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TECHNOLOGY THE CHARTERED ACCOUNTANT

Shifting Financial Gears: Creating

a Roadmap for a Digitally Inclusive
Bharat
Out of the great tragedies of the Spanish Flu Pandemic was
that, not much social welfare was done and a lot of people were
left without any support as the breadwinners were taken out
by the flu. However, under a grim situation like COVID, digital
technology emerged as a viable option to sustain livelihoods.
In this paper, we will study this particular movement from
physical to digital technology in an adverse situation, and how
it impacted our economy and the banking sector. Recently,
the latest communication issued by the Reserve Bank of India
(RBI), barring NBFC from lending through PPI has also been
Dr. Bharti Harnal discussed in the article. Read on to know more.
Academician

T
he article makes use of (8% of GDP) in 2018 and is with internet facilities, people
secondary information expected to rise between 18%- here have been expanding all
which has been collected 23% of the GDP by 2025. over the world. Much before the
from various resources such pandemic disrupted our day-
as journals, periodicals, books, India is a land of anomalies. to-day activities, India started
articles, relevant pages, and The diversity is such that this moving towards the digital way
literature on the emergence of nation has 20% of the World’s of doing things, be it online
digital technology in finance. population (1.4 billion), where shopping, online education, or
E-Sources have also been used for more than 19500 languages are cashless transactions. Digital
gathering recently updated data. spoken. While on the one hand, Programme has been enabled for
it is a country with the most several important Govt. schemes
Digital and Finance billionaires in the world, on the such as Bharat Net, Make in
other hand, about 4.5 crore of India, Start Ups India etc.
Digital technology refers to the population lives in poverty.
using information technology to While it is a powerhouse in
communicate, build economic terms of technology, at the same
activities, financial relationships, time, a big number of the total Digital technology
and relationships with employees populations here have never seen refers to using
and customers using online
advertising etc. Recently,
a computer in their life. However, information technology
in the field of technology
speaking at the BRICS Summit, adoption, it is continuously going
to communicate, build
Prime Minister Narendra Modi ahead of the other countries. economic activities,
reiterated that the country’s For example, , only 5% of the financial relationships,
digital economy will reach a size
of $ 1 Trillion by 2025, a fivefold
population here had a telephone and relationships with
three decades ago, but today, it employees and customers
growth from US$ 200 Million has made fixed-line telephone a
in 2017-18. As per a study by history with the usage of approx. using online
MEITY, the digital economy in 1.3 billion mobile phones. With advertising etc.
India stood at US$ 200 Billion over 600 million smart phones

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Although, cash still occupies Digital Transactions during Financial Years 2017-18 to 2021-22
its position as the “King” due
to its high circulation (Rs. 30.89 Financial year 2017-18 2018-19 2019-20 2020-21 2021-22
Lakh crores as on October 21, Digital transactions
2022), at the same time, digital volume (Crores) 2071 3134 4572 5554 8840
transactions have been rising
since the last few years. Digital transactions
value (Lakh Crores) 1962 2482 2953 3000 3021
During the financial year
2022, ₹ 8840 million of digital
transactions were recorded
throughout the country. The Digital Transacons, Volume & Value
Digital Payments Index (DPI) rose
10000
from 153.47 in March 2019 to
9000
349.3 in March 2022, as depicted
8000
in the following table:
7000
6000
Digital Payment Index, From
5000
2017-18 to 2021-22 4000
3000
Years RBI-DPI Index 2000
Mar-18 (base) 100 1000
0
Mar-19 153.47 2017-18 2018-19 2019-20 2020-21 2021-22
Sep-19 173.49
digital transcaon volume(in cr) digital transcaon value(in lakh cr)
Mar-20 207.84
Sep-20 217.74
SOURCE: RBI DigiDhan Dashboard
Mar-21 270.59
Sep-21 304.06 RBI, along with the India
the digital payment Bank Association (IBA) has
Mar-22 349.3 ecosystem.
created the National Payment
Tools of digital payments such Another significant achievement Corporation of India (NPCI) for
as Unified Payments Interface was the introduction of the providing a robust payment
(UPI), Prepaid Payment United Payments Interface (UPI) and settlement infrastructure
Instruments (PPIs), Bharat under Digital India which has in India. In April 2022, the
Interface for Money (BHIM), made the payment system an NPCI granted an approval to
Immediate Payment Service easy process, from flourishing “WhatsApp” to add over 60
(IMPS) and National Electronic businesses to modest street million users to its UPI based
Toll Collection (NETC) system sellers. Its achievement is payment service WhatsApp
have registered a substantial indicated in the following chart:
growth, thereby transforming Pay.

(Years)
SOURCE: RBI DIGIDHAN SOURCE: NPCI

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TECHNOLOGY THE CHARTERED ACCOUNTANT

Aadhaar card, the most significant backed by political will, along lakh rupee’ accidental insurance
achievement covering 99% of the with the high-impact government policy and a ‘thirty thousand
Indian Population, has allowed policies like PMJDY, DBT, JAM, rupee’ life insurance policy. It
them access to important digital UPI, RuPay cards and a proactive has made available opportunities
services. Aadhaar card has been central bank. to the poor for bringing their
useful in reducing leakages minimal savings into the formal
from the system as it provides India has a population of 1.4 financial system instead of
identification in Government- billion spread across 28 states hiding it in a box. 55% of the
to-person (G2P) payments. The and 8 union territories with around Jan Dhan account holders are
Aadhaar also provides a digital 6 lakhs villages and 766 districts. women, and 67% of the overall
identity along with a physical At the start of 2022, over 850 account holders reside in rural
identity. Today, it is recognized as million or 65% of the population and semi-urban areas. The JAM
the world’s largest digital identity has been reported to be living trinity played an important role in
programme. in rural India. A large portion of making credit accessible during
this population does not have COVID-19, especially to women.
Financial Inclusion easy access to financial services. This has facilitated several Direct
In the process of Inclusive A key driver for improving the Benefit Transfer (DBT) programs
Growth, financial inclusion is a financial inclusion in the country through which subsidies are
major step. It ensures the overall is to provide financial services at credited directly to the bank
economic upliftment of all the affordable prices. accounts of the concerned
underprivileged sections of the person. Jan Dhan has helped in
Therefore, a scheme was required transferring the benefits of 300
society by introducing them to
to empower all citizens to government schemes to reach
invest their savings into the formal
become financially strong so that the poor, backward and low-
financial system which provides
everyone can become a part of income people directly through
an opportunity to increase their
the financial system. Direct Bank Transfer (DBT). Rs
income besides taking them out
of the clutches of the money 23 lakhs crore has been directly
In 2015, a digital pipeline namely deposited in the bank accounts
lenders.
PMJDY (Pradhan Mantri Jan of crores of people, from poor
Dhan Yojana) was created, farmers and weaker sections, by
The RBI had constructed the
that involves the linking of Jan the Central government through
‘Financial Inclusion Index’ (F.I
Dhan accounts with mobile DBT during the last eight years.
Index) to find out the extent of
financial inclusion across the numbers and Aadhar cards, or Earlier, for any help/subsidy from
country. According to a report by Jan Dhan Aadhar Mobile (JAM). the government, the beneficiary
the RBI, India’s annual Financial PMJDY has proven to be a had to go through the hands of
Inclusion Index 2022 stood at historic beginning of financial the middleman. Our late Prime-
56.4 when measured on a scale inclusion. Through this initiative, Minister once said that out of
of 100. the Government of India has Rs 1, only paisa 15 reaches the
created an affordable path for beneficiary. Now under DBT, since
the masses to access financial the amount is directly credited to
Financial Inclusion Index
services. PMJDY is one of the the a/c, about Rupees 2.25 Lakh
from years 2017 to 2022 biggest financial inclusions in the crores have been saved which
Year Index world. Financial inclusion is at otherwise would have been taken
its best when a bank account is by the middlemen.
2017 43.4 used to save, make payments,
2018 46.0 obtain manageable credit, and The DBT plays a strong role in the
thereby reduce their risks. inclusive development of farmers
2019 49.9 as it carries bank services, and
Under PMJDY, one bank social welfare and financial
2020 53.1
account can be opened with inclusion schemes to the remotest
2021 53.9 zero balance by an unbanked corners of India.
person. Interest is credited on
2022 56.4
the deposited amount and no The JAM Trinity has gradually
Since the last few years, the minimum balance is required. evolved as the pillars of the
acceleration of financial inclusion A Rupay debit card is issued financial inclusion efforts in India.
in India has largely been due to to the a/c holder. Besides bank With JAM, disbursing loans to
the well-planned digital programs a/c, govt. also provides a ‘one Joint Liability Groups (JLGs) and

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THE CHARTERED ACCOUNTANT

TECHNOLOGY
were set up six years back. Small
Finance Banks not only open bank
accounts but also create income
opportunities through lending to
the unserved and underserved
sections, including small and
marginal farmers, micro and small
industries, unorganized sector
Years entities, and MSMEs in remote
areas.
Amount deposited under PMJDY- year 2015 to 2022 Count (INR
Crores) Payments Banks also cater
to the financial needs of the
underserved population by
providing various means such
as small savings accounts and
technology-driven payments/
remittances services to migrate
labor workforce, low-income
households, small businesses,
informal sector entities, and
other users, but they can not
undertake lending activities.
Years
DEPOSITS COUNT (INR Crores) For new entrepreneurs,
especially from the rural areas,
SOURCE: RBI REPORTS these digital services provide
working capital, which otherwise
Self-help Groups (SHGs) have open bank accounts in rural
would have been a difficult task
also gone up. India as well as allow people
to avail from traditional lenders.
to withdraw money. Similarly,
Data from the micro, small and
To achieve the $5 trillion mark migrant workers who go to
medium enterprises (MSMEs)
and attain the vision of an different states to earn their
registration portal, which had
‘Aatmanirbhar Bharat’, we livelihood can transfer money to
1.07 crore registered MSMEs (as
must recognize that this is not their respective families staying
on September 8, 2022), employ
achievable without rural India’s in different states through IMPS.
about 8 crore people, and 95%
contribution, which requires an Crediting money does some 420
of these enterprises fall under
ecosystem that is equitable and million transactions in a month
the micro category. According
sustainable. Financial inclusion with a value of Rs. 384,000 crores.
to a report, the SFB’s share of
underpins this.
incremental credit was 8% as of
Until May 31, 2022, DBT has
Digital India followed Digital September 2021.
transferred two lakh crore rupees
village which has reduced the directly to the accounts of more
For digitalization of data
gap between ‘Bharat’ and than 11 crore farmers under the
and records of all the SHGs,
‘India’, making it a country where Kisan Samman Nidhi Yojana
the E-Shakti Project was
latest technology can be used (another digital platform). This
launched by the National
and accessed by all. Through campaign has created an example
Bank for Agriculture and Rural
programs like ‘Bharat Net’, the for the world. In this way, by
Development (NABARD) in the
government has tried to connect providing simple loans of small
year 2015 under the ‘Digital
2.5 lakhs villages through high- amounts to the common man and
India’ mission. Until June 2021,
speed broadband. Bharat Net small businesses in India, their life
the E-Shakti digitalization has
is using the USOF (Universal has become easy and financially
covered a cumulative savings
Service Obligation Fund) to lay empowered.
worth INR 83.43 billion.
networks in rural India, which has
several villages. Today, we have To bridge the gap in financial
One of the major objectives
a few hundred thousand banking inclusion, Small Finance Banks
of the project is to increase
correspondents who can both (SFBs) and Payments Banks
the financial empowerment of

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TECHNOLOGY THE CHARTERED ACCOUNTANT

women. Pradhan Mantri Garib No. of Digital Transactions during COVID-19

Kalyan Package (PMGKP) has
been introduced for the PMJDY Number of Digital Number, of Digital
women. Under PMGKP, a total Months transactions (Crores)2019-20 transactions (Crores)2020-21
of Rs. 30945 crore was credited
in the accounts of the women April 202 233
PMJDY account holders during July 205 317
COVID-19 lockdown.
October 314 408
The Indian government
January 345 435
introduced e-RUPI in 2021 as a
project so that welfare benefits March 304 515
can be distributed efficiently to
the eligible beneficiaries.
Chart Title
Undoubtly, these timely financial
600
services have enabled and
intensified rural economic activities 500
which has resulted in tremendous
growth across vital sectors such 400
as agriculture, handloom, dairy
300
products, handlooms and others.
It has also led to an increase in the 200
number of women and the rural
population who has become self- 100
reliant.
0
april july october january march
It is required that the users of
these financial services are no, of transacons(cr)2019-20 no, of transacons(cr)2020-21
equipped with the appropriate
knowledge, skills, and awareness COUNT: No. of transactions (Crore), during COVID-19
to choose their option. And SOURCE: (MEITY) (Digi Dhan Mission)
accordingly, the MEITY launched
a scheme i.e., the “Pradhan
Mantri Gramin Saksharta the digital economy can play According to a report by the
Abhiyan” (PMGDISHA) to in enhancing the economic RBI, India’s annual Financial
undertake awareness campaigns. recovery from the pandemic. Inclusion Index in 2022 stood
( http://www.g20.utoronto. at 56.4, when measured on a
But like other technology, digital ca/2016/160905-digital.html) scale of 100. Thus, a significant
technology is also not free from portion of our country’s
cyber attacks and frauds. To COVID-19 showed the population depends on informal
make it a safe platform, a two- usefulness of these digital tools sources of credit and thereby
step authentication, known as the through contactless payment remains outside the realm of
“Additional Factor Authentication” modes like the UPI. During the digital finance and financial
(AFA) has been developed pandemic lockdown, there was a inclusion.
to ensure the safety of the surge in the RBI-DI Index which
transactions as well as maintain shows a significant rise in digital Certain factors such as
the confidentiality of the payment payments. financial literacy, easy access
data and to safeguard it from
to banking services, knowledge
various cyber-attacks. Under this, Way Forward
an OTP or other codes are sent of banking services, having
through an SMS/Email to ensure India still has the second- largest a positive approach towards
correct transactions. unbanked population throughout banking services by keeping
the country, as well as in the the account active, transfer of
Under the Italian presidency world with 130 million people funds access, and availing of
in 2021, the G20 countries without a bank a/c or access to loans and many more still have
acknowledged the crucial role other financial products. several miles to go.

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THE CHARTERED ACCOUNTANT

TECHNOLOGY
services, especially in the rural In June 2022, the RBI issued
The DBT plays a areas. a notification. According to this
strong role in the notification, non bank can no
The MEITY outlay for the Digital longer load prepaid instruments
inclusive development India Program in the Budget for such as digital wallets using
of farmers as it carries 2022-23 jumped by 67.13 %. credit lines. Moreover, all
bank services, and social An approximate of Rs 10,676.18 lending including Buy Now,
welfare and financial crore has been allocated for the Pay Later (BNPL) will now have
inclusion schemes to programme this year, up from to be reported to the Credit
Rs. 6,388 crore last year. Information Companies (CIC).
the remotest corners of
India. New Act Rectified The primary concern of the
In India, 60% of the consumers RBI is that a PPI instrument
prefer BNPL, (Buy Now, Pay is to be used as a payment
Moreover, nearly 50% of the Later) where the first form of instrument while it is being
accounts remain inactive, lending was the local kirana used as a credit instrument.
which may be due to staying store, whereby shopkeeper used As such, the PPI linked credit
in a remote area, high is operating like a shadow
to open a ‘Khata’ for his buyers
service charges, or lack of credit card. The PPIs primary
i.e., the customers buying on
infrastructure. Such inoperative features such as repayment
credit. BNPL provides a payment
accounts need to be weeded in installments, interest, and
option wherein the buyer can
out. terms and conditions closely
make purchases without paying
resemble that of a credit card,
immediately, but later through
Factors such as inadequate but do not fulfill the required
installments. A third party fintech
technological infrastructure regulations for a credit card
firm enables the process by
and high levels of infirmity prescribed by the RBI, such as
paying for the products to the
may also lead people to go for interest rate practices, defaults
merchants through a prepaid
cash transactions. As such, and penalties, and grievance
instrument (PPIs) and gets repaid
concrete steps are required redressal system. Besides the
by the consumers in installments.
to be undertaken to make above, a strict KYC check of
While no interest is charged, the
financial services accessible the customers is not undertaken
fintech BNPL firm earns through
and affordable in a safe and at the time of providing a loan.
the consumer’s default fees and Also, a borrower’s credit bureau
transparent manner. Lack merchant’s fees.
of physical and poor digital score is hardly checked.
connectivity is a major hurdle in The NBFC/Bank provides a Now, as industry racks up the
achieving financial inclusion in credit line to the customer customers, delinquencies are
rural areas. Security issues have through a PPI by way of climbing. The industry’s charge-
also become one of the key reloading of PPI, which is not off rate was 2.39% in 2021, and
concerns for the banking sector. allowed by the RBI. PPI-MD 1.83% in 2020.
Consumers fear the risk while (Master Direction) allows only
banking online as there happens debit cards and credit cards, The BNPL’s value proposition is
to be many frauds and scams, and bank account can load undeniable.
especially with uneducated the PPIs including prepaid
people. New and attractive wallets. To evade this procedure BNPL products provide support
apps are often introduced with imposed by the RBI, the fintech to the large and underserved
different names which results companies started issuing their economic section of the Indian
in the loss of lakhs of rupees own PPIs which are financed population, who generally do not
to even well-educated people. by the Non-Banking Financial have access to the traditionally
Many people have nil or a Institutions with credit lines, and available credit products such
negligible understanding about the same are loaded to these as bank loans, and credit cards
e-banking. PPIs. due to non-availability of their
credit history.
The government and private There has been a boom in the
sector must collaborate to set PPI linked BNPL services over But in case of default or late
regulations and policies that the past couple of years in India, payment by the borrower, they
will inspire trust in financial with numerous fintech startups. do levy exorbitant charges

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TECHNOLOGY THE CHARTERED ACCOUNTANT

improving, its value also shows

that there is still much work
to be done before we can
anticipate inclusive growth that
affects every societal segment.
We all need to put our efforts
together towards making Digital
India a reality.

References
● “Payments 2025 and beyond”
report by PWC
● “The Global Findex Data base,
2021” by ‘World Bank Group’
● “India’s Trillion-Dollar Digital
which are not allowed by the No doubt, digital banking
Opportunity” by MEITY (Ministry
RBI. has transformed the way we of Electronics & Information
bank. However, a common Technology, Govt. of India
One of the purposes of the man’s perception of a bank
RBI’s regulations is to make remains the same as that of an ● ‘Digital Finance for all: Powering
the entire process more institution, where it involves a Inclusive growth in emerging
transparent, reliable, and economies’ report by McKinsey
lot of complicated paperwork
& Co.
trustworthy, and a healthy to get one’s work done, for
competition among digital example, the paperwork ● ‘Digital Financial Services’
lenders is possible under the involved in opening a bank Report by World Bank Group
new rule. account and availing loans. ● Various annual Reports by RBI
Despite these advances, India
India is not the only country has plenty of room to grow. ● Various issues of ‘The
where the Central Bank is Economics Times’
bringing notifications to Since all the transactions take ● Various issues of ‘The Mint’
regulate the BNPL. Besides place digitally, as a result many
● Various issues of ‘Financial
India, the UK government is people who were not paying Express’ news paper
also introducing strict rules on taxes earlier have now come
BNPL loans. under the radar. It has led to ● Reports by National Payments
recovery of the black money Corporation of India (NPCI)
Even traditional banks such which was earlier untraceable. ● RBI ‘Digidhan’ Dashboard
as HDFC Bank (Flexi Pay) and Although, digital finance will 12) http://www.g20.utoronto.
ICICI bank (Pay Later) are make life easy and lead to ca/2016/160905-digital.html
also jumping into the BNPL inclusive growth, at the same 13) http://www.dt.mef.gov.it/en/
bandwagon. time it will affect social inclusion, news/2021/g20.html
especially for the middle and ● “Financial Inclusion in the Digital
While each of these concerns is old aged people. Once they Age, 2018” by International
valid, an important question is start using digital, they will not Finance Corporation (IFC)
whether prohibition is a better be able to fulfill their social
solution OR the Regulation? ● RBI Publications Quarterly
requirements. They will hardly Statistics on Deposits and Credit
go out as everything is available of schedule Commercial banks
Conclusion on-line. To some extent, it will
To make India a strong digital affect their health also. Just like ● Annual reports by NABARD
economy, policies such as the other requirements of life,

‘Make-In-India’, UPI, as well social inclusion is important too.
as production of computers While going for digitalization,
are required. The core digital one should also take this
sector’s contribution will concept into consideration.
increase two-fold to US $ 355-
435 by 2025 in India. (McKinsey While it is encouraging to see Author may be reached at
the Financial Index of India bharti_harnal@yahoo.co.in and
Global Institute) eboard@icai.in

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