India's digital leap to lead to social inclusion; data privacy key risk: Report

India's digital leap is expected to have substantial social impact, as it will lead to reduced income inequality and increased financial inclusion, but addressing data privacy will be critical, says a Morgan Stanley report.

According to the global financial services major, India's digital leap will have substantial social impact across four key areas -- reducing income inequality, broadening and deepening financial inclusion, improving quality of life and enhancing agricultural productivity.

But a significant risk stems from the Aadhaar data privacy debate.

"There are two issues about privacy relating to Aadhaar. One is the possible compromise of the Aadhaar system, itself, and leakage of data. The second is the loss of data through the third-party users," Morgan Stanley said in a research note.

While the first risk is somewhat mitigated by sophisticated encryption standards, the second risk is harder to control third parties collecting biometric data could be compromised, leading to risk of data exposure, it added.

Meanwhile, the government has made Aadhaar authentication mandatory for accessing a variety of public services, which is also a matter of public debate and has been challenged in the country's highest court for its constitutional validity.

The Supreme Court has formed a five-member bench to examine all these aspects, and it is expected to deliver a judgement in the near future. This judgement will establish a framework for the usage of Aadhaar.

Morgan Stanley is bullish about India's long-term growth potential owing to its digital leap, JAM (Jan Dhan, Aadhaar, and mobile) and the country's goods and services tax (GST) law.

In an earlier report, Morgan Stanley had said digitisation will provide a boost of 50-75 bps to GDP growth and forecast that India will grow to a USD 6-trillion economy and achieve upper-middle income status by 2026-27.