The debate on demonetisation has quickly shifted from being an anti-black money and fake currency drive to one aimed at pushing India into a cashless future, with both the government and digital technology and payment vendors making strong pitches in favour of the long-term advantages of digital banking.
Nandan Nilekani, who has now been officially brought on as an adviser by Prime Minister Narendra Modi to lead his digital efforts as part of demonetisation committee, recently said during an NDTV interview the shock that demonetisation has delivered to the masses is good for the economy and will push people into cashless lifestyles, emphasising that infrastructure for digital financial services already exists. In his latest advisory role, he will help the government increase the adoption of digital payment methods in rural areas and among merchants.
Nilekani, who is the architect of India's ambitious, biometrics-based citizen identification program Aadhaar, has been an adviser to the National Payments Corporation of India, the umbrella organisation behind United Payments Interface (UPI), a government and RBI-backed 'peer-to-peer' e-payments platform designed to facilitate instant, smartphone-based payments among people and vendors.
UPI, which was launched earlier this year, is hoping to play a big role in the coming months by facilitating digital payments and getting more and more banks to come on board on the platform. So far, with the exception of five public sector banks -- Indian Overseas Bank, Indian Bank, Syndicate Bank, Corporation Bank and Punjab & Sind Bank –- most public sector banks including State Bank of India have adopted UPI.
'Window of opportunity'
While Nilekani's hasn't disputed the disruption and pain caused by demonetisation, particularly the shock to the informal sector and the rural economy, he believes the drastic move has "created a window of opportunity" for people to rapidly adopt a host of technology products the government already has in place. India's informal sector makes up about 20 percent of GDP and about 80 percent of employment.
"This will give a big boost to digitisation efforts," he said. "In the last seven years, the infrastructure for digital financial services has been laid own with Aadhaar, UPI, USSD, Micro SD...what I thought would take three to six years I now believe will happen in 3 to 6 months."
Nilekani believes India's reach of card machines or point-of-sale (POS) devices will double or triple from the current 1.5 million in the next three to six months, and the number of micro-ATMs, which are manned-ATMs that use a POS terminal to vend cash, will go up from the current 130,000 to at least a million in rural areas.
For the uninitiated, point-of-sale (POS) is industry term for card swiping machines. India is estimated to have about 1.5 million POS terminals at the moment; USSD is SMS-based banking technology used to make payments using non-smartphones.
"Anyone who can get an Aadhar card can get an instant bank account, anyone with a bank account can transact at a micro ATM, anyone with a feature phone can do a transaction with the USSD channel, and someone with a smartphone can use the UPI to make payments," he said. "There is a product for every segment. We will bring everyone into the digital system."
But when asked about the absence of digital technology in the informal sector, Nilekani maintains there would be short-term pain, but hasn't said why people haven't been adopting these technologies at a fast clip despite their wide availability.
He repeatedly pointed to the benefits of UPI, which he said is better than its rival, private "closed loop" products like Paytm or MobiKwik, because of "interoperability," an open technology architecture that helps payment companies and banks share the network.
He stressed that UPI needs "baby steps" to succeed but when asked if a step-by-step approach or incremental demonetisation policy would have been better for the country in hindsight, he stressed that shock has its benefits.
It will help "accelerate" the adoption of micro ATMs and mobile banking, and once people become "part of the formally economy," it would make getting access to credit and getting better jobs easier, he said.
Nilekani believes formalising the economy will strengthen the domestic consumption, and help to hedge against any slowdown in exports or automation taking tech jobs, but cautioned a "lot will depend on the next three months" and how the [government] accelerates digitisation, the roll out of POS and enrolling more people in Aadhaar.