Digital India | A Stepping Stone Towards Digital Economy & Financial Inclusion

Digital India, an ambitious initiative launched by the Government in 2015, fundamentally seeks to ensure that government services are made available seamlessly to citizens, in electronic form, by improving online infrastructure and increasing internet connectivity. We have seen small but significant steps being taken by the government, towards digital empowerment of the people.

Any concrete effort to strengthen the digital labyrinth will have positive ramifications across the sectors. One of the direct gainers of this initiative is the financial sector, wherein our country's goal is complete financial inclusion. The Digital India drive is thus viewed as the stepping stone towards a digital economy, which in turn will take us to ourgoal of financial inclusion.

The RBI has defined financial inclusion as 'providing access to a wide range of financial services at a reasonable cost'. A study by global payments technology firm Visa Inc. reports that achieving the goal of Digital India will help to bring more people into the formal financial fold and create more jobs. The study found that "the cost of cash places a huge burden on the Indian economy which is equivalent to 1.7 per cent of its GDP. This high cost of cash stems from large volumes of cash flow in the Indian economy relative to its peers across the globe".

India's financial inclusion policy, Pradhan Mantri Jan-DhanYojana has shown qualitative results. The account-opening drive reached 221 million accounts, as on April 2016. The plan also envisages access to insurance, credit and pension facilities and channelling of all government benefits directly into the beneficiaries' bank accounts. In addition, the RBI has strengthened the Unified Payment Interface (UPI) in order to facilitate digital money transfers. In line with the digital strategy, the government has granted permission to a couple of payment banks, thereby kick-starting the initiative. Thus digital India and financial inclusion are closely connected.

UPI has been conceived as an application-level interface which aims to bring several multiple payment service providers in the country on a single platform by providing an element of interoperability. Any person with a valid bank account can transfer funds and make payments without divulging crucial bank or credit /debit card information.

With cash still being the preferred mode of transaction for a large section of Indians, there is a greater need to popularize the cashless transaction model in a big way. One of the most effective methods of bringing in more number of people under the ambit of cashless transactions is to venture into the vastly untapped domestic smartphone network which is estimated to cover around 500 million users in the next five years. Policy-makers are looking at the UPI as a critical financial inclusion tool which can go a long way in giving an impetus to transactions under various schemes such as the Pradhan Mantri Jan DhanYojana and direct benefit transfer schemes. Being a disruptive financial tool which will enable large-scale financial inclusion and popularise the cashless transaction model, UPI has the potential to lift service delivery paradigms to the next level.

With increased internet usage and penetration, the Digital India initiative, facilitating a proper payments infrastructure, will pave the way for a seamless digital economy. The government has outlined its vision in this regard and highlighted three core areas - increased thrust on setting up the required infrastructure as a utility to each and every citizen, provision of services on demand and governance and lastly, digital empowerment of the citizens.

India is home to an unbanked population of around 47 per cent. Here, technology can play a crucial role in driving financial inclusion of the under-banked as well as un-banked population in the country. Traditional businesses are proving to be an unviable proposition for banks in remote or rural areas because of infrastructural issues. Also, conventional banking model cannot be the panacea for small-size of deposits, loans, and other small-scale transactions in the rural parts of the country. Soon, banking will turn out to be much more accessible to the millions as the financial ecosystem will move away from the physical distribution model to a cashless and digital platform. Of course, by ensuring financial inclusion, banks can benefit from the adoption of the digital model as it comes with a lot of benefits such as increased business volumes, lower operating costs, while also driving financial inclusion.

India can take one or two lessons from those unbanked economies out there. How they have effectively used the potential of digital technology, especially by cashing in on the mobile arena. Countries like Kenya, Tanzania, and Bangladesh have effectively made use of mobile phones in a major way as a catalyst for enabling people to shift to online money transfers and payments services. They have made significant strides in this regard. Similarly, India has to make the most of its mobile penetration, which is increasing at a phenomenal level, in order to bring the larger sections of its populace onto the digital platform.

The government has also launched a infrastructural project under the Digital India initiative - The National Optical Fibre Network (NOFN) or Bharat Net, estimated to cost INR 70,000 crores approximately. The project is an ambitious initiative to trigger a broadband revolution in rural areas. It aims to make network infrastructure accessible on a non-discriminatory basis by laying a scalableoptical fibre network. It targets to reach over 2.5 lakh gram panchayats with hotspots and provide 100 Mbps connectivity to them. It also aims to provide households with anaffordable broadband connectivity of 2 Mbps to 20 Mbps.The project is a critical piece of infrastructure without which we just cannot move towards digital India and the government has already allocated INR 10,000 crores towards the project in the coming financial year. The government also plans to launch a 'Digi Gaon' initiative which will provide telemedicine, education and skills through digital technology, thereby fulfilling all goals of Digital India.

The advent of biometrics technology-based Aadhar card will be the big disruptor in the financial technology segment. An 'Aadhar' card has a 12-digit individual identification number. The Aadhar-Enabled Payment System (AEPS), allows online interoperable financial inclusion transaction at points of sale (MicroATM) through the business correspondent of any bank using 'Aadhar' authentication.

It is also heartening to see that situations are conducive for the successful establishment of a digital ecosystem, and it won't be far when the government's agenda of financial inclusion of the entire population will become a reality. Digital banking has manifold advantages, and there has been a perceptible increase in the adoption of digital technologies.

In this context, digital platforms are likely to deliver financial services to both the unbanked and the underbanked population, especially in rural/remote regions, at a low cost, and subsequently increase digital financial access to the vast swathes of the country's population. The use of digital channels can bring down the transaction costs in a great way.

Banks should target previously underbanked and financially excluded segments with the help of technology; this could provide the necessary traction on new demand, as urban markets are crowded with a large number of players. It could also give banks an opportunity to spread the costs or investments in technology over a much larger base and increase the utilisation of existing technology.