“Whatsup” for Indian Economy

The following article is based on my own interpretation of the said events. Any material borrowed from published and unpublished sources has been appropriately referenced. I will bear the sole responsibility for anything that is found to have been copied or misappropriated or misrepresented in the following post.
Rajib Jana, EMBA 2015-18, Vinod Gupta School of Management, IIT Kharagpur

It is not a secret that the Indian economy is currently abuzz with activities. It is further confirmed when Nandan Nilekani, former Infosys co-founder and former UIDAI Chief, compared the current state of the nation’s finance sector with Whatsapp revolution. He catered his audience with the piece of information that in near future India is aiming to become a completely digitized economy. He was speaking at TiE LeapFrog 2015, in Bengaluru. He emphasized that he envisions India as a unified, digitally enabled economy that is both regulated and technologically driven. Mr. Nilekani couldn’t have been timelier to make his statement. The recent activities of the Reserve Bank of India clearly suggest that the central bank also shares the same view when it dished out licenses to 11 payment banks.

India is taking a step towards cashless economy, where authentication of customers as well as transactions, all will be conducted from digitized platform. But before we delve deep into a discussion let’s look at the factors that have initiated the changes.

Factors initiated the change

  • The Indian economy is currently one of the most robust economies in world
  • The Asian Development Bank (ADB) report predicts India’s economy to surpass China’s in 2015
  • India has strong base than many of the developing nations in terms of key economic indicators like low inflation rate, low fiscal deficit, huge forex reserve and is likely to endure the current tumultuous global economic conditions better
  • Availability of affordable technology will allow service providers a new launch pad
  • Penetration of computers and internet into the hinterlands
  • The smartphone using population in India is expanding rapidly. It was 140 million in 2014, over 2x growth over previous year.

Changes occurring to Indian economy

All the above mentioned factors have allowed the policy makers of the country to feel hopeful to put India high in the global economic landscape.

In his speech Nilekani has mentioned the importance of Aadhar as it is going to replace the current multi-document authentication process. According to him the new iris based identification will replace the multi-layered process with a single step.

Payment Banks is an innovative step from the RBI and is expected to create another wave of reform in Indian finance sector. In the first phase licenses are given out to Reliance Industries, Aditya Birla Nuvo, Vodafone and Airtel. They will be allowed to accept deposits, conduct remittances, make payments and create small savings accounts.

Along with the payment banks, e-signature, electronics check clearance, IMPS (Immediate Payment Service), UPI or unified payment interface are few more initiatives to mention. In a recent drive RBI has granted in-principal licences to IDFC and Bandhan Bank, both operating and targeting the un-banked rural areas. This is a ground breaking step since the last bank to receive license was Yes Bank in 2004. The objective was to expand the banking net to cover the remotest parts of the country and providing banking solutions to the poorest of the poor.

RBI is also set to roll out the first phase of licenses to Small Finance Banks (SFBs), which according to RBI guidelines, will focus on introducing saving vehicles to increase financial inclusion and provide loans to small businesses, marginal farmers, small industries, and to unorganized sector.

Overall the face of Indian economy is changing fast. In one hand, it is transiting to digitized platform, i.e. becoming cashless and paperless and on the other, reaching out the unbank population to offer hoard of banking services and benefits of government policies.