Digitisation of economy

Context

• Amidst the debate on Aadhar, Prime Minister has announced the integration of BHIM app with the Aadhar number. This is slated to push the digital transactions in the country.
• It should be noted that a renewed rigour was created towards digitisation after the historical step to demonetise 86% value currency, which in turn pushed people to use digital platforms in the wake of shortage of money in the market.

 Background

• Besides the impact of demonetisation has on the discourse and practices of the digital economy, the base for the systemic realisation of the goal was in making for the years.
• The mobile revolution that has ushered the new generation in one last decade, which particularly got impetus when the Atal Bihari Vajpayee government corporatized BSNL and opened the market for private players.
• The fact that India produced quality skilled personnel for the Informational Technology sector who worked from Banglore to California’s Silicon Valley.

 What exactly is Digital Economy?

• To appreciate the sense of digital economy, it is required to have a crude definition to begin with. It refers to an economy that is based on digital computing technologies. The digital economy is also sometimes called theInternet Economy, the New Economy, or Web Economy.
• The three main components of the ‘Digital Economy’ concept can be identified:
• e-business infrastructure (hardware, software, telecoms, networks, human capital, etc.),
• e-business (how business is conducted, any process that an organization conducts over computer-mediated networks),
• e-commerce (transfer of goods, for example when a book is sold online).
• India has acquired sufficient skills in all the three components of the digital economy despite lacunae.
• Our infrastructure is compatible with the global systems of IT if our socio-economic levels are considered. JIO services has oflate revolutionised the telecom sector. Human resource familier with English, the language of computing and other skills is another asset.
• The rapid surging in the smartphones and computers is opening bright prospects for conducting e-business. Even the patriotic Indian can stumble the business of global players like SnapChat if they utter an unfavourable assertions for India – this reflects our power indeed.
• The plethora of e-commerce websites and their increasing geographical reach speaks a lot (Flipkart, Zopnow etc)

What steps the government is taking to enhance digital use?

• The government has taken following steps.
• A merchant version of Aadhaar-enabled payment system is launched for those without debit cards, mobile phones or e-wallets by integrating Aadhar with the BHIM app, which is named after Bhim Rao Ambedkar.
• No transaction above Rs 3 lakh will be permitted in cash.
• The government is also slated to launch two new schemes to promote the use of BHIM. These are referral bonus schemes for individuals and cashless schemes for merchants.
• A mission will be set up with a target of over 2,500 croredigital transactions for 2017-18 through UPI, USSD, Aadhaar Pay, IMPS and debit cards.
• To promote cashless transactions, the government decided to remove all duties on point of sale devices, finger print readers and similar devices.
• Banks have targeted to introduce additional 10 lakh Point-of-Sale terminals by March 2017.
• Political parties will be entitled to receive donations by cheque or in the digital mode from their donors.
• The Budget also focused on enabling a smarter way of solving each issue and raising productivity like increasing crop insurance to 50%, expanding digital agri- markets (e-NAM), linking physical targets and using space tech (GIS) to MGNREGA spend, online courses for skill development, JVs with state governments for railway capex, Aadhaar-enabled cards for healthcare to senior citizens, and fine-tuning the bankruptcy code to make collections easier, etc. All these measures have a touch of digital revolution.

What impact digitisation will have on India?

• In the age of bitcoin and blockchain which are claimed as the greatest inventions since the Internet, India have leapfrogged the neo-technology industry with simple and practical innovations and massive grunt work.
• It is building a digital infrastructure that will soon process billions more transactions than bitcoin ever has. With this, India will skip two generations of financial technologies and build something as monumental as China’s Great Wall and America’s interstate highways.
• A decade ago, India had a massive problem: nearly half its people did not have any form of identification. When you are born in a village without hospitals or government services, you don’t get a birth certificate. If you can’t prove who you are, you can’t open a bank account or get a loan or insurance; you are doomed to be part of the informal economy—whose members live in the shadows and don’t pay taxes.
• In 2009, the government launched a massive project, calledAadhar, to solve this problem by providing a digital identity to everyone based on an individual’s fingerprints and retina scans. As of now, the program had issued 12-digit identification numbers to 1.15 billion people. This was the largest and most successful IT project in the world and created the foundation for a digital economy.
• India’s next challenge was to provide everyone with a bank account. The government sanctioned the opening of 11 institutions called payment banks, which can hold money but don’t do lending. To motivate people to open accounts, it offered free life insurance with them and made them a channel for social-welfare benefits. Within three years, more than270 million bank accounts were opened, with $10 billion in deposits under Jan Dhan Yojna.
• And then India launched itsUnified Payment Interface (UPI), a way for banks to transfer money directly to one another based on a single identifier, such as the Aadhar number.
• Take the way that credit card payments are processed: when you present your card to a store, the cashier verifies your signature and transmits your credit card information to a billing processor such as Visa, American Express or MasterCard—which works with the sending and receiving banks. The billing processors act as a custodian and clearing house. In return for this service, they charge the merchants a fee of 2 to 3 percent of the transaction. This is a tax that is indirectly passed on to the customer.
• With a system such as UPI, the billing processor is eliminated, and transaction costs are close to zero. The mobile phone and a personal identification number take the place of the credit card as the authentication factor. All you do is download a free app and enter your identification number and bank PIN, and you can instantly transfer money to anyone, regardless of which bank he or she uses.
• India has just introduced another innovation calledIndia Stack. This is a series of secured and connected systems that allow people to store and share personal data such as addresses, bank statements, medical records, employment records and tax filings, and it enables the digital signing of documents. The user controls what information is shared and with whom, and electronic signature occurs through biometric authentication.
• Take the example of opening a mobile-phone account. It is cumbersome everywhere because the telecom carriers need to verify the user’s identity and credit history. In India, it often took days to produce all the documents that the government required.
• With the new “know-your-customer” procedures that are part of India Stack, all that is needed is a thumbprint or retina scan, and an account can be opened within minutes. The same can be done for medical records. Imagine being able to share these with doctors and clinics as and when necessary.
• India Stack will also transform how lending is done. The typical villager currently has no chance of getting a small-business loan because he or she lacks a credit history and verifiable credentials. Now people can share information from their digital lockers, such as bank statements, utility bill payments and life insurance policies, and loans can be approved almost instantaneously on the basis of verified data. This is a more open system than the credit scoring services that US businesses use.
• The demonetisation move disrupted the entire economy, caused pain and suffering, and was widely Yet it was a bold move that will surely produce long-term benefits because it will accelerate the push to digital currency and the modernization of the Indian economy.

 Way Forward

With the blooming picture of Indian economy ahead if the digitisation succeeds in its entirety, there are some concerns which need correction.

• Cyber security will be the major constraint. We are required to build sophisticated cyber infrastructure immune from attacks – domestic or foreign, else we risk degeneration of public trust in such initiatives.
• The poor and digitally illiterate population will need capacity building and incentives to amalgamate in the new architecture of the economy.

 Practice Questions

1. How will the initiatives taken towards digitisation affect the economy of India? Comment.
2. What is the role of cyber security in aiding the digital economy? Elaborate.