Daily Editorial Update – India can bank on the unbanked with better network

Digitisation and universal access to financial services that have the potential to transform lives of millions of citizens in a short span of time, should get prominence in this budget. A large share of India’s population is either unbanked or under-banked.

The percolation of formal financial services needs to happen the way it did in telecom services. NOFN (National Optical Fiber Network) project and other initiatives that can ensure highspeed, reliable internet access in every corner of the country, should be fast-tracked.

This is at least as important, if not more, than the physical infrastructure projects. Sustaining focus on smart-city projects is another area while initiatives like WiFi at Railway Stations, bus stations, and community centres have the potential to increase digital inclusion for millions of Indians.

There is a large amount of unutilised funds with USOF (Universal Service Obligation Fund) and this can be used to subsidise the cost of data for select customers. This can be capped at a certain limit of about Rs 50 per month for every customer.

Access to digital services can also be improved by making smartphones available at economical prices and promoting devices supporting multilingual interfaces. Benefits in terms of tax rebates should be defined for such category of phones.

An ecosystem that supports financial inclusion must also be developed, to begin with increasing the reach of digital payments. Disbursal of government benefits in bank account is just the first step, it is important that such funds also be used digitally instead of being withdrawn in the form of cash. Ubiquitous acceptance of digital payments is essential in transforming India from a cash to a cash-less society.

Transaction fee needs to be minimised especially on low-ticket transactions.Tax rebates can also be given to merchants clocking a significant share of sales through any digital method. Access to credit must also be increased. Financial institutions can be mandated to disburse a certain portion of loans only to merchants who have embraced digital payments beyond a certain threshold.

Also, an institution similar to Deposit Insurance and Credit Guarantee Corporation (DICGC) can be set up to insure credits up to a fixed amount, so that small loans can be disbursed with minimum hassles. Schools, colleges and NGOs can be given incentives to conduct training programmes for consumers and merchants to encourage them to avail digital services.

The corporate sector can also be encouraged to promote digital literacy. Conducive policies that invest in digital infrastructure, and create a levelplaying field between traditional financial institutions and innovative financial technology companies, could lead to significant improvement in financial inclusion for hundreds of millions of Indians.