Infosys Chairman Nandan Nilekani on India's Digital Economy I Kotak Institutional Equities highlights details

Kotak Institutional Equities report highlights that Nandan Nilekani, Co-founder and Chairman at Infosys says that a strong foundation is laid down for the next leg of digital transformations. India has laid the rails for a digital economy over the past decade.

Nilekani noted that:

(1)    the proliferation of mobile and 4G
(2)    1.3 bn Indians adopting Aadhaar
(3)    700 mn Aadhaar-linked bank accounts
(4)    rapid adoption of UPI has till now catered towards providing transactional efficiency.

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Nilekani opined that the future is going to be reliant on utilization of data. In his view, accelerated adoption of digital technologies during Covid-19 can deliver large benefits in the areas of lending, health and education.

Nilekeni said that Digital credit will drive a big part of credit growth going forward, particularly flow based credit, given the access to transaction data for underwriting. Small businesses can be empowered as they can have easier access to working capital digitally under the OCEN framework, which in turn will accelerate their growth and create future job opportunities.

Bank margins likely to be impacted:

Nilekeni said that over the next few years, the spreads for bank lending are likely to decline. But banks will have the lever of costs to shore up their profitability, both on operating costs (which could be reduced with digital transformations) and credit costs (which can be controlled with better underwriting based on alternate data). Banks with highly scalable and efficient business processes will stand to benefit as the business moves to a high volume, low size and low transaction cost regime, but the sharp increase in volumes will offset the margin compression.

Healthcare:

Nilekeni highlighted that Use of digital technologies will further increase in the healthcare sector. He mentioned that the National Digital Health Mission (NDHM) was created before the pandemic, aimed at building the backbone for integrated digital health infrastructure. NDHM was to create registries of hospitals, doctors, etc. as well as electronic health records for everyone including a digital identification. The pandemic has hastened this process. The ongoing vaccination program is expected to contribute a large data-set for this program.

Direct benefit transfer:

Nilekeni said that India did a great job in distributing emergency benefits during the pandemic. One of the world’s largest cash transfer programs was done through electronic transfer into the Aadhaar-linked bank accounts of the beneficiaries in real time. On the other side of the DBT system, micro ATMs and the Aadhaar-enabled Payment System (AePS) ensured that beneficiaries could access these funds easily.

Future of ‘work from home’:

Work from home’ has reduced the barriers for people to get work done remotely. The industry has accepted the same and the government, too, has been supportive. During the pandemic, the government relaxed restrictions on companies operating from SEZs and software parks. If this becomes a permanent feature, companies can get new degrees of freedom to their operations. In the US, there have been migrations from California to Texas as well as from New York to Florida. As jobs become more flexible on location, more office jobs can see offshore relocations. In such a scenario, India can be a big beneficiary because more of the work can be done from her