Mumbai, Jul 29: India’s digital economy is set to make up one-fifth of the GDP by 2026, doubling its current share, according to a Reserve Bank report released on Monday.
In the foreword of the ‘Report on Currency and Finance (RCF) for the year 2023-24,’ Reserve Bank Governor Shaktikanta Das highlighted that digitalisation in finance is driving next-generation banking and improving access to affordable financial services. India is leading the digital revolution, accelerating digital payments and embracing the comprehensive India Stack, which includes biometric identification, the Unified Payments Interface (UPI), mobile connectivity, digital lockers, and consent-based data sharing.
The report emphasized that the digital revolution is revitalizing banking infrastructure and public finance management systems, including direct benefit transfers and tax collections. E-markets are expanding rapidly.
“The digital economy currently accounts for a tenth of India’s GDP; based on growth rates observed over the past decade, it is projected to constitute a fifth of GDP by 2026,” the report stated.
Several factors have fueled this revolution. Despite internet penetration being at 55% in 2023, India’s internet user base has increased by 199 million in the last three years. The cost per gigabyte (GB) of data in India is the lowest globally at an average of Rs 13.32 (USD 0.16) per GB. Additionally, India has one of the highest mobile data consumption rates in the world, with an average per-user per-month consumption of 24.1 GB in 2023.
The RBI Governor also noted that the UPI has revolutionized retail payments, making transactions faster and more convenient. In the realm of digital currency, the Reserve Bank of India is pioneering the e-rupee, the central bank digital currency (CBDC). The digital lending ecosystem is thriving with initiatives like the Open Credit Enablement Network, Open Network for Digital Commerce, and the Public Tech Platform for Frictionless Credit.
Fintechs are collaborating with banks and non-banking financial companies (NBFCs) as lending service providers and operating platforms to facilitate digital credit. BigTech companies are supporting payment apps and lending products as third-party service providers.
“Digitalisation in finance is paving the way for next-generation banking, improving access to financial services at affordable costs, and enhancing the impact of direct benefit transfers by effectively targeting beneficiaries,” Das said. He noted that loans in the retail segment are being enabled by online payments and innovative credit assessment models with instant disbursements. E-commerce is also benefiting from embedded finance.
However, Das also acknowledged the challenges posed by digitalisation, including cybersecurity, data privacy, data bias, vendor and third-party risks, and customer protection. “Increased interconnectedness may lead to systemic risks. Emerging technologies can introduce complex products and business models with risks that users may not fully understand, including the proliferation of fraudulent apps and mis-selling through dark patterns,” he said.
The report, themed ‘India’s Digital Revolution,’ said digitalisation is transforming India’s financial sector by changing how financial institutions operate and interact with their customers and provide financial products and services. While digitalisation brings several benefits, it also introduces challenges such as complex financial products, greater interconnectedness, cybersecurity risks, financial frauds, and customer protection, all of which have implications for macro-financial stability. These issues must be addressed to fully realize the potential of financial digitalisation.
The report reflects the views of the contributors and not necessarily those of the Reserve Bank. It noted that digitalisation could impact inflation, output dynamics, and monetary policy transmission in various ways, with the overall impact evolving over time due to the rapid pace of developments. Central banks will need to incorporate digitalisation aspects into their models to maintain the efficacy of monetary policy and achieve price and financial stability.
The report found empirical support for the positive role of the regulatory framework in increasing consumer confidence in digital financial products, boosting the operating and technical efficiencies of financial institutions, and fostering more liquid and integrated financial markets.
