Change strategy on digital fraud

State action overhaul: Three policy suggestions

- AJAY SHAH & NANDKUMAR SARAVADE

The convenience of India's digital economy has been met with a frightening surge in criminal activity, from illegal loan apps to "digital arrest" scams. Individual cases are sometimes resolved through investigation and prosecution, but the brainpower and effort on the part of the attackers is improving at an alarming rate. On the one hand, headlines report a significant loss of 22,845 crore in 3.6 million cases in 2024, a 42 per cent rise in the number of incidents. On the other hand, a recent reply in the Lok Sabha claimed a loss of a mere 580 crore in digital-payment frauds over five years.

This mismatch in figures points to a lack of clarity and a proper taxonomy for the fraud problem. Such ambiguity allows the full scale of the problem to be understated. The state has to do more to solve this situation. We do not individually provide for national defence; we rely on a coordinated state effort. The same logic applies to digital fraud. Ross Anderson, an expert on security economics, has pointed out that internet security has elements of a public good. One insecure machine can create costs for others (i.e., the market failure of negative externalities).

The current response is reactive and fragmented. The burden of the loss falls primarily on the victim. But there is a mismatch between what an individual can do personally and the scale and complexity of the attack. The victim is left to manage the financial and emotional impact on her own. Regulators may view the problem as less severe, and banks often direct customers to the 1930 helpline. Law enforcement, with its own resource limitations, can have a hard time dedicating significant bandwidth to these cases. Telecom companies, a key point in the system, may cite low average revenue per user (ARPU) as justifying low effort, when asked to meet higher standards.