Apr 24, 2025 07:23 IST
First published on: Apr 24, 2025 at 07:20 IST
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This year’s budget announcements reaffirm the government’s continued focus on a Digital Public Infrastructure (DPI)-led approach for digital transformation, with continued allocations for Aadhaar and other ongoing digital missions for health and urbanisation. Many of these DPIs are now several years old, especially Aadhaar and UPI, which have scaled to serve millions across the country. Linked to 1,206 schemes, not only has Aadhaar benefited millions, government estimates also project fiscal savings of over 3 lakh crore (until March 2023). Despite this success, the government shies away from appropriate pricing of DPI services. Is scaling and diffusion of DPI the concern?
DPI’s advocates have often likened its purpose and application to physical infrastructure such as roads. When governments invest in building highways, they trigger spillover gains through growth and employment opportunities in adjoining areas. Similarly, DPIs such as Aadhaar have delivered beyond their immediate purpose. The recently announced Aadhaar Authentication for Good Governance Rules, 2025 expand the scope and utility of authentication to include private-sector services.
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Aadhaar-based authentication was launched in 2009, but was kept free of cost until December 2019. The fee structures were revised downwards in 2023, and currently vary by user type — telecom service providers pay Re 1 for e-KYC and other private entities pay Rs 3, while it’s free for government entities. Revenues from authentication services and self-service updates accounted for less than 40 per cent of expenditure in 2022-23. This explains the continued fund allocation to Aadhaar, not only for capital upgradation, but also for operations and maintenance.
UPI still mandates zero-cost services for basic peer-to-peer and merchant transactions, but has a nuanced fee structure for advanced services. For prepaid wallet instruments, merchants pay interchange fees on transactions above Rs 2,000, with rates varying by sector from 0.5 per cent to 1.1 per cent. Wallet loading also incurs service charges for transactions exceeding Rs 2,000. This approach may have contributed to UPI’s adoption across the economy, but it comes with substantial operational costs — Rs 781 crore in marketing and a 188 per cent increase in product incentives, amounting to Rs 367 crore. The Open Network for Digital Commerce (ONDC) presents a similar case. Despite massive growth, the latest financials show a deficit of Rs 19,561.70 lakh, against total expenditure of Rs 21,027.33 lakh in 2023-24. DigiLocker (budgeted at Rs 4,071 crore for FY 2025-26), is completely subsidised at the moment. With over 47 crore users, it offers free services despite the IT Rules, 2016 (Rule 15) allowing for service charges.
The sobering story of poor financial viability is plaguing all DPIs. The initial nudge to scale adoption at zero prices has left the government with a sticky situation that risks eroding high-value common goods. In 1968, Garrett Hardin, an American ecologist, argued that individuals acting in their own self-interest can deplete shared resources — popularly known as the tragedy of the commons. Free services may eventually lead to overuse and perhaps, misuse of the common infrastructure. Since UPI is free of charge, users don’t hesitate to make multiple micro transactions. This places technical pressure on the infrastructure, leading to performance issues. Additionally, fee prohibitions hurt competition. In UPI’s case, two tech giants now control 80 per cent of transactions, because larger companies can afford zero-fee models that are cross-subsidised through adjacent services. This undermines DPI’s purpose as open infrastructure by creating de facto gatekeepers.
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International experiences demonstrate that thoughtful pricing models not only prevent resource depletion but also create sustainable digital ecosystems. Singapore’s PayNow adopted a flexible merchant fee approach that provides incentives for small vendors. Jordan’s CliQ applies a 1 per cent merchant fee to ensure efficient utilisation of infrastructure.
The government is not blind to these concerns. The RBI’s discussion paper (2022) on payment system charges indicates that merchant fees may be under consideration. The expanded scope of authentication under the 2025 Aadhaar Rules also raises expectations of a relook at pricing authentication services. The launch of Entity Locker, the enterprise equivalent of DigiLocker, may also find more people favouring the “ability to pay” for a service. This may eventually nudge DigiLocker services to be priced, too.
Borrowing from the theory of multi-sided markets, DPIs, like other platform markets, allow for price levels to be strategically chosen for different groups of users — suppliers and consumers. Given the strong direct and indirect network effects that DPIs such as Aadhaar, UPI, Digilocker and ONDC have created, participation can continue to increase by setting prices that balance the needs of different groups. Public value maximisation may require some subsidisation, as already provided in building the infrastructure, but they need to be operationally viable. Lest we be misunderstood, the objective is not to deprioritise inclusion but to seek efficiency, by using appropriate pricing principles.
Gaur is policy advisor, Digital Impact Alliance and Kedia is senior fellow, ICRIER. Views are personal
