Contrary to some pundits’ projections, India’s cash crunch ensuing the November 8 ‘demonetization’ didn’t quite hurt Narendra Modi, the Indian premier. The liquidity crisis had upended the daily lives of many a people. Instead, the right-wing ruling party was rewarded last month with a historic victory in state elections in India’s most populous state. Whatever the reasons behind that upset win, it is clear that Mr. Modi’s power consolidation wasn’t hurt by the crisis late last year.
By simply banning the 500 and 1000 rupee notes, the BJP government hasn’t been able to identify the black-money. But it has, perhaps, another reason to smile. Latest news coming in from across the border suggest a growing numbers of folks using digital payment channels to perform transactions such as funds transfers and buying/selling of goods online. The increased activity is being attributed to Modi’s digital focus, which seemed like a PR exercise at the time to smooth over hue and cry over currency shortages.
In the immediate aftermath of the cash crisis, mobile wallet growth surged significantly. For instance, Paytm, which is India’s leading Fintech firm that has the backing of Alibaba Group, doubled its users to 150 million just two weeks after the November 8 directive came out. The company capitalized on the opportunity, expanded its English-only user interface to include ten regional languages, and now boasts more than 200 million users.
But as the cash crisis eased around December end, Indian government smelled an opportunity to rein in cash transactions and to move in the digital direction. The government, with the visible backing of their chief, launched a national mobile-based payment system, called the Unified Payments Interface (UPI). Unlike Smartphone-dependent mobile wallets, UPI supported users of basic, feature phones.
A UPI-based digital payment ecosystem is slowly expanding in India. As per data from the India central bank, in the first quarter this year, over Rs55 billion (Indian Rupees) were transacted through the system. More than 130 million transactions took place during the period. In March, UPI transactions had reached 50 percent of the value over mobile-wallets, which have been around for years.
This is still a fraction of cash-based economy. But there is visible traction in a short span of time. Some four dozen banks have joined UPI; 35 of them have developed their own apps for the platform. The government is also promoting its own app, BHIM (Bharat Interface for Money). In a major break for UPI, WhatsApp has announced that it will participate in the platform through its own digital payment service.
More steps are reportedly in the pipeline. To avoid card-swiping machines, a common QR code – BharatQR – is to be rolled out. Besides, UPI-based point-of-sales machines will also be introduced. Reportedly, digital mode of payment may become mandated at service stations, universities and hospitals. Besides, the government is also considering banning high-value transactions in cash mode.
All that sounds good! The issue is this digital push was unwittingly coercive, in the form of cash crisis. There is still a long way to go for India to become truly digital: the masses will have to go for it. One of the takeaways for Pakistan is to discourage cash transactions – not by banning cash but through incentivizing digital payments. Moreover, a UPI-like interoperable system is much needed for digital financial services space. In the interest of promoting digital payments, the government must put its foot down on that count.
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