Before the union budget begins to recede in our collective memory, it’s a good time to reflect on where are we headed. The government’s apparently ‘sudden’ thrust towards a cashless economy over the last year was mostly analysed through the lens of now, rather than the lens of future. That an increasingly digitally ‘enabled’ India is creating unprecedented opportunities for itself, was somewhat lost or forgotten in the confusion that ensued during demonetisation. The Union budget however, put a lot in perspective by calling out technology as an enabler for government’s key thrust areas- education, health and financial inclusion.
India’s successive governments have successfully created an ecosystem which can be harnessed to deliver essential services to citizens, more efficiently than ever before. Policymakers have to be credited for creating a regulatory structure that has enabled mobile telephony to spread across India. Even with its own share of missteps and controversies, telecom regulation has achieved the objectives of accessibility and nearly perfect competition. The digital India dream today is riding on smartphone led internet revolution arising out of this market. Accelerated by the aspirations and agility of a demographic as young as ours, the digital dream is being played out in every small town and village of India.
Beyond this very visible progress, is also the less talked about public digital infrastructure – the India stack that has been work in progress over the last decade. This is perhaps the biggest digital data based infrastructure in the world. With Aadhar as its base (justifying its name), India stack has added layers of e-KYC, Aadhar enabled payment service (AEPS),digital signature, UPI and consent layer. The stack allows paperless, presence less and cashless transactions which can be harnessed by various industries.
In parallel, an innovation ecosystem in India is being built rapidly by start-ups which are tapping India’s tech talent to develop new and innovative products, ground up. While e-commerce was the first industry where this trend was visible, there is hardly any service industry now which has been left undisrupted by technology. The common thread running across industries being digital payment methods.
Whether offline or online, the ‘act of transaction’ defines all ‘economic activities’ and therefore a driver of habit.. Once people gain trust in transacting online, there is a greater probability of them accessing public services like health and education through digital means. The finance minister clearly articulated that the government is counting on digital to deliver these services to the remotest parts of the country.
Digital payments can also be invaluable for finally achieving the once seemingly elusive goal of financial inclusion. Till now, the reliance on physical infrastructure impeded our progress on this front. Even with growing penetration of cards, emphasis remained on creation of physical cash out points (ATMs). However, with the sudden increase in adoption of digital payments across supply chain in the economy, the biggest constraint may have been taken out of the equation.
In addition, digital payment histories of low income populations coupled with e-KYC and consent layers of the India Stack can increase their access to deeper financial services. The cost of customer acquisition will be significantly brought down for businesses because of the presence-less, paperless and cashless process enabled by e-KYC and the consent layer. For instance in case of personal loans, the cost of acquiring a customer is around Rs.1,000-1,200 which involves collection and verification of documents. Now, with the cost dramatically dropping to as low as Rs. 50, the economics would change significantly. If financial institutions spend much lesser on acquiring customers, they can even lend small (but crucial) amounts to low income customers. Similar cost gains could enable access to other financial services like insurance products and mutual funds also for the low income groups.
Usually, the government tries to keep regulatory pace with new technologies in any market. However, in the payments space in India, the government has taken the lead by creating an enabling infrastructure and has ushered behavioral change in favour of cashless payments. Some argue, that the emphasis on cashless payments was an afterthought to deflect attention from demonetization. However, it seems that the Indian policymakers have long been cognizant of digital payments as a foundation to achieve other development objectives of the country. The opening of the Jan Dhan Accounts, development of India stack, issuing of licenses to digital wallets and payment banks coupled with strategic investments in broadband infrastructure such as Bharat Net and the entrepreneurial energy of young Indians are different pieces of a puzzle that seem to be coming together. The government has added a dedicated payments regulatory board to this with the budget.
Indian policymakers need to be commended for embracing technology and investing in the building blocks of future. While some have criticized the budget for being flat, we will do well to remember that Digital India is a marathon, not a sprint. We have to stay the course and run a few more laps.