeling was widespread throughout the Western world. This growth had two critical building blocks, similar to those that had begun to emerge in the United Kingdom during the second half of the nineteenth century: first, a direction of travel for new technology that generated not just cost savings through automation but also plenty of new tasks, products, and opportunities; and second, an institutional structure that bolstered countervailing powers from workers and government regulation.
Over the past twenty years, tech visionaries in India like Nandan Nilekani have teamed up with policymakers to bring the benefits of technology to the masses in the country. The
overall set of tech innovations—called ‘India Stack’—has been built step by step.
It began with a vision to provide all Indians with something like a social security number for identity (Aadhaar) in 2009, which was then overlaid by bank accounts for all (Jan Dhan) in 2015 and finally by massive proliferation of low-cost Internet and smartphones by 2017 (with the launch of Jio). Together, these building blocks, known as the JAM trinity, allowed 1.4 billion Indians to get an identity, a bank account and a medium with which to connect (at low cost) with the digital economy and the financial system.
The next step was to build a Unified Payments Interface (UPI), which enabled currency-less and digital transaction as well as the transfer of money, which was launched in 2016. According to the National Payments Corporation of India (NPCI), the body in charge of operating the retail payments and settlement systems in India, the total value of transactions using UPI in May 2024 in India crossed Rs 240 trillion (US$3 tn) on an annualised basis or 70 per cent of the Indian GDP!
The next step in this journey is a similar infrastructure for goods and e-commerce via ONDC, which will allow all buyers and sellers on the Internet to freely transact with one another, as against what happens at present, where an Amazon customer can purchase only from vendors selling their wares on the Amazon platform, or a Flipkart customer is only able to purchase from the Flipkart platform, etc. As one would expect from this brief description of how ONDC would function by cutting across the currently siloed ecommerce ecosystem, the introduction of such a platform could potentially transform Indian ecommerce.
As Nandan Nilekani said in an interview with Livemint in November 2022:
. . . . [the] three big revolutions will be—democratizing credit through AA [Account Aggregation Framework], democratizing commerce through ONDC; and essentially making the delivery of products much simpler and cheaper with logistics’ transformation. These three steps will lay the foundation for equitable commercial activity for both goods and services. India will move from a pre-paid cash informal economy to a post-paid formal cashless productive economy.
Unlike in the US, where tech has created a narrow elite of billionaires, India’s story is different. Here, ‘digital public goods’ have been employed to benefit consumers and producers of all shapes and sizes. This has reduced transaction costs for almost every Indian, reduced working capital cycles for most businesses, made access to financial funding easier for tens of millions of low-income borrowers and SMEs and enabled the sovereign to collect taxes more easily.
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Investment Implications
As Vladimir Lenin has said, ‘There are decades where nothing happens; and there are weeks where decades happen.’ In the first few decades post-Independence, nothing much
happened in India from the perspective of this vast nation’s master narrative. In the twenty-first century, however, India is beginning to make up for those difficult decades.
What India has found at long last is a flywheel where a combination of incentives, enforcement and modern tech drives tax collections (at a faster rate than GDP growth). That in turn allows the sovereign to finance infrastructure. In parallel, thanks to the same flywheel, savings are financialized (rather than being put in low-yielding physical assets). This lowers the cost of capital, which in turn makes it easier for companies to fund themselves and drive capex. That capex in turn drives GDP growth. And thus the virtuous cycle continues.
This excerpt from ‘Behold The Leviathan: The Unusual Rise of Modern India’ by Saurabh Mukherjea and Nandita Rajhansa has been published with permission from Penguin Random House India.