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Digital India: The World’s Largest Experiment 📱
January 20, 2026
“We want to ensure that every Indian, whether in Nagaland or Kerala, in Ladakh or Lakshadweep, is able to get their entitled benefits directly in their bank accounts.” — Nandan Nilekani, Aadhaar architect, 2014
“I can transfer money to my vegetable vendor in seconds. No bank involved. No fees. Just phone to phone. In America, they still use checks.” — Indian tech worker in Bangalore, 2023
“The same infrastructure that delivers welfare can enable surveillance. India chose efficiency. The privacy questions remain.” — Privacy researcher, 2024
[2024: 10 billion UPI transactions per month. 1.4 billion Aadhaar numbers issued. Zero Western countries have achieved anything comparable.]
[Part 5 of 6]
New parts publish every Tuesday and Thursday at 9AM EST
In 2010, an unlikely figure stepped into Indian government. Nandan Nilekani had co-founded Infosys, building it into one of the world’s largest IT services companies. He was a billionaire, a tech visionary, the face of India’s software success. He had no reason to join government except conviction.
His salary: one rupee per year. Nilekani could have remained in Bangalore collecting dividends, advising startups, and enjoying the rewards of building a $50 billion company, but instead took a cabinet-rank position with a token salary, moved to Delhi, and began the most ambitious technology project any democracy had ever attempted: giving every Indian a number.
Not a number for taxation or control, but a number for identity. Biometric identity, specifically, with fingerprints and iris scans stored in the world’s largest database and linked to a 12-digit identifier that would become as fundamental to Indian life as the Social Security number is to Americans, except it would do far more than Social Security ever did.
The project was called Aadhaar, meaning “foundation” in Hindi. Over the next decade, it would become exactly that: the foundation of India’s digital infrastructure, enabling everything from bank accounts to welfare payments to instant money transfers between any two phones.
India built what the West couldn’t. How it happened, and what it means, is the story of Digital India.
The Problem: Leaky Buckets
To understand Aadhaar, you need to understand what it replaced.
India’s welfare state was a monument to corruption. Government programs existed to feed the poor, subsidize their fuel, provide employment in lean seasons. The programs had budgets. The money was allocated. What reached the intended beneficiaries was a fraction of what was spent.
The metaphor was “leaky buckets.” Pour money in at the top, watch it drain out through holes at every level. Corrupt officials. Fake beneficiary lists. Ghost employees. Middlemen who extracted their cut at every stage.
Rajiv Gandhi, Prime Minister in the 1980s, famously estimated that only 15 paise of every rupee spent on poverty programs actually reached the poor. Eighty-five percent disappeared into the system.
The mechanics were simple. No reliable identity system existed. Names could be duplicated. Documents could be forged. Officials could create “ghost” beneficiaries, collect their entitlements, and pocket the difference. In states like Bihar, the same person might appear on multiple ration card lists under different names. Dead people continued receiving pensions. Non-existent students received scholarships.
The Public Distribution System (PDS), India’s food subsidy program, was particularly notorious. The government purchased grain at guaranteed prices from farmers, then sold it through “fair price shops” at subsidized rates to the poor. At every stage, grain leaked. Shops sold subsidized grain on the black market at higher prices. Officials diverted supplies. By some estimates, 40% of PDS grain never reached intended beneficiaries.
No one could fix this without solving the identity problem. You can’t deliver benefits to people you can’t identify. You can’t eliminate fake beneficiaries without knowing who’s real.
Nilekani’s insight was that technology could solve what governance couldn’t.
Building the World’s Largest Biometric Database
The scale of Aadhaar is difficult to comprehend.
1.4 billion people enrolled. 12 billion fingerprints captured. 2.8 billion iris scans. A database that can verify identity in seconds, matching a fingerprint against every other fingerprint ever recorded.
The technology worked because Nilekani’s team made smart choices.
Open standards. Aadhaar was built on open APIs that any application could use. Government agencies, banks, telecom companies, and private services could all verify identity through the same system. This created an ecosystem rather than an isolated database.
Minimal data. Aadhaar stores only biometrics and basic demographics: name, address, date of birth, gender. No financial information. No health records. No religion or caste. The minimalism was deliberate: Aadhaar authenticates identity, nothing more.
Decentralized enrollment. Rather than building government enrollment centers (which would take decades), Aadhaar certified banks, post offices, and private operators to enroll people. Competition among enrollment agencies created coverage. Within five years, the majority of India was enrolled.
Authentication, not identification. Aadhaar doesn’t tell you who someone is; it tells you whether someone is who they claim to be. You present your Aadhaar number and biometrics; the system confirms match or no match. This limited scope reduced both technical complexity and privacy concerns.
The enrollment drive became one of the largest logistics operations in history. Teams traveled to remote villages. Camps were set up in slums. The goal was universal coverage, and the approach was relentless.
By 2019, penetration exceeded 99% for adults. Virtually every Indian had an Aadhaar number. The identity problem, unsolved for seven decades, was resolved in less than ten years.
The Jan Dhan Miracle
Aadhaar was the first piece. The second was bank accounts.
In 2014, the Modi government launched Jan Dhan Yojana, a financial inclusion program with an audacious goal: bank accounts for every unbanked Indian household within months. The numbers were staggering, with over 300 million accounts opened in the first few years as banks that had never bothered with poor customers suddenly competed to enroll them while the government simplified requirements: no minimum balance, no documentation barriers, just an Aadhaar number and a signature (or thumbprint for the illiterate).
Critics called it a gimmick, noting that many accounts remained empty, opened to meet targets rather than serve customers, while banks complained about the cost of servicing zero-balance accounts. The skepticism was reasonable, but the accounts existed, they had Aadhaar numbers attached, and that created the possibility of the third piece.
UPI: How India Leapfrogged the World
The Unified Payments Interface launched in 2016, and within a few years had achieved something no Western country could match: instant, free, universal digital payments. The concept was simple: link your bank account to your phone number, then send money to any other phone number instantly and for free, with no apps required beyond a simple interface, no fees for either party, and money moving bank-to-bank in seconds, 24/7.
A vegetable vendor in Mumbai can accept payment from a customer by simply showing a QR code. A family in Kerala can send money to relatives in Punjab instantly. A daily wage worker can receive payment without ever touching cash.
Americans writing checks in 2024 watch this with bewilderment. Europe, despite years of trying, hasn’t achieved comparable integration. The U.S. “instant payment” system, FedNow, launched in 2023 with limited adoption and only modest functionality.
Why did India succeed where the West failed?
Necessity. Demonetization destroyed cash. UPI provided an alternative. When 86% of currency became worthless overnight, digital payments went from convenience to survival. Adoption that might have taken a decade happened in months.
Infrastructure already in place. Aadhaar enabled identity verification. Jan Dhan provided bank accounts. The building blocks existed; UPI connected them.
Regulatory mandate. The Reserve Bank of India, rather than letting incumbents protect their turf, mandated interoperability. All banks had to participate. All payment apps had to interconnect. A Paytm user can pay a Google Pay merchant, who can pay a PhonePe vendor. No walled gardens.
Free pricing. UPI transactions are free for consumers. The government and banks absorb the costs. This eliminated the barrier that credit card fees create for small merchants.
By 2024, UPI processed over 10 billion transactions per month. Transaction value exceeded India’s GDP. Cash usage, while still substantial, had declined dramatically among urban populations. Even beggars in some cities display QR codes.
The JAM Trinity
Aadhaar. Jan Dhan. Mobile phones. Government officials began calling this the “JAM Trinity,” the infrastructure enabling India’s welfare transformation.
The power came from connecting them.
Direct Benefit Transfer (DBT) replaced the leaky bucket with a direct pipe. Instead of sending money through layers of bureaucracy, the government transfers funds directly to beneficiary bank accounts identified by Aadhaar. No intermediaries. No officials who can divert funds. The money arrives directly.
LPG subsidies were the first major test. Previously, cooking gas subsidies were applied at point of sale, meaning everyone who purchased gas received the subsidy regardless of need. Wealthy households bought subsidized gas alongside the poor. Redistribution went to those who consumed the most, not those who needed it most.
Under DBT, subsidies deposited directly in bank accounts. Wealthy households, embarrassed at receiving welfare payments, voluntarily gave up their subsidies (a campaign called “Give It Up”). The government could target subsidies to those who actually needed them.
Similar transformations occurred across programs. MGNREGA wages (the rural employment guarantee) transferred directly to worker accounts, eliminating ghost employees. Pension payments reached actual pensioners. Scholarship funds arrived in student accounts.
The government claims DBT has saved over $30 billion in avoided leakage. The methodology behind this number is disputed, but the directional impact is undeniable. Money that previously evaporated now arrives.
The Privacy Trade-Off
The same infrastructure that enables welfare enables surveillance.
Every Aadhaar authentication creates a record, meaning the government knows when and where you verified your identity: which bank you visited, which SIM card you registered, which subsidy you claimed. Linked to mobile phones and bank transactions, the pattern of daily life becomes visible.
Privacy advocates have fought Aadhaar since its inception until the Supreme Court finally ruled in 2018 through a split decision that Aadhaar was constitutional, but with restrictions: mandatory only for government subsidies and tax filing, not for private services like mobile phones and bank accounts. The restrictions have been inconsistently enforced, with banks still demanding Aadhaar for KYC (know your customer) compliance and telecom companies still linking SIM cards to biometrics, blurring the distinction between mandatory and effectively mandatory.
Critics warn that India has built the infrastructure for a surveillance state. The Chinese social credit system requires extensive infrastructure to monitor citizens; India has already built equivalent infrastructure for welfare purposes. The difference lies in intent, not capability.
Defenders argue the trade-off is necessary and managed. India’s poverty required efficiency improvements that outweighed privacy costs. The data is not (yet) used for social control. Constitutional protections exist even if implementation is imperfect.
The debate remains unresolved, but what’s clear is that India made a choice other democracies have resisted, accepting efficiency gains that are real alongside privacy implications that are permanent.
Why the West Can’t Build This
Every few years, an American or European politician proposes national digital identity. The proposals go nowhere. Why?
Fragmented authority. In the U.S., states control identity documents. Driver’s licenses vary by state. Social Security was never designed as identity infrastructure. No federal agency has authority to mandate biometric enrollment. India’s central government could simply create Aadhaar; American government cannot.
Privacy concerns as political wedge. In Western democracies, civil liberties organizations effectively mobilize against identity databases. The ACLU, EFF, and their equivalents can block legislation. In India, privacy advocacy exists but lacks comparable political power.
Legacy systems. American banking runs on infrastructure built in the 1970s. Credit card networks, designed when transaction costs were high, charge merchants 2-3% per transaction. These incumbents lobby to protect their business models. UPI-style disruption threatens their revenue.
No forcing function. Demonetization, whatever its economic failures, forced digital payment adoption. Western countries have no equivalent shock. Cash works. Cards work. The status quo is good enough for those with political power.
Trust deficit. Americans distrust government with data. The NSA surveillance revelations, IRS scandals, and routine data breaches have created skepticism that India’s government hasn’t (yet) earned through equivalent failures.
India built Digital India because it had to, could, and chose to. The West lacks all three conditions.
India Stack Goes Global
India is now exporting its digital infrastructure.
“India Stack,” the bundle of open APIs enabling Aadhaar authentication, e-signature, and UPI payments, has been offered to other developing countries. Why build from scratch when you can adopt proven technology?
Several countries have expressed interest. Singapore has adopted UPI-interoperable payments. Gulf states are exploring similar systems. African nations, facing similar identity and financial inclusion challenges, see India Stack as a potential solution.
This represents a fascinating reversal. For decades, India imported technology from the West. Now it exports digital public infrastructure to the developing world. The technology proves that sophisticated systems don’t require wealthy economies, just smart design and political will.
Whether India Stack adoption spreads depends on whether recipient countries trust India with infrastructure dependencies. The same concerns that make Western countries hesitant about Chinese 5G equipment apply to Indian digital infrastructure. Technology exports carry geopolitical implications.
What Digital India Hasn’t Fixed
For all its achievements, Digital India addresses symptoms rather than causes.
Welfare delivery is more efficient. Corruption at the last mile has decreased. Financial inclusion has expanded. These are genuine accomplishments.
But the fundamental problems remain.
Jobs. Digital infrastructure doesn’t create mass employment. UPI requires engineers in Bangalore, not factory workers in Bihar. The demographic challenge remains: 12 million young Indians enter the workforce annually, and the economy doesn’t generate enough jobs.
Manufacturing. Digital payments don’t make factories more competitive. The infrastructure gap, labor law rigidity, and skills deficit that prevent manufacturing persist. You can’t pay your way to industrialization with UPI.
Agriculture. Direct benefit transfer helps farmers receive subsidies efficiently. It doesn’t change the fact that 45% of Indians work on farms producing 15% of GDP. The structural transformation from agriculture to manufacturing that Digital India can’t provide is still missing.
Inequality. Digital platforms often increase concentration. The largest UPI providers dominate the market. E-commerce benefits organized retail at the expense of small shops. The K-shaped divergence continues, with digitally capable Indians pulling away from those left behind.
Digital India is infrastructure, not transformation. It enables better delivery of whatever the government chooses to deliver. It doesn’t solve the underlying economic challenges that determine what there is to deliver.
What Comes Next
India has built something remarkable: digital public infrastructure at a scale no other democracy has achieved. Aadhaar, UPI, and the JAM Trinity represent genuine innovation, proving that developing countries can leapfrog wealthy ones in technology adoption.
The efficiency gains are real. The privacy trade-offs are significant. The fundamental economic challenges remain unsolved.
In Part 6, the concluding article, we’ll assess where India stands after 77 years of independence. The contradictions are stark: 5th largest economy, 140th in per-capita income. Digital giant, manufacturing dwarf. Democratic superpower with institutions under strain.
The elephant has learned new tricks. Whether they’re the right tricks is the question that will define India’s next 25 years.
This is Part 5 of a 6-part investigative series on India’s economic transformation. Part 6 will assess India’s current contradictions and future prospects.
Disclaimer: This article presents historical and economic analysis. The author has no financial interests in Indian markets or companies mentioned.
Footnotes
* Aadhaar Enrollment - As of 2023, Aadhaar had enrolled over 1.38 billion people, with adult saturation exceeding 99%. The database includes 12-digit unique identification numbers linked to biometric data (fingerprints and iris scans), representing the world’s largest biometric identification system. Unique Identification Authority of India (UIDAI) statistics. https://uidai.gov.in/en/
* Rajiv Gandhi Quote - The “15 paise” statement has been widely attributed to Rajiv Gandhi, though the exact context and phrasing vary in different sources. The figure became emblematic of leakage in Indian welfare programs, representing the widespread corruption in benefit delivery systems before digital infrastructure. Historical record from 1980s speeches and contemporary reporting.
* PDS Leakage - Various studies estimated PDS leakage at 40-50% in some states, though with significant variation. The Planning Commission’s 2005 study on PDS found national diversion rates of approximately 36% for rice and 31% for wheat, documenting systematic corruption in India’s largest food subsidy program. Planning Commission reports archived at NITI Aayog.
* Jan Dhan Yojana - The program launched August 28, 2014, and enrolled over 300 million accounts by 2017. As of 2023, total accounts exceeded 500 million with deposits over â‚ą2 trillion, creating the financial inclusion infrastructure necessary for digital benefit transfer. Department of Financial Services, Government of India. https://pmjdy.gov.in/
* UPI Transaction Volume - UPI processed 10.24 billion transactions worth ₹15.18 trillion in August 2024. The system has grown from 17.9 million transactions in its first full year (2016-17) to billions monthly, demonstrating the world’s most successful instant payment system. National Payments Corporation of India (NPCI) data. https://www.npci.org.in/what-we-do/upi/product-statistics
* FedNow Launch - The Federal Reserve launched FedNow instant payment service in July 2023, over seven years after UPI launched in India. Adoption remains limited compared to UPI’s market penetration, highlighting the difficulty of implementing instant payments in developed markets with entrenched legacy systems. Federal Reserve documentation. https://www.frbservices.org/financial-services/fednow
* Supreme Court Aadhaar Judgment - The Puttaswamy judgment (2018) upheld Aadhaar’s constitutionality by a 4-1 majority but struck down Section 57, which permitted private entities to require Aadhaar. The ruling affirmed privacy as a fundamental right while permitting mandatory Aadhaar for government subsidies and tax filing. Supreme Court of India, Justice K.S. Puttaswamy (Retd.) vs. Union of India, Writ Petition (Civil) No. 494 of 2012.
* DBT Savings Claims - The government claims cumulative DBT savings exceeding â‚ą2.7 trillion (approximately $33 billion) through elimination of duplicates, ghosts, and leakage. Independent verification of these figures remains limited, though the directional impact is broadly accepted as eliminating significant welfare corruption. Department of Expenditure, Ministry of Finance data.
* India Stack International - Singapore’s PayNow and India’s UPI established bilateral linkage in 2023, enabling real-time cross-border payments. Similar discussions are ongoing with UAE, France, and other countries. NPCI International Payments Limited manages the international expansion. NPCI International documentation. https://www.npcii.com/
* Employment Generation - India needs to create approximately 12 million jobs annually to absorb new entrants to the workforce. Actual job creation has consistently fallen short of this target, contributing to high youth unemployment and demonstrating that digital infrastructure doesn’t solve structural employment challenges. Centre for Monitoring Indian Economy (CMIE) data. https://www.cmie.com/
This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit tatsuikeda.substack.com/subscribe
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By Tatsu IkedaJanuary 20, 2026
“We want to ensure that every Indian, whether in Nagaland or Kerala, in Ladakh or Lakshadweep, is able to get their entitled benefits directly in their bank accounts.” — Nandan Nilekani, Aadhaar architect, 2014
“I can transfer money to my vegetable vendor in seconds. No bank involved. No fees. Just phone to phone. In America, they still use checks.” — Indian tech worker in Bangalore, 2023
“The same infrastructure that delivers welfare can enable surveillance. India chose efficiency. The privacy questions remain.” — Privacy researcher, 2024
[2024: 10 billion UPI transactions per month. 1.4 billion Aadhaar numbers issued. Zero Western countries have achieved anything comparable.]
[Part 5 of 6]
New parts publish every Tuesday and Thursday at 9AM EST
In 2010, an unlikely figure stepped into Indian government. Nandan Nilekani had co-founded Infosys, building it into one of the world’s largest IT services companies. He was a billionaire, a tech visionary, the face of India’s software success. He had no reason to join government except conviction.
His salary: one rupee per year. Nilekani could have remained in Bangalore collecting dividends, advising startups, and enjoying the rewards of building a $50 billion company, but instead took a cabinet-rank position with a token salary, moved to Delhi, and began the most ambitious technology project any democracy had ever attempted: giving every Indian a number.
Not a number for taxation or control, but a number for identity. Biometric identity, specifically, with fingerprints and iris scans stored in the world’s largest database and linked to a 12-digit identifier that would become as fundamental to Indian life as the Social Security number is to Americans, except it would do far more than Social Security ever did.
The project was called Aadhaar, meaning “foundation” in Hindi. Over the next decade, it would become exactly that: the foundation of India’s digital infrastructure, enabling everything from bank accounts to welfare payments to instant money transfers between any two phones.
India built what the West couldn’t. How it happened, and what it means, is the story of Digital India.
The Problem: Leaky Buckets
To understand Aadhaar, you need to understand what it replaced.
India’s welfare state was a monument to corruption. Government programs existed to feed the poor, subsidize their fuel, provide employment in lean seasons. The programs had budgets. The money was allocated. What reached the intended beneficiaries was a fraction of what was spent.
The metaphor was “leaky buckets.” Pour money in at the top, watch it drain out through holes at every level. Corrupt officials. Fake beneficiary lists. Ghost employees. Middlemen who extracted their cut at every stage.
Rajiv Gandhi, Prime Minister in the 1980s, famously estimated that only 15 paise of every rupee spent on poverty programs actually reached the poor. Eighty-five percent disappeared into the system.
The mechanics were simple. No reliable identity system existed. Names could be duplicated. Documents could be forged. Officials could create “ghost” beneficiaries, collect their entitlements, and pocket the difference. In states like Bihar, the same person might appear on multiple ration card lists under different names. Dead people continued receiving pensions. Non-existent students received scholarships.
The Public Distribution System (PDS), India’s food subsidy program, was particularly notorious. The government purchased grain at guaranteed prices from farmers, then sold it through “fair price shops” at subsidized rates to the poor. At every stage, grain leaked. Shops sold subsidized grain on the black market at higher prices. Officials diverted supplies. By some estimates, 40% of PDS grain never reached intended beneficiaries.
No one could fix this without solving the identity problem. You can’t deliver benefits to people you can’t identify. You can’t eliminate fake beneficiaries without knowing who’s real.
Nilekani’s insight was that technology could solve what governance couldn’t.
Building the World’s Largest Biometric Database
The scale of Aadhaar is difficult to comprehend.
1.4 billion people enrolled. 12 billion fingerprints captured. 2.8 billion iris scans. A database that can verify identity in seconds, matching a fingerprint against every other fingerprint ever recorded.
The technology worked because Nilekani’s team made smart choices.
Open standards. Aadhaar was built on open APIs that any application could use. Government agencies, banks, telecom companies, and private services could all verify identity through the same system. This created an ecosystem rather than an isolated database.
Minimal data. Aadhaar stores only biometrics and basic demographics: name, address, date of birth, gender. No financial information. No health records. No religion or caste. The minimalism was deliberate: Aadhaar authenticates identity, nothing more.
Decentralized enrollment. Rather than building government enrollment centers (which would take decades), Aadhaar certified banks, post offices, and private operators to enroll people. Competition among enrollment agencies created coverage. Within five years, the majority of India was enrolled.
Authentication, not identification. Aadhaar doesn’t tell you who someone is; it tells you whether someone is who they claim to be. You present your Aadhaar number and biometrics; the system confirms match or no match. This limited scope reduced both technical complexity and privacy concerns.
The enrollment drive became one of the largest logistics operations in history. Teams traveled to remote villages. Camps were set up in slums. The goal was universal coverage, and the approach was relentless.
By 2019, penetration exceeded 99% for adults. Virtually every Indian had an Aadhaar number. The identity problem, unsolved for seven decades, was resolved in less than ten years.
The Jan Dhan Miracle
Aadhaar was the first piece. The second was bank accounts.
In 2014, the Modi government launched Jan Dhan Yojana, a financial inclusion program with an audacious goal: bank accounts for every unbanked Indian household within months. The numbers were staggering, with over 300 million accounts opened in the first few years as banks that had never bothered with poor customers suddenly competed to enroll them while the government simplified requirements: no minimum balance, no documentation barriers, just an Aadhaar number and a signature (or thumbprint for the illiterate).
Critics called it a gimmick, noting that many accounts remained empty, opened to meet targets rather than serve customers, while banks complained about the cost of servicing zero-balance accounts. The skepticism was reasonable, but the accounts existed, they had Aadhaar numbers attached, and that created the possibility of the third piece.
UPI: How India Leapfrogged the World
The Unified Payments Interface launched in 2016, and within a few years had achieved something no Western country could match: instant, free, universal digital payments. The concept was simple: link your bank account to your phone number, then send money to any other phone number instantly and for free, with no apps required beyond a simple interface, no fees for either party, and money moving bank-to-bank in seconds, 24/7.
A vegetable vendor in Mumbai can accept payment from a customer by simply showing a QR code. A family in Kerala can send money to relatives in Punjab instantly. A daily wage worker can receive payment without ever touching cash.
Americans writing checks in 2024 watch this with bewilderment. Europe, despite years of trying, hasn’t achieved comparable integration. The U.S. “instant payment” system, FedNow, launched in 2023 with limited adoption and only modest functionality.
Why did India succeed where the West failed?
Necessity. Demonetization destroyed cash. UPI provided an alternative. When 86% of currency became worthless overnight, digital payments went from convenience to survival. Adoption that might have taken a decade happened in months.
Infrastructure already in place. Aadhaar enabled identity verification. Jan Dhan provided bank accounts. The building blocks existed; UPI connected them.
Regulatory mandate. The Reserve Bank of India, rather than letting incumbents protect their turf, mandated interoperability. All banks had to participate. All payment apps had to interconnect. A Paytm user can pay a Google Pay merchant, who can pay a PhonePe vendor. No walled gardens.
Free pricing. UPI transactions are free for consumers. The government and banks absorb the costs. This eliminated the barrier that credit card fees create for small merchants.
By 2024, UPI processed over 10 billion transactions per month. Transaction value exceeded India’s GDP. Cash usage, while still substantial, had declined dramatically among urban populations. Even beggars in some cities display QR codes.
The JAM Trinity
Aadhaar. Jan Dhan. Mobile phones. Government officials began calling this the “JAM Trinity,” the infrastructure enabling India’s welfare transformation.
The power came from connecting them.
Direct Benefit Transfer (DBT) replaced the leaky bucket with a direct pipe. Instead of sending money through layers of bureaucracy, the government transfers funds directly to beneficiary bank accounts identified by Aadhaar. No intermediaries. No officials who can divert funds. The money arrives directly.
LPG subsidies were the first major test. Previously, cooking gas subsidies were applied at point of sale, meaning everyone who purchased gas received the subsidy regardless of need. Wealthy households bought subsidized gas alongside the poor. Redistribution went to those who consumed the most, not those who needed it most.
Under DBT, subsidies deposited directly in bank accounts. Wealthy households, embarrassed at receiving welfare payments, voluntarily gave up their subsidies (a campaign called “Give It Up”). The government could target subsidies to those who actually needed them.
Similar transformations occurred across programs. MGNREGA wages (the rural employment guarantee) transferred directly to worker accounts, eliminating ghost employees. Pension payments reached actual pensioners. Scholarship funds arrived in student accounts.
The government claims DBT has saved over $30 billion in avoided leakage. The methodology behind this number is disputed, but the directional impact is undeniable. Money that previously evaporated now arrives.
The Privacy Trade-Off
The same infrastructure that enables welfare enables surveillance.
Every Aadhaar authentication creates a record, meaning the government knows when and where you verified your identity: which bank you visited, which SIM card you registered, which subsidy you claimed. Linked to mobile phones and bank transactions, the pattern of daily life becomes visible.
Privacy advocates have fought Aadhaar since its inception until the Supreme Court finally ruled in 2018 through a split decision that Aadhaar was constitutional, but with restrictions: mandatory only for government subsidies and tax filing, not for private services like mobile phones and bank accounts. The restrictions have been inconsistently enforced, with banks still demanding Aadhaar for KYC (know your customer) compliance and telecom companies still linking SIM cards to biometrics, blurring the distinction between mandatory and effectively mandatory.
Critics warn that India has built the infrastructure for a surveillance state. The Chinese social credit system requires extensive infrastructure to monitor citizens; India has already built equivalent infrastructure for welfare purposes. The difference lies in intent, not capability.
Defenders argue the trade-off is necessary and managed. India’s poverty required efficiency improvements that outweighed privacy costs. The data is not (yet) used for social control. Constitutional protections exist even if implementation is imperfect.
The debate remains unresolved, but what’s clear is that India made a choice other democracies have resisted, accepting efficiency gains that are real alongside privacy implications that are permanent.
Why the West Can’t Build This
Every few years, an American or European politician proposes national digital identity. The proposals go nowhere. Why?
Fragmented authority. In the U.S., states control identity documents. Driver’s licenses vary by state. Social Security was never designed as identity infrastructure. No federal agency has authority to mandate biometric enrollment. India’s central government could simply create Aadhaar; American government cannot.
Privacy concerns as political wedge. In Western democracies, civil liberties organizations effectively mobilize against identity databases. The ACLU, EFF, and their equivalents can block legislation. In India, privacy advocacy exists but lacks comparable political power.
Legacy systems. American banking runs on infrastructure built in the 1970s. Credit card networks, designed when transaction costs were high, charge merchants 2-3% per transaction. These incumbents lobby to protect their business models. UPI-style disruption threatens their revenue.
No forcing function. Demonetization, whatever its economic failures, forced digital payment adoption. Western countries have no equivalent shock. Cash works. Cards work. The status quo is good enough for those with political power.
Trust deficit. Americans distrust government with data. The NSA surveillance revelations, IRS scandals, and routine data breaches have created skepticism that India’s government hasn’t (yet) earned through equivalent failures.
India built Digital India because it had to, could, and chose to. The West lacks all three conditions.
India Stack Goes Global
India is now exporting its digital infrastructure.
“India Stack,” the bundle of open APIs enabling Aadhaar authentication, e-signature, and UPI payments, has been offered to other developing countries. Why build from scratch when you can adopt proven technology?
Several countries have expressed interest. Singapore has adopted UPI-interoperable payments. Gulf states are exploring similar systems. African nations, facing similar identity and financial inclusion challenges, see India Stack as a potential solution.
This represents a fascinating reversal. For decades, India imported technology from the West. Now it exports digital public infrastructure to the developing world. The technology proves that sophisticated systems don’t require wealthy economies, just smart design and political will.
Whether India Stack adoption spreads depends on whether recipient countries trust India with infrastructure dependencies. The same concerns that make Western countries hesitant about Chinese 5G equipment apply to Indian digital infrastructure. Technology exports carry geopolitical implications.
What Digital India Hasn’t Fixed
For all its achievements, Digital India addresses symptoms rather than causes.
Welfare delivery is more efficient. Corruption at the last mile has decreased. Financial inclusion has expanded. These are genuine accomplishments.
But the fundamental problems remain.
Jobs. Digital infrastructure doesn’t create mass employment. UPI requires engineers in Bangalore, not factory workers in Bihar. The demographic challenge remains: 12 million young Indians enter the workforce annually, and the economy doesn’t generate enough jobs.
Manufacturing. Digital payments don’t make factories more competitive. The infrastructure gap, labor law rigidity, and skills deficit that prevent manufacturing persist. You can’t pay your way to industrialization with UPI.
Agriculture. Direct benefit transfer helps farmers receive subsidies efficiently. It doesn’t change the fact that 45% of Indians work on farms producing 15% of GDP. The structural transformation from agriculture to manufacturing that Digital India can’t provide is still missing.
Inequality. Digital platforms often increase concentration. The largest UPI providers dominate the market. E-commerce benefits organized retail at the expense of small shops. The K-shaped divergence continues, with digitally capable Indians pulling away from those left behind.
Digital India is infrastructure, not transformation. It enables better delivery of whatever the government chooses to deliver. It doesn’t solve the underlying economic challenges that determine what there is to deliver.
What Comes Next
India has built something remarkable: digital public infrastructure at a scale no other democracy has achieved. Aadhaar, UPI, and the JAM Trinity represent genuine innovation, proving that developing countries can leapfrog wealthy ones in technology adoption.
The efficiency gains are real. The privacy trade-offs are significant. The fundamental economic challenges remain unsolved.
In Part 6, the concluding article, we’ll assess where India stands after 77 years of independence. The contradictions are stark: 5th largest economy, 140th in per-capita income. Digital giant, manufacturing dwarf. Democratic superpower with institutions under strain.
The elephant has learned new tricks. Whether they’re the right tricks is the question that will define India’s next 25 years.
This is Part 5 of a 6-part investigative series on India’s economic transformation. Part 6 will assess India’s current contradictions and future prospects.
Disclaimer: This article presents historical and economic analysis. The author has no financial interests in Indian markets or companies mentioned.
Footnotes
* Aadhaar Enrollment - As of 2023, Aadhaar had enrolled over 1.38 billion people, with adult saturation exceeding 99%. The database includes 12-digit unique identification numbers linked to biometric data (fingerprints and iris scans), representing the world’s largest biometric identification system. Unique Identification Authority of India (UIDAI) statistics. https://uidai.gov.in/en/
* Rajiv Gandhi Quote - The “15 paise” statement has been widely attributed to Rajiv Gandhi, though the exact context and phrasing vary in different sources. The figure became emblematic of leakage in Indian welfare programs, representing the widespread corruption in benefit delivery systems before digital infrastructure. Historical record from 1980s speeches and contemporary reporting.
* PDS Leakage - Various studies estimated PDS leakage at 40-50% in some states, though with significant variation. The Planning Commission’s 2005 study on PDS found national diversion rates of approximately 36% for rice and 31% for wheat, documenting systematic corruption in India’s largest food subsidy program. Planning Commission reports archived at NITI Aayog.
* Jan Dhan Yojana - The program launched August 28, 2014, and enrolled over 300 million accounts by 2017. As of 2023, total accounts exceeded 500 million with deposits over â‚ą2 trillion, creating the financial inclusion infrastructure necessary for digital benefit transfer. Department of Financial Services, Government of India. https://pmjdy.gov.in/
* UPI Transaction Volume - UPI processed 10.24 billion transactions worth ₹15.18 trillion in August 2024. The system has grown from 17.9 million transactions in its first full year (2016-17) to billions monthly, demonstrating the world’s most successful instant payment system. National Payments Corporation of India (NPCI) data. https://www.npci.org.in/what-we-do/upi/product-statistics
* FedNow Launch - The Federal Reserve launched FedNow instant payment service in July 2023, over seven years after UPI launched in India. Adoption remains limited compared to UPI’s market penetration, highlighting the difficulty of implementing instant payments in developed markets with entrenched legacy systems. Federal Reserve documentation. https://www.frbservices.org/financial-services/fednow
* Supreme Court Aadhaar Judgment - The Puttaswamy judgment (2018) upheld Aadhaar’s constitutionality by a 4-1 majority but struck down Section 57, which permitted private entities to require Aadhaar. The ruling affirmed privacy as a fundamental right while permitting mandatory Aadhaar for government subsidies and tax filing. Supreme Court of India, Justice K.S. Puttaswamy (Retd.) vs. Union of India, Writ Petition (Civil) No. 494 of 2012.
* DBT Savings Claims - The government claims cumulative DBT savings exceeding â‚ą2.7 trillion (approximately $33 billion) through elimination of duplicates, ghosts, and leakage. Independent verification of these figures remains limited, though the directional impact is broadly accepted as eliminating significant welfare corruption. Department of Expenditure, Ministry of Finance data.
* India Stack International - Singapore’s PayNow and India’s UPI established bilateral linkage in 2023, enabling real-time cross-border payments. Similar discussions are ongoing with UAE, France, and other countries. NPCI International Payments Limited manages the international expansion. NPCI International documentation. https://www.npcii.com/
* Employment Generation - India needs to create approximately 12 million jobs annually to absorb new entrants to the workforce. Actual job creation has consistently fallen short of this target, contributing to high youth unemployment and demonstrating that digital infrastructure doesn’t solve structural employment challenges. Centre for Monitoring Indian Economy (CMIE) data. https://www.cmie.com/
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