Digitally Inclusive Bharat

News: The NITI Aayog and Mastercard have released a report titled ‘Connected Commerce: Creating a Roadmap for a Digitally Inclusive Bharat’. The report identifies challenges in accelerating Digital Financial Inclusion (DFI) in India and provides recommendations for making digital services accessible to its 1.3 billion citizens.

Challenges in Digital Inclusion:

  • Lot of effort has been put to attain DFI and much success on the supply side of DFI has been seen (e-governance, the JAM trinity, Goods and Services Tax, Direct Benefit Transfer (DBT) schemes). However, the break in the digital financial flow comes at the last mile, where account holders mostly withdraw cash for their end-use.
  • Agriculture, with its allied sectors, provides livelihood to a large section of the Indian population. Over the years, agriculture’s contribution to national GDP has declined from 34% in 1983-84 to just 16% in 2018-19. Most agri-techs have not succeeded in digitizing financial transactions for farmers or enabling formal credit at lower rates of interest by leveraging transaction data.
  • Micro, Small and Medium Enterprises (MSMEs) have been a key growth driver for the Indian economy. According to a 2020 Report, the category employed some 110 million people, or over 40% of India’s non-farm workforce. The lack of proper documentation, bankable collateral, credit history and non-standard financials force them to access informal credit at interest rates that are double of those from formal lenders.
  • The surge in digital transactions has increased the risk for possible security breaches, both for consumers and businesses. A Medici report of June 2020 says 40,000 cyber-attacks targeted the IT infrastructure of the banking sector in India.
  • With the onset of the pandemic, there is an increasing need for transit systems to be further integrated with contactless payments in India. Globally, the trend is toward open-loop transit systems, with interoperable payment solutions allowing travelers to switch between different modes of transport with a connected payments network.

Recommendations:

  • For market players, it is critical to address the gap on the demand side by creating user-friendly digital products and services that encourage the behavioral transition from cash to digital. A significantly successful example is that of FASTag.
  • Strengthening the payment infrastructure to promote a level playing field for Non-Banking Financial Companies (NBFCs) and banks. Digitizing registration and compliance processes and diversifying credit sources to enable growth opportunities for MSMEs.
  • Building information sharing systems, including a ‘fraud repository’, and ensuring that online digital commerce platforms carry warnings to alert consumers to the risk of frauds.
  • Enabling agricultural NBFCs to access low-cost capital and deploy a ‘phygital’ (physical + digital) model for achieving better long-term digital outcomes. Digitizing land records will also provide a major boost to the sector.
  • To make city transit seamlessly accessible to all with minimal crowding and queues, leveraging existing smartphones and contactless cards, and aim for an inclusive, interoperable, and fully open system.