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Demonetization is yesterday’s news. The India of today is going full steam ahead towards a digital economy powered by financial inclusion, the mobile revolution, and Aadhaar—the biometric ID system that now covers 90 percent of its 1.3 billion population. And the social compact of the future will restructure subsidies and provide a basic income for the poor.
This is development with Indian characteristics, according to India’s Chief Economic Advisor Arvind Subramanian, who visited CGD for a wide-ranging conversation on the emerging big ideas that he has been instrumental in shaping during his two and a half years in his current role. The discussion was fascinating to say the least, giving us a window into the minds of India’s policymakers as they grapple with the challenges of building a modern infrastructure, implementing the Goods and Service Tax reform, and creating jobs for a million young people entering the workforce every month: all with the objective of reducing poverty and improving the delivery of basic services and subsidies.
The ultimate message is a hopeful one. With strong political will, better cooperation with states, and by harnessing the power of digital revolution, poverty can be substantially reduced—if not eliminated entirely—within a generation. As India moves towards a more effective governance model based on digital id and payment systems, it expects its citizens to be active participants in the effort. And finally, the new compact also demands greater honesty and compliance in payment of taxes, without which India will not be able to make the transition to a modern economy. Demonetization was a signal that the government has the will and the capacity to disrupt entrenched vested interests, whatever the short-term political economy cost may be.
Some of these changes are already visible. On a recent visit to India, I came across a sugarcane juice vendor on the side of a highway near Delhi who accepted payments through a digital wallet company. His motivation is clearly economic—most of the people who stopped by his shop are car owning city dwellers who have migrated to mobile wallets following demonetization.
But aside from the technicalities of the UBI debate, the key takeaway is this: getting out of poverty is a cognitive challenge, as Abhijit Banerji and Esther Duflo point out in “The Economic Lives of the Poor.” According to Dr. Subramanian, UBI can lead to the “liberation of the cognitive bandwidth” by providing the basic minimum level of support to people who really need it. And this bandwidth is no less important than its digital counterpart in shaping India’s new social compact.
Aadhaar, the world’s largest biometric ID program, is at a crossroads. After a remarkable effort to enroll almost the entire Indian population of 1.25 billion in just over half a decade, its impact on privacy and distribution public benefits are being called into question.
While I welcome criticism and comments on the Doing Business (DB) report—or any other data and research product of the World Bank, for that matter—I find Justin Sandefur’s and Divyanshi Wadhwa’s recent blog posts on DB in Chile and India neither enlightening nor useful.