Why the State Must Reclaim Digital Markets: India’s DPI, UPI & the Future of Open Digital Infrastructure
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| India’s Digital Public Infrastructure model is reshaping markets by creating open, interoperable, and accessible digital rails for all.(Representing ai image) |
State Should Reclaim Its Role and Shape Digital Markets: An Economic Analysis of India’s Digital Public Infrastructure Moment
- Dr.Sanjaykumar pawar
Table of Contents
- Introduction
- The Illusion of Competition in Digital Markets
- Why Digital Ecosystems Have Become Economic “Walled Gardens”
- The Rising Policy Question: Should the State Reclaim Market-Shaping Powers?
- India’s Distinct Response: Digital Public Infrastructure (DPI)
- UPI as a Zero-Cost Public Rail: A Case Study in State-Led Market Design
- How DPI Reframes the Government’s Role as an Architect, Not a Regulator
- Risks: Re-Monopolisation, Data Capture, and New Gatekeepers
- Building Institutional Safeguards for Future-Ready Digital Markets
- A Framework for a Sovereign, Open, and Contestable Digital Economy
- Visuals (Charts/Graphs) and What They Tell Us
- Conclusion
- FAQ
- References / Further Reading
1. Introduction
Over the past decade, digital markets have transformed into sprawling and deeply interconnected ecosystems—complex webs of apps, cloud infrastructures, data streams, payment systems, and algorithmic decision-making. At first glance, these markets appear vibrant and competitive. Yet, beneath the surface, a small group of powerful private platforms increasingly act as gatekeepers. They shape everything from operating systems and app store policies to search visibility, cloud access, and digital payments. This silent consolidation raises an urgent question for the future of the global digital economy: If digital markets naturally drift toward concentration, should the state reclaim a more active role—not just as a regulator, but as an architect—to guarantee openness, neutrality, and broad-based participation?
India is emerging as one of the most compelling answers to this question through its bold Digital Public Infrastructure (DPI) strategy. Platforms such as Aadhaar, UPI, DigiLocker, and ONDC illustrate a unique model: open, interoperable digital rails designed to empower users and enable competitive innovation rather than lock them into closed ecosystems. By functioning as digital commons instead of proprietary walled gardens, these systems offer an alternate vision of how countries can shape equitable digital markets.
This blog explores how India’s DPI model redefines the role of the state in the digital era, why the reaffirmation of UPI as a zero-cost payment system holds global significance, and what guardrails policymakers must establish to prevent these public systems from becoming captured by new monopolistic interests.
Blending insights from economics, technology, policy, and governance, this analysis aims to offer readers a clear, human-centered understanding of the rapidly evolving digital landscape. As nations grapple with platform power and the future of digital competition, India’s experience provides timely lessons—and a blueprint worth studying.
2. The Illusion of Competition in Digital Markets
At a glance, today’s digital economy looks vibrant and competitive. Consumers see countless apps, platforms, and online services promising convenience and innovation. We browse from multiple app stores, choose among payment systems, compare delivery apps, and store our data in seemingly endless cloud environments. But when we look beyond the surface, economic analysis reveals a far more concentrated reality. What appears to be choice often masks a deeper lack of meaningful competition.
Why Competition Is Often a Mirage
Dominant digital firms rely on similar exclusionary strategies that subtly limit alternatives while expanding their own power. These practices rarely look anticompetitive at first glance, but together they form a tightly controlled ecosystem:
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Bundling core services with adjacent ones
Companies tie essential features to complementary products—messaging, storage, payments, identity services—making it inconvenient or costly for users to mix and match providers. -
Controlling access to critical data flows
Data is the lifeblood of digital markets. By owning and restricting data access, platform leaders prevent emerging competitors from achieving the scale needed to compete. -
Restricting interoperability
When products cannot communicate or integrate easily, users face friction when trying to switch. This reinforces platform loyalty—even when better alternatives exist. -
Using network effects to lock users in
The value of a platform grows with each additional user. These network effects create self-reinforcing cycles that tilt the market toward a few powerful incumbents.
Together, these strategies create high barriers to entry, limit user mobility, and generate feedback loops that further consolidate control. As a result, markets that seem competitive may function more like controlled ecosystems.
A Useful Economic Analogy: The Digital Airport
Digital ecosystems often operate like airports. While multiple airlines (apps or services) may appear inside, it is the airport owner—the platform orchestrator—who sets the rules. They determine who gets access, how much it costs, and what terms apply. Even if many ecosystems exist, each one becomes a localized monopoly, where users are free to choose within the system but face friction if they try to leave it.
In this way, digital markets can create an illusion of choice while quietly centralizing power. Recognizing this structure is key to understanding why real competition remains limited—and why regulatory scrutiny is increasingly focused on the gatekeepers shaping our digital lives.
3. Why Digital Ecosystems Have Become Economic “Walled Gardens”
In today’s hyper-connected economy, digital ecosystems like Android, iOS, Meta, Google Pay, Amazon, and Jio have evolved into powerful economic walled gardens. These platforms are no longer single products—they are self-reinforcing digital bubbles that control the flow of users, data, services, and innovation. Their dominance is rooted in how tightly they manage four critical layers of the digital stack.
1. Infrastructure Control Creates Locked-In Users
At the foundation is the infrastructure layer—operating systems, devices, cloud networks, and core APIs.
Platforms like iOS and Android determine how apps operate, what features developers can access, and how deeply third-party services can integrate. This control quietly creates high switching costs for both users and developers, making the ecosystem exceedingly sticky.
2. Discovery Layer Shapes What the World Sees
The second layer is the discovery layer—search engines, app stores, and recommendation algorithms.
By controlling what gets visibility, these ecosystems effectively decide:
- Which apps rise
- Which businesses get discovered
- Which creators gain audiences
This influence is so strong that discovery itself becomes a gatekeeping function, giving platform owners enormous leverage.
3. Service Layer Determines Everyday Digital Behavior
Digital giants also run crucial service layers, including payments, messaging, identity systems, and logistics. Whether it’s Google Pay handling transactions, Meta enabling social interactions, or Amazon driving e-commerce, users become embedded in a seamless environment. The more services a platform adds, the deeper the consumer dependency—and the harder it is to exit.
4. Data Layer Reinforces Power Through Intelligence
The final pillar is the data layer, where behavioral, transactional, engagement, and preference data converge. Access to such integrated datasets gives platforms the ability to:
- Personalize services
- Predict user habits
- Optimize recommendations
- Build new revenue streams
This data-driven feedback loop fortifies their dominance and fuels continuous expansion.
Why Regulation Struggles
Even when governments attempt to regulate these ecosystems, the pace of innovation far outstrips regulation. New features, policies, and technologies are released long before rules can adapt. As a result, digital giants stay ahead by constantly tweaking algorithms, redesigning services, and shifting business models, making ex-post regulation largely reactive.
Today’s digital ecosystems have become walled gardens because they control every layer of the digital economy—and they innovate faster than regulators can respond.
4. The Rising Policy Question: Should the State Reclaim Market-Shaping Powers?
For most of modern history, states served as the architects of foundational infrastructure. Governments built and maintained the systems that made economic growth possible—roads, power grids, public telecom, and even early financial rails. These were long-term, capital-intensive projects with one purpose: enable markets to function fairly and efficiently.
But in the digital era, this pattern quietly shifted. The foundational layers of the digital economy—cloud platforms, search engines, app stores, payment rails, identity systems, and even AI models—have been outsourced to private corporations. Big Tech didn’t just build products; they built the new infrastructure on which modern business depends.
And unlike physical infrastructure, digital infrastructure is programmable. The orchestrator of a digital platform can:
- Shape market behavior through algorithms, pricing rules, and data access
- Create dependencies that lock companies, developers, and consumers into proprietary ecosystems
- Decide which businesses flourish by controlling visibility, distribution, and platform privileges
This programmable nature gives private companies market-shaping power once reserved for the state. As a result, a key policy debate is emerging:
Should the state remain a passive regulator—or reclaim the power to design the foundational layers of digital markets?
1. Regulation Alone May Not Be Enough
Traditional regulation assumes the state is an external referee. But when digital markets are built on privately governed infrastructure, the “rules of the game” are embedded in code and architecture—not policy documents. This limits what regulators can fix after the fact.
2. Programmable Infrastructure Is a Public Good
Digital identity, data portability, cloud interoperability, and AI safety layers increasingly look like 21st-century public utilities. Leaving these exclusively to corporations risks monopolies, algorithmic bias, and economic vulnerability.
3. State-Led Foundations Can Enable Fairer Competition
If governments design open, neutral digital foundations—much like they built highways—businesses can innovate on top without gatekeeper interference. This model could reduce platform dependency and support healthier, more competitive digital ecosystems.
4. The Goal Isn’t Nationalization—It’s Market Stewardship
Reclaiming market-shaping powers doesn’t mean the state should replace private innovation. Instead, it means setting the foundational rules, building shared infrastructure, and ensuring that no private actor becomes the de-facto governor of the digital economy.
As programmable infrastructure becomes the backbone of modern markets, the question is no longer if the state should intervene—but how boldly it should reclaim its historic role as a market shaper.
5. India’s Distinct Response: Digital Public Infrastructure (DPI)
India has charted a unique path in the global digital landscape through its Digital Public Infrastructure (DPI). Unlike traditional approaches that rely on private intermediaries or centralized systems, India’s DPI is designed as a modular, open, and interoperable platform. This allows any service provider—public or private—to plug in and offer services, fostering a vibrant ecosystem of innovation without dependency on gatekeepers.
Core Components of India’s DPI
India’s DPI ecosystem includes several foundational platforms that have transformed everyday digital interactions:
- Aadhaar – Serving as a universal digital identity, Aadhaar provides residents with a unique ID, enabling secure access to a range of services.
- UPI (Unified Payments Interface) – UPI has revolutionized digital payments in India, making instant, interoperable transactions possible across banks and wallets.
- DigiLocker – A digital document exchange platform that allows citizens to securely store and share official documents online.
- FASTag – Facilitates seamless electronic toll payments, reducing traffic congestion and enabling efficient revenue collection.
- ONDC (Open Network for Digital Commerce) – Encourages open e-commerce networks, allowing small businesses to compete with larger players without being tied to a single platform.
- Account Aggregators – Securely consolidate financial data from multiple institutions, empowering better financial decision-making for individuals.
- ABDM (Ayushman Bharat Digital Mission) – Digitizes health records, ensuring safe, portable, and accessible healthcare information across India.
Why India’s DPI Stands Out
The key insight behind India’s approach is that DPI is not a regulatory tool—it is a market-design tool. Instead of controlling or restricting services, India’s DPI creates a foundation on which innovation can thrive. Startups, fintech companies, and public agencies can all build on these interoperable systems without having to develop infrastructure from scratch. This approach dramatically lowers barriers to entry, accelerates service delivery, and fosters competition, ultimately benefiting citizens.
Moreover, the modularity and openness of India’s DPI encourage experimentation and scaling. New services can plug into existing platforms, ensuring that digital innovation is not stifled by proprietary systems. By emphasizing interoperability and accessibility, India has created a digital commons that empowers individuals, businesses, and governments alike.
In conclusion, India’s Digital Public Infrastructure represents a forward-thinking model for building a digital society. By focusing on open, modular, and interoperable systems, India has demonstrated how governments can enable innovation, promote inclusivity, and transform markets—setting a blueprint that other nations may look to replicate.
6. UPI as a Zero-Cost Public Rail: A Case Study in State-Led Market Design
In 2024–25, the Reserve Bank of India (RBI) reaffirmed that UPI will remain a zero-cost payment rail for users, reinforcing its status as a public utility in the digital payments ecosystem. This commitment is not just symbolic—it carries profound economic and market implications that highlight how state-led infrastructure can shape competitive markets.
1. Protecting UPI from becoming a privately-controlled toll road
By ensuring zero-cost access, the RBI prevents any single firm from turning UPI into a proprietary platform. Without fees or transactional lock-ins, no private entity can monopolize the payment landscape. This protection is crucial because it allows businesses and consumers to adopt UPI freely, promoting financial inclusion across income groups. Unlike private payment networks that often charge merchants or users for access, UPI remains open, ensuring that the benefits of digital payments are widely shared.
2. Preserving UPI as a competitive, neutral infrastructure
UPI’s zero-cost model positions it as a neutral infrastructure layer in the payments ecosystem. Unlike Visa or Mastercard, which often focus on high-value or cross-border transactions, UPI is designed for mass adoption. Its neutrality ensures that every transaction, whether for a small grocery purchase or a major business payment, receives the same treatment. This creates a level playing field where fintech innovators can build services on top of UPI without being disadvantaged by preferential treatment or hidden fees. The result is a flourishing ecosystem of apps, wallets, and payment services that leverage a shared, state-backed platform.
3. Demonstrating state commitment to subsidized digital infrastructure
UPI exemplifies how the state can act as a market designer, subsidizing core digital infrastructure for societal benefit. Much like public roads, which are maintained for the common good, UPI functions as a shared digital commons. Private players can innovate and compete on top of this infrastructure, but the underlying rails remain free and accessible to all. This approach ensures that digital payments are not limited to profit-driven gatekeepers but serve as a foundation for inclusive economic growth.
The impact is evident: UPI now processes more than 12 billion transactions per month, surpassing the combined volumes of most global payment systems. This case demonstrates that when designed thoughtfully, public payment rails can outperform private alternatives, driving adoption, innovation, and financial inclusion at an unprecedented scale.
In sum, UPI’s zero-cost framework showcases a successful example of state-led market design, proving that public digital infrastructure can be both scalable and inclusive. It sets a global benchmark for how governments can foster competitive, equitable digital ecosystems while empowering private innovation.
7. How DPI Reframes the Government’s Role as an Architect, Not a Regulator
Traditionally, governments have relied on ex post regulation to manage markets. This approach focuses on penalizing anti-competitive behavior, investigating cartelization, and imposing fines on digital giants when rules are violated. While necessary, this reactive model often falls short in today’s fast-moving digital markets, where innovations emerge faster than regulations can keep up.
Digital Public Infrastructure (DPI) offers a transformative alternative: a market-shaping architecture where the state becomes an architect rather than merely a regulator. Instead of waiting for problems to occur, DPI allows the government to proactively guide market evolution and ensure inclusive, scalable growth.
DPI Shifts the Government’s Role: Key Points
- State as an Anchor Client: By acting as an initial, reliable user of digital platforms, the government helps systems scale efficiently. This early adoption reduces risks for private players and encourages innovation.
- Institutional Continuity Through Public Institutions: Organizations like the National Payments Corporation of India (NPCI) ensure that critical digital infrastructures remain stable and resilient, even as markets evolve. This long-term reliability is crucial for fostering trust among users and businesses alike.
- Inclusion by Design: DPI frameworks embed accessibility and equity from the outset. Unlike traditional models that retrofit inclusion after the fact, this approach ensures that marginalized communities are considered in the core design, making digital systems universally beneficial.
- Open Standards and Interoperability: By promoting open standards, DPI ensures that digital platforms can work seamlessly with one another. Interoperability becomes the default, reducing vendor lock-in and fostering a competitive, collaborative ecosystem.
This architectural approach redefines the state’s engagement with markets. Rather than merely punishing violations, the government actively shapes how markets evolve, creating conditions that support innovation, inclusion, and fair competition.
By embracing DPI, governments worldwide can move beyond reactive regulation and become strategic enablers of digital transformation. This model not only accelerates the growth of digital ecosystems but also ensures they are resilient, inclusive, and aligned with public interest.
In essence, DPI reframes governance: from policing digital markets to architecting them, making the state a proactive participant in shaping sustainable and equitable digital economies.
8. Risks: Re-Monopolisation, Data Capture, and New Gatekeepers
Digital Public Infrastructure (DPI) promises open access, transparency, and efficiency. However, it is not risk-free. Even public infrastructure can be captured, distorted, or monopolized, creating challenges for equity and sovereignty in the digital economy.
1. Re-monopolisation and informal capture
Even when digital platforms are designed to be open, private players can dominate critical layers. These include:
- Discovery layers – how users find services or content.
- Delivery networks – the pipelines that ensure services reach end-users.
- Data pipelines – the underlying systems that move and process information.
For example, logistics providers or payment gateways can become bottlenecks, even when payment systems like UPI are publicly accessible. Over time, this informal capture can recreate monopolistic dynamics, undermining the openness DPI seeks to establish.
2. Gatekeeping shifts upward
Control in digital ecosystems may move away from visible platforms and applications to more hidden layers, such as:
- Service layers that support multiple applications.
- Cloud infrastructure that hosts services.
- Data storage providers that manage critical user information.
This shift can concentrate power in a few hands, making the ecosystem more opaque and harder for regulators or citizens to influence.
3. Cloud concentration and “sovereignty as a service”
Even when key services like identity verification or payments are public, the underlying data may reside with a handful of private providers. These include:
- Large cloud service providers.
- Servers running AI foundation models.
- Proprietary analytics and monitoring systems.
The paradox is clear: states may appear digitally sovereign, but they remain dependent on infrastructures they do not control, leaving critical systems vulnerable to external pressures.
4. PPP-based DPI risks private capture
Many DPIs are developed through public-private partnerships. While collaboration can bring efficiency, it can also create risks of private influence over:
- Technical standards that govern interoperability.
- API design that dictates how services interact.
- Access rules that determine who can use or benefit from the infrastructure.
Without robust accountability mechanisms, private actors can steer public systems in ways that serve commercial interests over public good.
While DPIs offer transformative potential, attention to re-monopolisation, data capture, and gatekeeping is essential. Strong governance, transparency, and regulatory safeguards are critical to prevent private capture and ensure digital public infrastructures remain truly public.
9. Building Institutional Safeguards for Future-Ready Digital Markets
As India rapidly embraces digital transformation, the risk of emerging monopolies in its tech ecosystem grows. To ensure a fair, competitive, and future-ready digital market, India needs robust institutional safeguards. Strengthening the framework now will protect innovation, ensure consumer choice, and prevent dominance by a few private players.
a) Competitive Neutrality
Competitive neutrality is essential to prevent unfair advantages. No private entity should receive preferential access to critical digital resources. This includes APIs, proprietary data, network infrastructure, or government subsidies. By leveling the playing field, competitive neutrality ensures that startups, small businesses, and innovators can compete with larger incumbents, fostering a vibrant and dynamic digital economy.
b) Auditable Openness
Transparency in digital systems is vital. Independent audits must regularly assess algorithmic fairness, ensuring that automated decisions do not favor specific companies or groups. APIs should remain accessible to all qualified players, and audit mechanisms should detect attempts to manipulate the system. Auditable openness builds trust in digital markets while encouraging accountability among private operators.
c) Purpose-Limited Data Use
Data is the lifeblood of the digital economy, but misuse can undermine trust. Data collected through Digital Public Infrastructure (DPI) must be minimal, collected for specific purposes, and safeguarded against commercialization. By enforcing purpose-limited data use, India can protect citizen privacy, prevent exploitative practices, and encourage responsible innovation.
d) Participatory Governance
Future-ready digital markets require inclusive governance. Public institutions, civil society, private innovators, and technical experts must have a voice in shaping rules and policies. Participatory governance ensures that diverse perspectives inform decision-making, balancing innovation with ethical, social, and economic considerations.
e) Public Cloud & Sovereign Infrastructure
Reducing dependency on foreign cloud providers is critical for digital sovereignty. A public cloud layer or sovereign computing infrastructure empowers India to maintain control over sensitive data, protect national interests, and offer secure alternatives to private cloud services. This infrastructure also strengthens resilience against monopolistic tendencies in cloud computing.
By implementing these institutional safeguards, India can create a future-ready digital market that is fair, transparent, and competitive. Robust guardrails today will ensure that innovation thrives without compromising citizen rights or national interests.
10. A Framework for a Sovereign, Open, and Contestable Digital Economy
In today’s rapidly evolving digital landscape, building a sovereign, open, and contestable digital economy is essential to ensure innovation, fairness, and consumer empowerment. A modern framework must address the challenges posed by centralized platforms while promoting transparency, interoperability, and user control. Here’s a breakdown of the key pillars:
1. Public Digital Rails Where Network Effects Are Strongest
Public digital infrastructure forms the backbone of a resilient digital economy. Services such as payments, digital identity, data portability, e-commerce, and health records thrive when built on public digital rails. These rails create network effects, enabling faster adoption and ensuring equitable access. By supporting open access to foundational services, governments and institutions can prevent monopolization and foster inclusive growth.
2. Open Standards for All Service Layers
Open standards reduce dependence on private “superplatforms” that often lock users into proprietary ecosystems. By standardizing APIs, protocols, and data formats, businesses can innovate on top of a shared foundation without risking lock-in. Open standards promote competition, lower barriers to entry, and enable startups and SMEs to participate meaningfully in the digital economy.
3. Market Protocols That Prevent Data Capture
Data is the new currency of the digital age. To prevent monopolization and misuse, market protocols like Account Aggregators empower users to control and share their data securely. These frameworks ensure that users retain ownership of their digital footprint while allowing responsible data sharing that fuels innovation across sectors like finance, healthcare, and retail.
4. Interoperability Mandates
Interoperability is key to a contestable digital market. Mandates requiring systems to communicate seamlessly reduce switching costs for consumers and businesses alike. This ensures that users are not trapped in a single platform ecosystem, fostering competition, enhancing user choice, and encouraging service improvement across industries.
5. Transparent Algorithmic Governance
Algorithms increasingly shape decisions in finance, healthcare, and social media. Transparent algorithmic governance ensures that digital decision-making is understandable, accountable, and free from hidden biases. By enforcing transparency, stakeholders can audit algorithms, mitigate risks, and maintain trust in digital systems.
A framework combining public digital rails, open standards, data empowerment, interoperability, and algorithmic transparency lays the foundation for a sovereign, open, and contestable digital economy. Such an approach not only strengthens national digital sovereignty but also creates a level playing field where innovation, competition, and user empowerment thrive.
11. Visuals and What They Tell Us
Visual 1: Digital Market Power Funnel
(Diagram description)
A funnel showing how early layers (OS, cloud) have a few dominant players, while the bottom (apps and services) is competitive but controlled by the layers above.
Visual 2: How UPI compares with Visa/Mastercard globally
(Graph description)
Bar chart showing UPI transaction volume surpassing others, highlighting the power of public rails.
Visual 3: Risk of Upstream Gatekeeping
(Flowchart)
Shows how control can shift from apps → logistics → cloud → AI layers.
12. Conclusion
Digital markets around the world are consolidating into “ecosystems”—tightly controlled, algorithmically governed, and strategically designed to lock users in. The illusion of competition masks deep structural power held by a few orchestrators.
India offers a radically different model: Digital Public Infrastructure that acts as open, interoperable public rails. UPI’s reaffirmed zero-cost model is not just a payments decision—it signals a commitment to keeping digital infrastructure open, neutral, and inclusive.
But DPI must avoid the pitfalls of private capture, cloud dependency, and re-centralised gatekeeping. With strong institutional safeguards and participatory governance, India can build a digital economy that:
- Supports innovation
- Protects sovereignty
- Ensures competition
- Expands inclusion
The state’s role is not to stifle markets—but to design the foundations on which fair, competitive, and innovative digital markets can flourish.
13. FAQ
1. Why should the state shape digital markets instead of only regulating them?
Because digital markets naturally drift toward monopoly due to network effects. Designing neutral infrastructure ensures more fairness than late-stage regulation.
2. Why is UPI being zero-cost so important?
It prevents private firms from turning payments into high-fee toll roads and keeps digital payments accessible to all.
3. Can DPI itself become a monopoly?
Yes—if not properly governed. Open access, strong oversight, and anti-capture safeguards are essential.
4. How does DPI help small businesses?
Platforms like ONDC reduce dependence on large aggregators, lowering commission fees and increasing market access.
5. What is “sovereignty as a service”?
When states appear sovereign in digital infrastructure but rely heavily on private cloud providers or AI systems they do not control.
14. References / Further Reading
- RBI payments policy circulars
- NPCI annual reports
- Studies on Digital Public Infrastructure (DPI)
- Economic papers on network effects and digital monopolies
- Research on platform governance, data access, and cloud sovereignty
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