Page 36 - DIY Magazine June 2018

THE MODERNISATION OF INDIA OVER THE PAST DECADE
Avinash Vazirani has managed the Jupiter India Fund since its launch in February 2008. Ten years later, he takes a look back at some of India’s key reforms from the past deca
2009: AADHAAR - THE UNIQUE IDENTITY NUMBER ASSIGNED TO EVERY INDIAN RESIDENT
Before 2009, nearly half of India’s population did
not have any form of identification, stopping millions
of Indian residents from accessing basic services including banking or insurance 1
However, in 2009 this drastically changed with the introduction of Aadhaar, a unique 12-digit national identity number available to all residents in India. To receive an Aadhaar number, residents must provide the government with documents to verify their name, gender, age and address, as well as biometric information in the form of fingerprints and iris scans. To date, more than 1.2 billion Aadhaar IDs have been issued, covering 95% of the population.2 Aadhaar is much more than just an identity number – it has paved the way for several reforms over the past decade.
2011: DIRECT BENEFIT TRANSFERS – BENEFITS AND SUBSIDIES PAID DIRECTLY INTO BANK ACCOUNTS
In 2011 Aadhaar allowed for the Direct Benefit Transfer (DBT) system, enabling benefits and subsidies to be deposited directly into recipients’ bank accounts. The DBT system aims to reduce leakages by cutting out the middleman and stopping payments from ending up with the wrong beneficiaries.
The implementation of India’s social security and benefits system continues to develop at a rapid pace, and the DBT system should have been fully implemented by 31 March 2018.
The government is expected to have saved almost 750bn rupees since 2014 due to DBT.3 It should also benefit the masses too, stimulating consumer demand by allowing a greater proportion of the population to become economically active.
There are already around 870 million bank accounts linked to Aadhaar4 , and by the end of March it will be mandatory for banks to verify and link Aadhaar to all bank accounts.
2016: DEMONETISATION – A SHIFT FROM PHYSICAL TO FINANCIAL SAVINGS
In November 2016, in a surprise broadcast from the government, Prime Minister Modi announced that all high-denomination (500 and 1,000 rupee) currency notes would be removed from circulation, representing around 86% of India’s cash by value.5
This was a bid by the government to reduce levels of unaccounted for wealth, or ‘black money’, and helped to formalise the financial system. India is a predominantly cash economy, and as a result, demonetisation has caused disruption in the short term. Nevertheless, it should come with huge positive long-term implications for the Indian economy. It has encouraged people to deposit their cash reserves into the banking system, which means that people are increasingly moving savings from physical assets (e.g. property and gold) to financial assets, and has helped contribute to the shift towards digitisation.
2017: THE GOODS & SERVICES TAX – TRANSFORMING A PATCHWORK OF TAXES INTO A SINGLE REGIME
The Goods & Services Tax (GST) was brought into law in July 2017, transforming India’s patchwork of state goods and services taxes into a single tax regime. India consists of 29 states, and before GST every time an Indian company wanted to sell goods or services across those state borders there would be taxes to pay.
The complexity of this system made logistics very onerous and costly in itself. GST replaced 17 state and federal levies and now, for the first time since its independence in 1947, India is one common market.
DIY Investor Magazine | Jun 2018 36