Digital Identity and the economic transformation of India

by LS Subramanian, NISE , August 22, 2013

The government of India is slowly building a digital footprint of every citizen. Can it lead to economic transformation?

We are a proud nation of more than 1.2 billion people but we have only 36 million people who pay income tax which is about 3 percent of the population. Nowhere else in the world is this number so low as a percentage of the taxpaying population.  If we want a democratic government which delivers then the coffers of the government need to be filled by taxpaying citizens.

It is estimated that at least fifty percent of the population will be eligible to pay taxes in India. To overcome tax evasion the government has aggressively focused on indirect taxes – the most prominent being service tax. Even a cobbler and barber are expected to pay service tax.

Digital identity will be the key to increase the tax paying population of India. In this direction, there are various initiatives which the government has started which in a few years will give enough data to collect tax revenue from these citizens.

The first and most important is the use of Financial Inclusion for the poor by providing bank accounts for receiving government subsidies. Government recognizes that even those who are not eligible are registering for these schemes but once the data is collected the government will start purging and draw those not eligible into the tax next and will punish citizens who misuse these facilities.

The second step has been the insistence on e-filing of tax returns with the income tax department for any income of more than Rs 5 lakhs. This again gives the tax department a huge amount of digital data to enforce tax collection at a later date.

The third and most important is Aadhar (UIDAI) which will enforce a digital identity for citizens and has been linked to government handouts and other economic support. This single card has enough digital footprint to slowly curb benami (holding of property and other financial instruments in secondary identities) and reduce underground economic activity over a period of time because it collects biometric information from all participants.

The digital collection of citizen data should be accelerated and also their holdings or land, property and other immovable and movable properties need to be brought into the digital records to curb the menace of black money.

Digital money in mobile and plastic cards being introduced by the government will also ease the flow of cash in the system so as to reduce the flow of cash in the India economy which will be a major boost to curbing the menace of black money.

Digital records of land transactions and sale and purchase of real estate and other immovable properties will also help the government to target citizens who do not pay taxes.  Also digital records of people who buy vehicles and luxury equipment is being collected by the government since all these transactions are taxable. The government can use data analytic tools to easily find those who may be eligible to pay tax to the government.

The future of this country lies in increasing the taxpaying population from 3 percent to at least 30 percent -- a 10 fold increase will result in a significant increase in tax revenue which is easily doable with digital technology. Only then will the government have enough money for its noble schemes for social justice like financial inclusion, basic work and food for all and building of infrastructure.
Coupled with this, the tax department must open collection centers at each district headquarters and appoint collection agents at a taluka level to identify taxable opportunities at ground level and make it a level playing field for all citizens of India.

It is high time that Indians who are some of the best ICT professionals in the world lead this effort of digitizing the country and make this country a economic powerhouse by using  digital identification of citizens for economic transformation. 

 - LS Subramanian is a cloud evangelist who believes "The Future of Computing is the Cloud", he is the founder president of NISE. The views and opinions expressed herein are those of the author

About Author

LS Subramanian is a cloud evangelist who believes "The Future of Computing is the Cloud." He is the Founder President of NISE. 

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