According to the report on high level (RBI's) Committee on Deepening of Digital Payment, "Digital payments have steadily become a significant mode for the inflow to the Indian consumer via Government benefit payments and salaries in the organised sector. However, cash is still the dominant mode for the outflow for this Indian consumer because of the underdeveloped nature of the acceptance ecosystem for digital payments.
The committee noted the need to address this gap between the "digital credits" the Indian consumer gets and the "digital debits" the Indian consumer needs to make to increase overall digital payments in the country. Additionally, the unorganised sector continues to depend on cash for both their credits and debits; and while domestic remittances support conversion of cash to digital remittances, the last leg again tends to be cash."
Eventually, as per experience, apart from DBT and transfers of microfinance institutions, the population within the definition of the unorganised sector has little to do with digital debits; once a month or once in tenure, respectively, they access the bank accounts, mostly Jan Dhan accounts, that too not using debit cards. Eventually, data from higher and lower houses narrates that inoperative accounts of Jan Dhan have increased from 19.9% to 23.3%, between December 2017 to December 2018.
In India, the informal workforce ranges from 85% (Niti Ayog's Strategy for New India..) to 93% (The Economic Survey of 2018-19), considering the unorganised nature of the informal sector, the probability of digital credit from the income source is questionable and digital credit is important for digital debits and transactions.
This situation of unavailability of digital credit can be substantiated as "currency notes in circulation stood at ?21.71 lakh crore at May-end 2019, showing an increase of more than 22% over the pre-demonetisation level. As per a written reply given by Finance Minister Nirmala Sitharaman in the Rajya Sabha, the notes in circulation as on November 4, 2016, were ?17,74,187 crore, which have now increased to ?21,71,385 crore as on May 31, 2019." So technically, India simultaneously with special attention, needs to work on the arrays to convert the informal sector to the formal sector to make the digital economy work.
Policymakers need to understand that only easing the supply-side may not be adequate to take the full tech-based financial operation to the last person. In absolute terms, India still has the highest number of poor in the world.
Approximately 270 million Indians - one in every five Indians are below the poverty line (World Bank). India ranked 130 out of 189 countries in the UN Human Development Index, 2019, and ranked 95 out of 129 countries in the Gender Inequality index.
It implies that the capacity of the population is low. The data corroborates the industry's experience that there is a considerable gap in the capacity of the people to board on the tech-based transactions. Probably, one-time training may not resolve the issue, there is a need for continuous handholding of the marginalised population to make them comfortable to be on-boarded on digital platform and transact. The Government and the regulator need to develop partnerships with private players where MFIs are a potentially good ally for this drive.
According to the RBI report "Digital Transaction' means a payment transaction in a seamless system effected without the need for cash at least in one of the two legs, if not in both. This includes transactions made through digital/electronic modes wherein both the originator and the beneficiary use digital/electronic medium to send or receive money."
Across the country, where there the cash transaction environment is reinstated by larger cash circulation is the evidence that the ecosystem facilitating digital transactions is not available, by and large. The easiest way, the adoption of POS machine is not the comfort zone of the traders, especially the smaller ones because of investment.
GST is a welcome initiative, however, it brought additional worries for them. Connectivity is always a perpetual issue for transactions, especially in deeper geographies. The numbers of ATMs were inadequate and almost unavailable in the deeper geographies and the government is also reducing the number of ATMs. Usage of ATMs actually makes the population comfortable to get into larger usage of technology for transactions which is getting squashed. The government seems pretty clueless in the drives which need to be more strategic.
According to a Credit Suisse report, India's mobile payments market is likely to touch $1 trillion by 2022. However, the presumption of increase in access to mobile phones especially smartphones results in a digital transaction misnomer.
The Indian Association of Internet and Mobile reported that in October 2017, 42% of urban and 15% of mobile internet users have done online financial transactions. This situation is just after one year of demonetisation when the cash circulation was lesser and people were finding it tough to get liquid cash for transactions.
Digital transactions seem more of an urban phenomenon, whereas 69% population of India lives in rural India. As per experience, *99# of NPCI, which can be used to transact through feature phones, has its own challenge as it is cumbersome in nature, capacity of end clients and connectivity.
Even today over 50% of Indian citizens use 2g and feature phones. The said RBI committee estimates that the total number of digital users is approximately 100M (of 1.37 billion of the Indian population, which is very low).
The number of users does not seem authentic as the committee recommends that the RBI shall find a better way to estimate this metric and track it as a measure of deepening of payments. The per capita digital payments have increased from 2.38 on March 14 to 22.42 on March 19 however even in Indonesia, in 2017 it was 34.0 and highest in Singapore it was 782.4.
By juxtaposing the data and experiences together we can have an idea that real digital financial inclusion, where digital debit and credit work properly with proper eco-system available in sync with the need of the people, has a long way to go, probably it will take another five to ten years or so.
It will require working in tandem with regulators and the government. The major concern now is the mismatch between the demand and supply, the demand side needs to be understood from the ground experience, scaling the understanding emanating from the statistics "only".
Four areas need to be worked substantially on are- commissioning strong drives to formalise the sector as far as possible; investing massively in developing the ecosystem; building the capacity of people and make them comfortable to use technology for financial operation; development of better granular data set to gaze the improvement of tech-based financial transactions.
Above all, the initiatives have to be people-centric and with a bottom-up approach. The industry associations working in the segment of financial inclusion of the marginalised can be instrumental for these initiatives. In the end, we need to understand that the absolute elimination of cash is near to impossible in a big country like India however a substantial digital economy is possible.
(Dr. Saibal Paul is Associate Director of Sa-Dhan; all the views are personal)