This information that I received via the Mauldin newsletter is quite a remarkable story. The writer is well-known in investment circle, I am told. India and its population have suffered from inequities for centuries but have made the leap beyond my belief to equality and basis for growth. Just mind-boggling!
Quotes from newsletter:
By Raoul Pal
March 2017
I’m going to blow your mind with this following article. My mind is still reeling from my discovery and from writing this piece.
Let me enlighten you...
Companies that create massively outsized technological breakthroughs tend to capture the investing population’s attention and thus their share prices trade at huge multiples, as future growth and future revenues are extrapolated into the future.
From time to time, entire countries re-model their economies and shift their growth trajectory. The most recent example was the liberalisation of China’s economy and massive spending on infrastructure, which together created an incredibly powerful force for growth over the last two decades.
But it is very rare indeed that a country develops an outsized technological infrastructure breakthrough that leaves the rest of the world far behind.
But exactly this has just happened in India... and no one noticed.
India has, without question, made the largest technological breakthrough of any nation in living memory.
Its technological advancement has even left Silicon Valley standing. India has built the world’s first national digital infrastructure, leaping at least two generations of financial technologies and has built something as important as the railroad was to the UK or the interstate highways were to the US.
India is now the most attractive major investment opportunity in the world.
It’s all about something called Aadhaar and a breathtakingly ambitious plan with flawless execution.
What just blows my mind is how few people have even noticed it. To be honest, writing the article last month was the first time I learned about any of the developments. I think this is the biggest emerging market macro story in the world.
Phase 1 – The Aadhaar Act
India, pre-2009, had a massive problem for a developing economy: nearly half of its people did not have any form of identification. If you were born outside of a hospital or without any government services, which is common in India, you don’t get a birth certificate. Without a birth certificate, you can’t get the basic infrastructure of modern life: a bank account, driving license, insurance or a loan. You operate outside the official sector and the opportunities available to others are not available to you. It almost guarantees a perpetuation of poverty and it also guarantees a low tax take for India, thus it holds Indian growth back too.
Normally, a country such as India would solve this problem by making a large push to register more births or send bureaucrats into villages to issues official papers (and sadly accept bribes in return). It would have been costly, inefficient and messy. It probably would have only partially worked.
But in 2009, India did something that no one else in the world at the time had done before; they launched a project called Aadhaar which was a technological solution to the problem, creating a biometric database based on a 12-digit digital identity, authenticated by finger prints and retina scans.
Aadhaar became the largest and most successful IT project ever undertaken in the world and, as of 2016, 1.1 billion people (95% of the population) now has a digital proof of identity. To understand the scale of what India has achieved with Aadhaar you have to understand that India accounts for 17.2% of the entire world’s population!
But this biometric database was just the first phase...
Phase 2 – Banking Adoption
Once huge swathes of the population began to register on the official system, the next phase was to get them into the banking system. The Government allowed the creation of eleven Payment Banks, which can hold money but don’t do any lending. To motivate people to open accounts, it offered free life insurance with them and linked bank accounts to social welfare benefits. Within three years more than 270 million bank accounts were opened and $10bn in deposits flooded in.
People who registered under the Aadhaar Act could open a bank account just with their Aadhaar number.
Phase 3 – Building Out a Mobile Infrastructure
The Aadhaar card holds another important benefit – people can use it to instantly open a mobile phone account. I covered this in detail last month but the key takeaway is that mobile phone penetration exploded after Aadhaar and went from 40% of the population to 79% within a few years...
The next phase in the mobile phone story will be the rapid rise in smart phones, which will revolutionise everything. Currently only 28% of the population has a smart phone but growth rates are close to 70% per year.
In July 2016, the Unique Identification Authority of India (UIDAI), which administers Aadhaar, called a meeting with executives from Google, Microsoft, Samsung and Indian smartphone maker Micromax amongst others, to talk about developing Aadhaar compliant devices.
Qualcomm is working closely with government authorities to get more Aadhaar-enabled devices onto the market and working with customers – including the biggest Android manufacturers – to integrate required features, such as secure cameras and iris authentication partners.
Tim Cook, CEO of Apple, recently singled out India as a top priority for Apple.
Microsoft has also just launched a lite version of Skype designed to work on an unstable 2G connection and is integrated with the Aadhaar database, so video calling can be used for authenticated calls.
This rise in smart, Aadhaar compliant mobile phone penetration set the stage for the really clever stuff...
Reply With Quote
Originally Posted by Yppej
