The mood in the country has changed - the graph of new Covid-19 cases is trending sharply down in India, vaccinations have begun in full earnest, GST collections hit a record high, as did rabi sowing and electricity demand, the Markit Manufacturing PMI surged ahead in January, while the Services PMI showed a moderate rise; rural unemployment rate reduced dramatically though urban stress stays high. The proposed budget for the year ahead gave cheer as it brought in more transparency and stayed the course on conservatism (Read V. Anantha Nageswaran). However, even as the Finance Minister opened the strings on capital expenditure, there was a reining in on the subsidies front (Read Mihir S Sharma). The intent of the government to go in for growth, rather than pay-outs, is laudable, though this approach does run the risk of exacerbating inequality and stress amongst the poorest segments in the short-term.

One amendment proposed in the Budget that has not got the attention it deserves is that of the Deposit Insurance and Credit Guarantee Corporation Act. Small depositors will now be eligible to get upto the insured limit of INR five lakh back, even when the bank is placed under moratorium. This amendment will go a long way in building greater trust amongst the low-income customers in bank deposits.

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The Finance Minister has also proposed Rs. 1,500 crores for a scheme towards providing financial incentives to promote digital modes of payment. This move recognises the constrained growth of acceptance infrastructure, thanks to zero-MDR at Point of Sale, but at Indicus, we believe that a more sustainable solution would be to allow a low rate of interchange that will facilitate growth through the market.

Despite the low penetration of PoS terminals, Indians have taken to digital payments in a big way, with UPI paving the way for greater adoption. A recent survey conducted by People Research on India’s Consumer Economy (PRICE) and the National Payments Corporation of India (NPCI) showed that while one of two of India’s richest 20% households use digital payments, one out of four households in the poorest 40% also use these transactions. 57% of the poorest households surveyed had smartphones, showing that the digital divide is narrowing rapidly. One commendable fact that emerged from the survey is that 90% of low-income households eligible for DBT reported having received the transfers post lockdown, a validation of the excellent architecture set up through the DBT Misison. 

However, the ugly side of growing acceptance of digital payments has shown its face over the last year as digital lending apps proliferated (Read

Tarunima Prabhakar in IE; Venkat Ananth & Shailesh Menon in ET). The RBI gave a public caution in December and set up a Working Group in January to deliberate on an appropriate regulatory policy. Meanwhile Google deleted hundreds of apps that failed to meet its own standards of safety. Going forward, the RBI will need to find the golden mean to ensure consumer protection, without clamping down on innovation.

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The data from the latest round of the National Family Health Survey shows that ownership of bank accounts and mobile phones amongst women has increased, but there is still significant divergence across states and across the rural-urban divide (See

BehanBox). PMJDY and DBT Mission have brought women to the forefront in India and to raise their usage of financial services, Pallavi Madhok, Women’s World Banking, has suggested raising a cadre of 100000 women business correspondents across India. CGAP’s Greg Chen and Maria May have an excellent blog post on super-charging G2P for women – their answer lies in giving women multiple options of platforms and payment delivery systems to choose from. 

•    Amitabh Kant, CEO, Niti Aayog, brings out the phenomenal success that India has achieved so far in financial inclusion.
•    S S Mundra, former Deputy Governor, RBI, writes on how payment banks can fast-track our financial inclusion journey.
•    CGAP’s William Cook compares India’s UPI and Brazil’s New Instant Payment System, PIX
•    A new paper by Fernando Restoy, BIS, on “ Fintech regulation: how to achieve a level playing field” suggests incorporating entity-based requirements for big techs in areas such as competition and operational resilience that would address the risks stemming from the different activities they perform.
•    Sophie Falsini of CGAP has an interesting blog post on how social norms for men restrict women’s financial inclusion.
•    Anshul Saxena of MicroSave writes on three financial inclusion success stories in the age of COVID-19.
•    Your data for cash: Indian lending apps force tough choice
•    RBI makes risk-based internal audit mandatory for select NBFCs, UCBs
•    India’s Digital Efforts, Payments Poised To ‘Break Out’
•    FSS and India Post Payments Bank join hands to promote financial inclusion
•    Budget 2021: Financial inclusion means new portal for unorganised labour sector