When Digital India ties in with financial inclusion

29-Feb-2016 #Digital India Source: India Inc

by Ajit Deshmukh

Digital India along with Make in India can create a platform to create an economy driven by industry, innovation and entrepreneurship and promote investor confidence, job creation, infrastructure development and achieving total digital connectivity, writes a financial expert.

Digital India (DI) initiative is an ambitious project of the government to empower and transform our country into a digitally empowered knowledge economy. It aims to integrate with the universal trends of digital innovation and bring large investments into the technology sector. Make in India, another promising initiative focuses on attracting businesses to invest and manufacture in India to make it a global manufacturing hub.

New Digital Ecosystem

DI is believed to have a capacity to create a new start-up ecosystem, with 100,000+ new-age firms, creating employment opportunities to over 3.5 million people and attracting investment value of $500 billion in the next 10 years. According to a report published by NASSCOM, technology start-ups in India have evolved to become the 3rd largest base across the world, with a total funding of $5 billion in CY2015. Opportunities in the domestic market, easy access to capital and consolidation through M&A has marked the evolution of this ecosystem; which has further got boost from increasing demand of the Indian middle class who are consumers of these digital solutions and services like e-commerce, market places and mobile apps etc.

Technology start-ups have been accelerating the economic growth by enhancing people lifestyle, building innovative solutions and creating opportunities for all stakeholders. This Digital technology is increasingly being leveraged to bridge the GAP in sectors like, Power, Infrastructure (eg. Traffline- traffic monitoring system), Healthcare (web based solutions connecting the patients with doctors, financial inclusion (reaching the rural population), Agriculture (web based ICT for farmers), skill development for employment and Education. Digital innovations have given rise to new set of entrepreneurs. Over the years, entrepreneurship has proven to be critical to India’s growth and development, given its increasing significance and visible impact in wealth-creation and employment-generation. The recently announced Start Up India programme by the Prime Minister would also encourage innovation among young entrepreneurs.

Digital Technologies & Financial Inclusion

Indian financial services landscape is undergoing a technology driven shift. Government has accelerated its approach to achieve financial inclusion with the help of digital technology in banking services. The steps taken by RBI on financial inclusion needed this support of digital infrastructure to reach the unbanked population which would unfold huge opportunities for financial services. Banks need to target such under banked and financially excluded segments through technology which can provide the necessary traction needed as urban markets are crowded with a large number of players. This shift from Brick and motor business to digital platforms will help provide the services in rural/remote regions, at a low cost, and subsequently increase digital financial access to provide high quality, affordable financial services.

In the series of initiatives announced by the government, Pradhan Mantri Jan-Dhan Yojana (PMJDY) is a National Mission for Financial Inclusion to ensure access to financial services, namely, Banking/ Savings & Deposit Accounts, Remittance, Credit, Insurance, Pension in an affordable manner. RuPay, India’s own payment gateway with more than 175 million accounts has received the much needed popularity and is now comparable with peers such as Visa and MasterCard in India. DI coupled with a payments infrastructure, is building the platform for digital economy, based upon the increasing willingness of people using the internet, and the rising data traffic in the country. Today the number of people using mobile phones is substantially larger than the number of people who have bank accounts. The National Payments Corporation (NPCI) is putting across the country a digital network which will eventually enable a lot of payments to be made on the digital platform. RBI and TRAI are working towards eliminating all roadblocks and ensure financial inclusion is achieved.

All these recent trends are unleashing tremendous innovation and under the DI initiative government has been encouraging more and more initiatives, some of them being:

  • Payments banks offer most of the banking services except loans and credit card products. Their objectives has been to provide small savings accounts and payments/remittance services to migrant labour workforce, low income households, small businesses, other unorganised sector entities and other users. The governments licensing of post offices as a payment bank, will get around 155,000 post offices for provide these services.
  • Aadhar card: The technology-levered ‘Aadhar’ programme is expected to assist in broadbasing the access and acceptance by financially excluded segments.
  • Geographic Information Systems (GIS), by geo-enabling the e-governance projects, it will embed geographic dimension into various services being delivered by the government to the citizens.

Finally and most importantly DI requires significant investments from the private sector. While there is significant global interest amongst investor for this initiative, government will have to put in policy support to back up.

According to some analysts, the Digital India plan could boost GDP up to $1 trillion by 2025.The Budget 2016-17 will be closely looked at by all and we expect the government to continue its growth oriented approach and come up with specific plans to shape up the Digital India initiative.

Ajit DeshmukhAjit Deshmukh is managing director at Equirus Capital, a Category I Merchant Banker registered with Securities and Exchange Board of India (SEBI). In a career span of more than 20 years, he has been working with founders of IT companies and CEOs of high growth companies in their Inorganic Initiatives.

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