Responsible regulation for digital services in India

Introduction

Since the turn of the millennium, India has displayed a strong digital trajectory with steady growth in its now-famous IT industry and in providing digital citizen services. Much of this growth was driven by government policies and regulations (Das & Sagara, 2017). The IT industry has flourished with liberalized trade policies, tax incentives, and the creation of geographical innovation clusters. The government has also invested in modernization of its internal functions and citizen-facing services, through many web-based and app-based services (Sharma et al., 2022). This has not only aided citizens but has also helped boost entrepreneurs in the IT space. Citizens have also benefited from the government’s promotion of digital connectivity and inclusion, more recently through the Digital India Initiative (The Hindu Bureau, 2023; Sharma et al., 2022).

However, there is a counterpoint to the above narrative: regulations and their implementation have not been universally beneficial and, in fact, have hurt certain sections of the population (Tewathia et al., 2020). Some of these are unintended consequences, whereas others are a result of somewhat confused policy implementations. It is in this context that we argue for “responsible regulation” where IT policies are balanced between a need to usher in a digital era, driven by the urge to modernize and boost the economy, versus providing a choice to citizens in their use of digital services.

In the rest of this brief article, we highlight some examples of how India is boosting its IT infrastructure, products, and services. Then, we point to some examples of enforcement of IT services, and also withdrawal of them through policy initiatives. We conclude with guidance for responsible regulation that balances conflicting needs. Though our case examples are drawn from India, they could well apply to other regions and nations as well.

Internet-based services in India

India has a massive IT-trained skill base of about 5.4 million workers that has grown as a direct result of its IT and IT services industry, which had revenues of $245 billion in 2023 (Phadnis, 2023). This huge skilled population provides a steady supply of talent to the growing demand for IT services across sectors. As major projects by the government and private firms are envisioned and released, these trained resources are able to innovate and build services and products to take to the masses.

The growth of internet users, accelerated by the surge of digital services in the Covid and post-Covid 19 era, has propelled many startups, most of which focus on aggregating demand or supply in different domains (Bindra, 2023). Most new start-ups are internet firms, offering products/services in payments, lending, investments, insurance, retail, health, and others. It is not only the businesses that are banking on the exponential increase in internet users but the government too is making strides in providing digital services to its citizens. A few popular citizen services that have influenced citizens’ daily lives include online utility and bill payment systems, the unified payments interface (UPI) enabling seamless transactions through mobile phones, online portals for income tax payments, passport application, unique identification, and several others (Ahmed, 2023; Rohit, 2019).

Digital public goods

The government has invested heavily in developing digital public goods and infrastructure. A set of platform services offered by the Government of India, known as the India Stack, is enabling the creation of digital public goods and services accessible to citizens and businesses (Desai et al., 2023; Parkin et al., 2023). The success of the digital stack infrastructure in India has led to its international adoption in countries like Armenia, Trinidad and Tobago, and others (Adhikary, 2023). These platforms enable compatible use across service providers, benefiting citizens who can readily switch from one service to another. We provide brief outlines of some, and details of two main platforms, those of identity and digital payments. All these initiatives were designed and developed indigenously, with skills and talent drawn from the IT industry.

Open Network for Digital Commerce (ONDC) (https://ondc.org/) – Enables e-commerce through an open protocol, based on open-source specifications, to prompt rapid adoption of e-commerce in India. The Beckn protocol-based platform allows buyers and sellers of diverse products and services to interact and transact irrespective of the buyer/seller platforms they have registered on.

Open Credit Enablement Network (OCEN) (https://ocen.dev/) – connects small-business borrowers to lenders, through a platform that enables easy identification, verification, credit rating, etc. Along with the Account Aggregator (AA) framework, this platform democratizes credit for citizens. According to estimates, 50% of the lending is disbursed to micro, small, and medium businesses, and about 20% of all the unsecured loans processed by digital platforms were channeled through the OCEN (Suraksha, 2023b).

Ayushman Bharat Digital Mission (ABDM) (https://abdm.gov.in/) – is a digital public ecosystem for the health care sector that allows health care professionals and facilities to be part of the platform that can be accessed by Indian citizens. Its components include a unique number given to all users, a repository of registered health care providers and a database of health records pertaining to registered users that is updated by providers. Its intent is to improve access to organized health care for Indians, which is one of the lowest in the world.

Aadhaar identity platform

The Aadhaar system of India was initiated in 2009, as a platform for identity verification. Its intent was to authenticate any resident of India through biometrics. With Aadhaar, India became the first country with a population exceeding a billion citizens to enable a digital identity scheme, to make possible various citizen services over the years (Mir et al., 2020). It was primarily designed for distribution of subsidies and welfare assistance to poor and marginal residents. Aadhaar faced considerable regulatory challenges since its inception, as it could not be backed by suitable laws. In 2013, the Supreme Court of India, in response to a Public Interest Litigation (PIL), ruled that Aadhaar could be used for specific purposes, provided that users were not forced to do so, and had alternative ways to seek and obtain government services (India Today, 2013).

The Aadhaar system was continued in use for several years, mainly for identity authentication for welfare schemes and subsidies (Khera, 2017); however, it was only in 2016 when it got its first regulatory approval for use in specified applications. Despite this ruling, further cases were filed and in 2018, the Supreme Court once again ruled that use of the Aadhaar authentication system was legal (Suraksha, 2023a). In most of the cases filed, the key issue was that of privacy of individuals, and the fact that Aadhaar was a government owned and operated system that could be potentially used for surveillance.

Post 2016’s legislation, Aadhaar’s use grew in many ways, mostly unintended by the designers. For example, Aadhaar was used to authenticate identity before issuing mobile SIM cards to users. Aadhaar cards were widely issued and were used as regular, government-issued identity cards in offices and places such as airports (Banerjee, 2016). During the COVID-19 pandemic, when the government of India mandated vaccination of all citizens, the Aadhaar system was used with a new app, the CoWIN, to register vaccination applicants and also record their shots. Later uses of Aadhaar proliferated in many domains – including health care, education, government registration for various services, payment of tax, and others. However, there are, even now,multiple critiques of the security and privacy aspects of Aadhaar’s digital technology that makes certain segments of users vulnerable (Sadhya & Sahu, 2024).

Digital payments

India has adopted and evolved digital payment technologies since as early as 1980’s, with the introduction of electronic funds transfer (Ministry of Information and Broadcasting, Government of India, 2021). This was followed by the launch of debit and credit cards in the market in 1990s, succeeded by mobile and internet banking in 2000s. Despite the convenience and early introduction of digital payments, the country continued to be a slow adopter (Thakur & Srivastava, 2014). This changed drastically after the invalidation of banknotes during the historic demonetization in India in 2016, nudging citizens toward digital payments (Pal et al., 2021). Embracing this opportunity of citizen migration toward digital payments, particularly mobile payments, the government initiated the Unified Payment Interface (UPI) technology that facilitated inter-bank transactions through mobile phones. This led to a multi-fold surge in adoption of mobile payments by citizens, which helped financial inclusion, and is now serving as an exemplar for other nations (Anand, 2019; Outlook, 2023). The UPI witnessed historic growth during the COVID-19 pandemic, with citizens avoiding cash, owing to the fear of contact transmission of the coronavirus (The Economic Times - Tech, 2021).

The digital divide

As a developing country, India still has a significant population (48%) that does not have access to the internet, otherwise known as the digital divide. The divide manifests itself as an urban-rural divide, where access and services deteriorate significantly in rural and remote regions (India Development Review, 2023). The leading causes of this divide are, one, the lack of digital literacy where those with better education and literacy are significantly better at accessing benefits than others; and, two, a language divide, where 88% of the population does not speak English, which acts as a barrier to many facilities on the internet (Tewathia et al., 2020). Among the digitally excluded from rural areas, an alarming number are women, and those from very low-income groups, unable to afford internet access (Dey, 2022).

To address the digital divide, the government of India has taken major initiatives to connect the nation, including rural areas, with digital infrastructure and networks (Ganesan, 2023). The drop in internet prices in the country with the introduction of low-cost mobile data, by the private firm Jio, in 2018, increased Internet penetration and usage nationwide (Kamal, 2018). The global pandemic further accelerated the country-wide adoption of digital options (De’ et al., 2020).

While the government of India addresses the challenges of the digital divide, at the same time, it is also impelling citizens to adopt certain digital facilities, a subject we discuss next.

Digital enforcement

Díaz Andrade and Techatassanasoontorn (2021) examine the idea of dispossession of choice of citizens when governments worldwide move toward offering essential citizen services online, i.e., “digital enforcement” for access to essential services. This enforcement happens in different ways – removal of other, manual, options of availing services; forcing people to adopt digital services at critical moments; and increasing the cost of non-digital services. Digital enforcement is evident in different forms in the Indian context.

Denial of manual options

When demonetization was announced in India, on 8th November, 2016, it was a sudden and surprising move, wherein all five-hundred and thousand rupee notes in circulation were made redundant, and people were asked to deposit them in banks and receive newly minted banknotes (Pal et al., 2018). This was an immense hardship imposed on most citizens and subsequently led to a surge in digital payment transactions (Pachare, 2016). Though the initial move was justified as an attempt to remove unaccounted, or “black,” money from the economy, it was later explained as a move to encourage digital payments.

Such an aggressive policy left those on the wrong side of the digital divide in a difficult situation. Some simply could not engage in money transactions. Many small retailers from the unorganized sector lost customers to those with digital options (Pal et al., 2023).

The Aadhaar payment system too was subject to enforcement and “degenerative” errors (Masiero & Arvidsson, 2021). When Aadhaar was introduced in some states in India, it was to authenticate citizens who could avail subsidies on food rations. As the food ration system was “leaky,” in the sense that foodgrains that were meant to be distributed to the poor were sold in the open market at higher prices, the Aadhaar authentication system was introduced to ensure that only the targeted beneficiaries received the subsidized food (The Hindu, 2017). However, this was made mandatory in many distribution outlets, where the manual system was banned, and when Aadhaar-based digital authentication did not work, food rations were denied to users (Masiero & Arvidsson, 2021).

With the use of Aadhaar and bank accounts, the government also enforced payment of subsidies as cash, rather than as food directly available in shops. The idea was that users could withdraw the cash and pay for food or other needs, however, cash withdrawals required having skills and devices (phones) to avail it, which was sometimes not present (Masiero & Arvidsson, 2021). Marginal citizens, who would have preferred direct access to foodgrains, were forced into the digital option, which was worse for them.

Internet shutdowns

Internet shutdowns are intentional restrictions on internet or telecommunication access, thus blocking electronic information flows. These shutdowns result in “blackouts” or “curfews” where the user population is restricted from accessing services in a region, over a specific period of time, or restricted from using specific applications (Sampedro et al., 2022). Data on internet shutdowns across the world show a trend toward their increasing usage by governments (Skok et al., 2023). These shutdowns are enforced by governments either proactively, to prevent potential spread of rumors or misinformation, or reactively, to control security lapses or evolving, violent situations (Momen et al., 2020).

India has a record of implementing the most internet shutdowns for any country, the government was also termed as “brutal” for censoring content to halt the spread of possible violence through social media (Rajvanshi, 2023). The consequences of Internet shutdowns range from economic loss for businesses, where nearly all forms of platform transactions are halted, to loss of livelihood and freedom of expression for citizens (Kathuria et al., 2018; Momen et al., 2020). Shutdowns not only lead to suffering of people who depend on the internet services but also cause severe reputational damage to the country (Standing Committee on Communication and Information Technology, 2023).

The Indian states of Kashmir and Manipur have endured the longest internet shutdowns enforced by government. Kashmir faced the shutdown in overlap with the COVID period when most Indian cities, offices, and colleges were closed for physical interaction. Most transactions and payments were handled online. Kashmiri students were unable to move to online classes, and professionals were unable to work from home, owing to no connectivity (The Indian Express, 2021). Similar restrictions in the state of Manipur, due to civil strife, severely impacted the living conditions of citizens (Rajvanshi, 2023). In most of these instances, a high number of public interest litigations were filed for restoration of partial or full Internet access (Software India Law Centre, 2024).

Conclusion: responsible regulation

Though government regulations can boost digitalization and a modern, digital infrastructure, to enhance services to citizens and improve living conditions, they can also be used to restrain citizen choice, and force users into adverse situations. The examples of digital public goods, Aadhaar, and digital payments highlight the transformation happening in a developing country like India, while the examples of enforcement of payments, denial of Aadhaar subsidies, and internet shutdowns show the limitation of choice citizens face through digital processes.

Responsible regulation or regulation by governments that recognizes citizen choice and accounts for the limitations users have in using digital services, would have to be guided by some principles. We briefly highlight three: 1) when digital services are introduced, the older, alternate, methods of obtaining them should be retained as an option, so that citizens can resort to them when they cannot use or access digital services. 2) Even when manual options are retained, their costs should not be prohibitively higher, and should be equally affordable by citizens. 3) Complementary facilities, such as internet access, should be enabled and promoted, not restricted, for users to adopt the digital services.

The above three basic principles of responsible regulation would ameliorate the problems of digital enforcement and lack of choice that have emerged as a negative consequence of digitalization of government services. Their adoption by governments, across different profiles of countries, will help to soften the negative effects of the massive digital regime that entire societies are entering.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Notes on contributors

Rahul De’

Rahul De’ is currently Dean (Programmes) and Professor of Information Systems at Indian Institute of Management Bangalore. He was the Hewlett-Packard Chair Professor at IIM Bangalore for 14 years. He has a PhD from the University of Pittsburgh. His research interests lie in ICT for Development, AI Ethics, Electronic Government, Internet Governance, and Digital Transformation. He has published 4 books and over 90 articles in refereed journals, as book chapters, and in refereed conference proceedings. His articles have appeared, recently, in Information Systems Journal, Journal of Information Technology, and Research Policy. He has won two Outstanding Paper awards for his research. He serves on the editorial boards of five IS journals. He is one of the founding members of the Association for Information Systems (AIS) India Chapter (INAIS) and served as the President of INAIS. He served as Honorary Conference Chair of ICIS 2020 and ICIS 2023 conferences.

Abhipsa Pal

Abhipsa Pal is an Assistant Professor at the Indian Institute of Management Calcutta. Dr. Pal has a Ph.D. in Information Systems from the Indian Institute of Management Bangalore. Previously, she held a faculty position at the Indian Institute of Management Kozhikode, and earlier she was a senior software engineer at Infosys. Currently, her research interest spans the domains of mobile payments, technology use and adoption, ICT for development, and financial inclusion. She has published in top-tier international journals like Research Policy, Information Systems Frontiers, and others, and has presented her work at various international conferences, where her work received recognitions and awards.

Neena Pandey

Neena Pandey is an Assistant Professor at the Indian Institute of Management, Visakhapatnam, Andhra Pradesh, India. Dr. Neena works in the technology policy domain, on domains of Internet governance. She has analyzed the debate between multi-stakeholder and multilateral forms of Internet governance and the impact of Internet penetration on sponsored data policy. She is currently studying Internet shutdowns and adoption of two-sided platforms in government and public sector organizations. Her research has been published in the Journal of Information Technology and the International Journal of Information Management. Before her Ph.D., she had 9.5 years of corporate experience, during which she worked in firmware development firms like Samsung India, Sencore Electronics, and Verizon Data Services and acquired two patents. She holds an MSc in Statistics and an MTech in Computer Science & Engineering.