Over the years, technology has transformed and revolutionized our lives and societies, creating innovative tools and resources, and making it easier for us to access information. In this scale, scope, and unprecedented speed, the digital transformation would open new doors as well as present daunting challenges. India is a multifaceted economy, and on the cusp of a major transformation and its rural population is an indispensable part of this rising prosperity. As India prepares for a period of increased digitalization, the issue of inclusive and holistic economic growth stays a key concern.
While India has established itself as one of the world’s fastest-growing economies, unbiased growth still remains a pivotal concern. The development of information and communication technologies (ICTs) in India has given rise to a technological gap between the urban and rural areas, that are benefitted by several Indian companies and well-educated individuals, however, these technologies were not affordable and accessible to the majority of the population. This technological divide is worsened by the intensely saturated differences of gender and social class, which are responsible for determining who is supposed to use technology. India’s rural population consists of over 45% of the national income. Despite the digital revolution and urbanization, over 50% of India’s population will still be rural in 2050.
The socio-economic potential and the impact of digitalization on rural India are far and wide. Hon'ble Prime Minister of India, Shri Narendra Modi, has lately highlighted the need for radical digitalization to bring economic inclusiveness by means of a series of initiatives. Some of the schemes such as ‘Digital India’, ‘Make in India’, and ‘Skill India’ launched over the years has the potential to provide impetus and scope to the rural population, to make sure that they are equal contributors in India’s growth trajectory.
Digital Payments’ Scenario in Rural India
A key contributor to India’s digital payment growth is the advent of multiple payment modes. Until recently, India had been predominantly driven by cash, with low adoption of various online payment systems. However, in 2017, India experienced a shift of payment modes from physical cards and wallets to newer modes of payment, such as Unified Payments Interface (UPI), payments through a unique biometric identifier like Aadhaar, and BharatQR, among others. From these payment modes, UPI has seen a drastic and dramatic rise as SME, large enterprises, and new entrants alike have introduced UPI offerings to the market. The greatest enabler of this being the usage of Aadhaar, and that it is the mutual KYC document among telcos and financial institutions. Notwithstanding these trends, the current payments scenario is as yet developing in the sense that there are various modes for payments, all looking for widespread adoption.
India is an economy that is largely dependent on cash payments. However, the increased adoption of easy-to-use and affordable smartphones, as well as favorable government policies, have built the foundation required for a leapfrog growth in digital payments. These factors are accountable for rapid growth in CAGR to 53% over the last five years and is expected to be valued at $1 trillion by 2023. Besides, continuous innovation, simpler payment modes, interoperable payment platforms, and growing customer awareness regarding digital payments are expected to drive the shift from cash payments to digital modes.
While 44% of consumers from the urban areas have adopted digital payment modes, consumers from the urban areas are a distant second, at just 16%. Although customarily, all schemes implemented by banks and financial institutions have followed the urban-first viewpoint, there is a potential for widespread adoption of digital payments in rural areas, along with urban. This can be attributed to the disintermediation brought about by technology, which makes it possible for banks to connect with rural customers with minimal incremental investments on the inventory side. Additionally, the availability of information at fingertips is expected to drive demand among customers in rural and urban areas.
UPI has shown rapid and consistent growth and is ready to turn into a key retail payment mode. With the goal of driving economic inclusion in provincial zones alongside the push by the legislation, banks have begun opening branches in villages at a rapid CAGR of 7.2%, in comparison to the overall bank branch network growth standing at 6.5%. As the trend grows, the number of collaborations and partnerships are expected to be seen more than ever amongst various players across the value chain. These moves are aimed at offering holistic services with faster go-to-market. Consistent innovation and partnerships are essential to expanding the reach of digital payments and financial services. But while digital modes of payment are expected to grow significantly, there is still a major percentage of the population that is yet to catch up with the trend.
Initiatives Undertaken By Public and Private Sectors
The public sector has been a solid impetus for India's fast digitization. The robust endeavors by the government to expand Aadhaar services, the national biometric digital identity program, has played a significant role. Aadhaar was first introduced in 2009, and since then, almost 1.2 billion individuals have enrolled in the program, making it the single largest digital ID program across the globe, accelerating the spread of other digital services. For instance, around 870 million financial institutions were linked to Aadhaar by February 2018, in comparison to the 399 million in April 2017 and 56 million in January 2014. Similarly, the establishment of the Goods and Services Tax Network in 2013, has resulted in the bringing together of about 10.3 million indirect tax-paying businesses onto one digital platform, which is creating a ground-breaking incentive for organizations to digitize their work processes.
On the other hand, technological advancements in the private sectors have helped make online usage more accessible and bring internet-enabled services to millions of consumers in the country. For instance, Reliance Jio’s move of introducing virtually free smartphones with low-cost mobile subscriptions has prodded innovation and competitive pricing. Internet costs have skyrocketed by over 95% since 2013, and ultra-fast download speeds have quadrupled somewhere between 2014 and 2017. Therefore, mobile internet access per consumer grew by 152 percent yearly—more than twofold the rates in the United States and China.
The rapid pace of development is helping rural areas to limit the digital divide with urban areas. Lower-pay states like Bihar, Uttar Pradesh, and Jharkhand are receiving support to expand internet infrastructure, for example, by increasing the infiltration of internet services to new customers and building base tower stations faster than urban areas. Between 2014 and 2018, Uttar Pradesh has seen nearly 36 million individuals enrolled in internet services. Besides, individuals from small towns and rural areas can now order food using a food delivery app, shot at an online retailer, read news online, video chat on social networking apps, and send money to relatives using their smartphone or stream video on handheld devices.
In spite of these advances, there is still more room for India to grow. Roughly 40 percent of the population is enrolled in internet services. While numerous individuals have digital bank accounts, 90 percent of all retail exchanges in India, by volume, are still carried out using cash mode. Digital modes of payment like UPI, Aadhaar, and BHIM are growing at an unprecedented rate, and it is heartening to see the growing awareness regarding the power of biometrics. These advances will dominantly transform Indian society into a digitally empowered society and knowledge economy.
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