Digital economy refers to a broad range of economic activities that use digitized information and knowledge as key factors of production. The Digital India , launched by Government of India on 1st July 2015, “is a flagship programme with a vision to transform India into a digitally empowered society and knowledge economy” ("About Digital India," 2021). The vision of this programme is to facilitate inclusive growth in areas of electronic services, products, services, manufacturing, and job opportunities.
Harbingers of Digitization
The demonetization move by the Government in 2016 brought in a liquidity crunch due to the withdrawal of the existing currency of higher denominations. Moreover, the delay in the introduction of new currencies triggered a sudden shift in payment methods from direct cash handling to instant online mode. This structural change brought erstwhile online platforms such as Paytm and Gpay to the driver seat, with Paytm gaining a whopping new 60 million users in a short span of 3 months during demonetization. As per RBI reports, the usage of debit card at point of sales (PoS) devices grew 83% during the three year period after demonetisation (Nandi, November 2019)
In 2020, the COVID pandemic has heavily accelerated the worldwide adoption of digital transformation , resulting in an unprecedented boom in digital transactions . People preferred digital payments as they offered greater transparency and reduced their dependence on middle-men. In the midst of the pandemic, India had the highest number of real-time online transactions surpassing countries such as China and the UK. 25.5 billion real-time payment transactions were processed within the country followed by 15.7 billion in China, 6 billion in South Korea , 5.2 billion in Thailand, and 2.8 billion within the UK ("Digital payments," April 2021).
India is adding lakhs of new users to her Internet user base every month. Registering a quarterly growth rate of 3.79 per cent, the total number of Internet users in the country has risen from 795.18 million at the end of December 2020 to 825.30 million at the end of March 2021 (TRAI, 2021, p.5).This permitted banks to provide net-banking and mobile-banking services to more customers. This aided with the addition of 300 million zero balance bank accounts with Rupay cards, proved to be a strong driver for digital penetration.
The innovations ventured upon by fintech start-ups are highly unique in this digital era. The widespread acceptance of ‘buy now pay later’ services from Lazypay, Amazon and similar are indicators of fintech embracing AI in their journey towards digitization ("Harnessing the shift," 2021).
The ease of performing financial transactions is probably the best stimulus to go digital. Consumers use mobile wallets, plastic money, and net banking to avoid physical cash. They trust digital payment modes with varying levels of encryption and data authentication, most having two-factor authentication (TFA) to add an extra layer of security, thereby reducing risk of transactions through an online medium. This acts as a force multiplier for the government, in tackling the issue of tax evasion It is noteworthy to mention UPI (Unified Payment Interface) which is a front runner in streamlining online payments with instant authentication and immediate money transfer. However, not all is well and rosy for making India a completely cashless society.As against the well known fact that cash does not discriminate , digitizing the economy is challenging to those without bank account or credit/debit cards. The situation is equally difficult for specially abled consumers who cannot do digital transactions or for those in the rural or hilly areas where the digital infrastructure is poor.
A Golden Opportunity
India’s payment market will reach to INR 280.84 Trillion by 2027 from INR 101 Trillion in 2020, growing at a CAGR of 15.73% during 2020-2027. Digital payments have shown a growth of 30.19 per cent during the fiscal year 2020-2021, which reflects an increase in adoption of cashless transactions in the country ("India Payments," June 2021).
The Digital Payments Index (RBI-DPI), stood at 270.59 for the FY ending March, 2021, while it was 207.84, a year ago ("Digital Payments Index," July 2021). This significant growth in the index represents a rapid adoption and penetration of digital payments across the country in recent years.
The rapidly evolving market for digital services, platforms and applications would provide a lucrative opportunity for global and local businesses, entrepreneurs and platform-based
innovators who will be investing in emerging technologies viz. AI, drones, blockchain and robotics customised to India’s needs. Studies ("Digital India: Technology," March 2019) point to the fact that digitization will lead to reskilling and labour redeployment in a multitude of sectors. By 2025, this can lead to a probable quintupling in economic value due to India’s digital transformation.
Digital transformation has performed a lot better in India than what was expected and has opened plenty of opportunities for the economy in various sectors. However, a cashless economy in the true sense can only succeed if it is inclusive of all stake holders and benefits the last person in the queue, no matter what her financial or literacy level is.
References
Digital India. 2021, ABOUT DIGITAL INDIA. retrieved September 5, 2021, from https://www.digitalindia.gov.in/
Shreya Nandi. Mint. 8 November 2019. available at <https://www.livemint.com/politics/policy/demonetization-3rd-anniversary-how-digital-payments-picked-up-post-note-ban-11573199358135.html
Financial Express. April 2021. Digital payments: India pips China, US, others in 2020; leads global tally with this many transactions available at <https://www.financialexpress.com/industry/banking-finance/digital-payments-india-pips-china-us-others-in-2020-leads-global-tally-with-this-many-transactions/>
Telecom Regulatory Authority of India. 2021. The Indian Telecom Services Performance Indicators January – March, 2021. August 2021 available at <https://www.trai.gov.in/sites/default/files/QPIR_27082021_0.pdf>
KPMG. 2021 Harnessing the shift to a digital economy retrieved on September 5 from <https://home.kpmg/xx/en/home/insights/2020/07/harnessing-the-shift-to-a-digital-economy.html>
Businesswire. June 2021. India Payments Market Report 2021-2027: Digitization in Payments has Gained Significant Momentum - ResearchAndMarkets.com available at <https://www.businesswire.com/news/home/20210629005506/en/India-Payments-Market-Report-2021-2027-Digitization-in-Payments-has-Gained-Significant-Momentum---ResearchAndMarkets.com>
RBI. July 2021. Reserve Bank of India announces Digital Payments Index (RBI-DPI) for March 2021. retrieved from <https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=51962>
McKinsey Global Institute. June 2019. McKinsey Global Institute. Digital India: Technology to transform a connected nation available at <https://www.mckinsey.com/business-functions/mckinsey-digital/our-insights/digital-india-technology-to-transform-a-connected-nation>
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