Report: India may have needed 47 years to reach the financial inclusion rate of 80% that it has achieved in just 6 years

A G20 policy document created by the World Bank states that without Digital Payment Infrastructure (DPI) like Jan Dhan Bank accounts, Aadhaar, and Mobile phones (the JAM trinity), India may have needed 47 years to reach the financial inclusion rate of 80% that it has achieved in just six years. The document has now been obtained by News18.

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Digital payments contributed to a decrease in government spending

The entire value of UPI transactions during the most recent fiscal year was approximately 50% of India's nominal GDP, according to a World Bank document. With the usage of DPI, banks' onboarding expenses for consumers in India dropped from $23 to $0.1. According to a World Bank document, as of March 2022, India had saved a total of $33 billion through Direct Benefit Transfer (DBT), which is around 1.14% of GDP.

According to the paper, the World Bank, which is an implementing partner of the GPFI, created it under the direction of the G20 India Presidency, which was represented by the finance ministry and the Reserve Bank of India (RBI), and with input from them.

India intends to highlight its achievements in the areas of financial inclusion and digital payments at the G20 Summit this weekend in New Delhi.

India attained 80% Financial inclusion rate

The India Stack, which combines digital ID, interoperable payments, a digital credentials ledger, and account aggregation, according to the World Bank publication, is an example of the DPI method. Without a DPI, it would have taken approximately five decades for the India stack to attain its astonishing 80% financial inclusion rate.

According to the paper, the adoption of DPIs like Aadhaar, coupled with Jan Dhan bank accounts and mobile phones, is thought to have been a key factor in the increase in adult ownership of transaction accounts from about one-fourth in 2008 to over eighty percent now.

Number of Jan Dhan Accounts increased four times

Since the program's inception, the number of Pradhan Mantri Jan Dhan Yojana (PMJDY) accounts established has quadrupled, from 147.2 million in March 2015 to 462 million by June 2022. Women control 56% of these accounts, or more than 260 million, since the program's inception. While the importance of DPIs in this "leapfrogging is undeniable," other ecosystem factors and regulations that built on their accessibility were crucial.

According to the paper, which lists the steps taken by the Narendra Modi-led administration, these included interventions to build a more supportive legal and regulatory framework, national policies to increase account ownership, and utilising Aadhaar for identity verification.

UPI Served as 'Game-changer'

In particular, UPI's uptake has been "quick and transformative in India," according to the article. Due to its user-friendly design, open banking capabilities, and involvement of the business sector, UPI has gained widespread adoption.

The UPI network has grown significantly in popularity in India; in May 2023 alone, more than 9.41 billion transactions for a total of Rs 14.89 trillion were made. According to a World Bank report, the total value of UPI transactions for the fiscal year 2022–2023 was close to 50% of India's nominal GDP.

According to the report, DPIs can improve efficiency for private organisations by lowering the complexity, cost, and time spent on business operations. For example, for some non-bank financial companies (NBFCs) in India, the Account Aggregator ecosystem allowed for an 8% increase in SME lending conversion rates, a 65% reduction in depreciation costs, and a 66% decrease in costs related to fraud detection.

Industry estimates show that using DPI reduced banks' client onboarding expenses in India from $23 to $0.1.

By digitising and streamlining KYC processes, the India Stack has reduced expenses. According to a World Bank analysis, banks that adopt e-KYC have reduced their cost of compliance from $0.12 to $0.06.

The report describes how India used DPI to create one of the biggest digital government-to-people architectures in the previous ten years. Through 312 important initiatives, this strategy has enabled transfers worth around $361 billion to be made directly to beneficiaries from 53 federal ministries.

According to the research, as of March 2022, these savings totaled $33 billion, or around 1.14% of GDP.

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