Macro thinker and author of the institutional newsletter, Global Macro Investor, Raoul Pal, identifies big trends ahead of time and has 24,000 Twitter followers. He enunciates that the next big macro idea is India.
Pal says, “India has built the world’s first national digital infrastructure, leaping at least two generations of financial technologies and has built something as important as the railroad was to the U.K. or the interstate highways were to the U.S. India is now the most attractive major investment opportunity in the world.
Pal outlines 7 phases that has made India the biggest emerging market macro story in the world. Lightly edited excerpts follow:
Phase 1 – The Aadhaar Act
In 2009, India launched a project called Aadhaar, and began creating a biometric database based on a 12-digit digital identity, authenticated by finger prints and retina scans, to identify and document its population. As of 2016, 1.1 billion people or 95% of the population now has a digital proof of identity.
Phase 2 – Banking Adoption
The Government of India allowed the creation of eleven Payment Banks, which can hold money but don’t do any lending. To motivate people to open accounts, the government offered free life insurance, and linked bank accounts to social welfare benefits. Within three years, more than 270 million bank accounts were opened and $10bn in deposits flooded in. People who registered under the Aadhaar Act could open a bank account using just their Aadhaar number.
Phase 3 – Building Out a Mobile Infrastructure
Since people were able to instantly open a mobile phone account using their Aadhaar identification, mobile phone penetration surged and went from 40% of the population to 79% within a few years.
The Unique Identification Authority of India, which administers Aadhaar, met with executives from Google, Microsoft, Samsung and Qualcomm, among others, to develop Aadhar-compliant devices which can integrate features such as secure cameras and iris authentication. Microsoft launched a lite version of Skype designed to work on an unstable 2G connection, and which is integrated with the Aadhaar database, so video calling can be used for authenticated calls.
Phase 4 – UPI – A New Transaction System
On December 30, 2016, the government launched Bharat Interface for Money, a digital payments platform using a Unified Payments Interface by which payments can be made by those with Unified Payments Interface accounts to those that do not have such accounts. Additionally, people can check their bank balances, and use QR codes for instant payments on this digital payments interface. Payments can now be made without using mobile phones — just using fingerprints and an Aadhaar number is required. This system works on a 2G network so it reaches even the most remote parts of India. It will revolutionize the agricultural economy, which employs 60% of the workforce and contributes 17% of GDP. Farmers will now have access to bank accounts and credit, along with crop insurance.
Phase 5 – India Stack – A Digital Life
India Stack is a framework that will make the new digital economy work seamlessly. It’s a set of APIs (Application Programming Interface) that allows governments, businesses, startups and developers to utilize a unique digital infrastructure via a presence-less, paperless and cashless service delivery.
Essentially, it is a secure Dropbox for a person’s entire official life and creates what is known as eKYC: Electronic Know Your Customer.
Using India Stack APIs, all that is required is a fingerprint or retina scan to open a bank account, mobile phone account, brokerage account, buy a mutual fund or share medical records at any hospital or clinic in India. It also creates the opportunity for getting instant loans and brings insurance to the masses, particularly life insurance.
India Stack is the largest open API in the world and will allow for massive fintech opportunities to be built around it. India is already the third largest fintech center but it will jump into first place in a few years. The country is already organizing hackathons to develop applications for the APIs.
Phase 6 – A Cash Ban
The cash ban of November 2016 forced everyone into the new digital economy. It has the hugely beneficial side-effect of reducing everyday corruption, recapitalizing the banking sector and increasing government tax take, thus allowing India to rebuild its crumbling infrastructure.
India was a cash society but once the dust settles, cash will account for less than 40% of total transactions in the next five years. It may eliminate cash altogether in the next ten years.
Phase 7 – The Investment Opportunity
The future for India is massive technological advancement, a higher trend rate of GDP and more tax revenues. Tax revenues will fund infrastructure – ports, roads, rail and healthcare. Technology will increase agricultural productivity, online services and manufacturing productivity.
Telecom, banking, insurance and online retailing will boom, as will the tech sector. FDI is already exploding and will rise massively in the years ahead as technology giants and others pour into India to take advantage of the opportunity.