The Economic Case for Digital Public Infrastructure

AADYA GUPTA, SUYASH RAI

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Drawing on insights from discussions that took place at the Global Technology Summit 2023 in New Delhi, this commentary delves into the economic case for digital public infrastructure (DPI). We examine the potential it holds, the challenges it faces, and the collaborative efforts required to overcome these challenges.

THE ECONOMIC POTENTIAL OF DPIS

DPIs offer economic opportunities both globally and at the country level. For example, fast payment systems such as India’s Unified Payments Interface (UPI) and Singapore’s PayNow enable faster domestic as well as international transactions, allowing users to pay merchants in various countries. In this way, by providing a foundational digital framework, DPIs can enable businesses to innovate and expand their reach. For example, the UPI ecosystem also triggered the development of creative products in the financial sector, covering services like P2P transactions and investments. This infrastructure could become a catalyst for economic growth and efficiency, particularly in sectors where digital intervention was hitherto limited.

Under the right conditions of interoperability and incentives for innovation, DPIs could offer a level playing field for small businesses, where they can innovate and compete with larger firms. In this regard, governments and regulators can play a critical role in ensuring fair competition and encouraging private sector participation in DPI. For larger, established businesses, integrating DPI can involve costs and operational changes. This may entail complex interactions between the government, industry, and consumers, which can be resolved by focusing on practical use cases.

Some countries, such as India, Brazil, Singapore, and Estonia, have already successfully adopted DPIs. Beyond payment, identity, and data-sharing systems, multiple use cases of DPI can also be found for improving logistics and delivery systems and building inclusive social protection systems.

COLLABORATION, TRUST, AND COMPETITION IN DPI EXPANSION

The true potential of DPI lies in its ability to give all private sector players the opportunity to build solutions (via interoperability), thereby fostering innovation and accelerating progress toward development goals. Collaborative efforts between the government and the private sector are essential for the success of DPIs. The GPS system serves as an example of a public good that was turned into a platform for private innovation—in this case, the lowest level of a public good (mapping data) was made available to the private sector to build a service. This data “club” model, where a government-owned, non-competing good is made available at low costs, provides a parallel to DPIs. Applications of DPI can be replicated using this model, where companies create derivative products from the data made available through a public good.

Ongoing collaboration among various actors, including governments, private-sector players, and regulatory bodies, can help establish a reliable and efficient DPI ecosystem. However, there are two primary challenges to realizing the full potential of private sector participation in DPIs. First, there is a need for private companies to have confidence in the role they play in the ecosystem. The government can overcome this challenge by providing signals on key economic variables like risk and revenues. Building a clear regulatory framework around DPIs and data that gives firms predictability and trust would prove instrumental in this regard.

Second, the network effects of DPIs tend to create monopolization. As the users of a DPI increase, the benefits it creates for other users also increase. Consider the case of a DPI for payments, like UPI—its success is a result of its widespread user base. The downside to this is the likelihood of market concentration around one provider and possible monopolization. This is a concern, especially for small businesses that may have insufficient bargaining power. It can be mitigated by leveling the playing field to allow all private players to build DPIs, by ensuring open access to DPIs, and by implementing competition regulation. In this regard, promoting and preserving competition in the DPI space is crucial. A competitive environment ensures that the benefits of DPI are widely distributed, encourages innovation, leads to better services, and sidesteps monopolistic tendencies.

Creating a business ecosystem that balances the powers of the government and the private sector is also vital. This requires inclusive governance and efficient regulatory roles that are focused on balancing interests, all while placing customers at the center. The approach should be to align public and private interests, in addition to fostering fair competition and innovation.

DPIs also present the possibility of facilitating collaboration across borders through international transactions. However, cross-border DPIs present unique challenges in terms of interoperability and governance. They also present the challenge of building trust across diverse regulatory frameworks. In this regard, developing shared governance models and interlinked systems can help create benefits from cross-border usage of DPIs. Such coordination and cooperation will not only facilitate cross-border activities but also help realize the full potential of DPIs.

In Africa, the West African Economic and Monetary Union and the Economic Community of Central African States have been instrumental in building cross-border systems, particularly in the payments sector. This regional approach allows private sector scalability beyond national borders. Further, bilateral arrangements such as the UPI-PayNow linkage may also help reap the benefits of DPIs across borders.

CONCLUSION

These discussions reveal the potential of DPIs to improve the economic landscape, as well as the complexities involved in this process. The success of DPIs hinges on effective collaboration among various stakeholders, building trust, promoting and preserving competition, and maintaining a balance between public and private interests. A continued dialogue on practicalities and regulations is also essential for navigating the intricacies of DPI implementation. Additionally, a concerted effort from governments, private sectors, and international bodies is necessary to harness the full potential of DPIs, thus ensuring equitable and sustainable economic growth.