India`s push to digitize has seen its economy undergo massive changes, but that presents a multi-trillion dollar investment opportunity as both tax compliance and access to credit increase, according to Morgan Stanley.
Prime Minister Narendra Modi`s push to digitize the Indian economy has seen the introduction of Aadhaar — a unique identification number based on biometric information issued to residents of India — and attempts to reduce dependency on physical cash, although last November`s surprise demonetization drive caused plenty of disruption.
Still, as the Indian economy returns to a sense of normalcy, the country could be set to reap the benefits of those reforms.
"The good thing with digitization, apart from bringing more cash into the economy . is credit," Anil Agarwal, head of Asian financial research at Morgan Stanley, told CNBC on the sidelines of the bank`s Asia Pacific Summit in Singapore.
India`s problem, Agarwal explained, was that most lending that occurred in the formal sector went to large corporations or mortgages as banks did not have access to data on individuals or small and medium enterprises (SMEs) that wanted to take out loans.
As the adoption of digitization improves, tracking the credit history of individuals or SMEs is expected to become simpler and that`s likely to give a boost to the economy.
"[T]hat will allow banks to be able to lend much more effectively, so the credit will flow to the right part of the economy," Agarwal said.
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