Digital capital will aid formalisation of economy: Infosys cofounder Nandan Nilekani

Digital capital or information collateral, as in the case of the Account Aggregator model, lays the foundation of increased formalisation of the economy, Infosys cofounder and non-executive chairman Nandan Nilekani said on Wednesday. This architecture can be replicated across other areas such as the National Health Authority which is using a similar architecture, he added.
India has a small formal economy with a narrow taxpayer base which has significant potential to grow in the future, said Nilekani speaking at an event by Sahamati- an account aggregator collective in Mumbai. AAs are entities licensed by the RBI to enable the flow of data between Financial Information Providers (FIPs) and Financial Information Users (FIUs) to ensure quick sharing of data for availing credit. The user has to give consent on what data can be shared.

"It (AA architecture) lays the foundation for formalisation because the challenge that India and many countries face is how to create large formal economies," said Nilekani.

He said the ability to avail credit using their data gives people an incentive to join the formal system and improve financial awareness to shift asset holdings from traditional real estate and gold to financial assets. "The important thing about the aggregator model is that it is cross sectoral in the sense that this infrastructure can be applied beyond financial markets. You can use for skills, educational records, health records and so on," he added.

Nilekani said that the consent mechanism provided by the AA model makes it easy to implement. "The fact that you can actually say what kind of consent you are giving and define the duration of consent as well as the purpose of use, it's a very unique thing," he added.

He said use cases in capital markets and insurance will be particularly relevant for this model.