How Digital Public Platforms have become a powerful catalyst for inclusive growth?

• About 85 per cent of the digital payment transactions take place through UPI in India, Reserve Bank Governor Sanjay Malhotra said on October 16.

• He was speaking at a High-Level Dialogue on Forging Economic Resilience through Digital Public Platforms organised by RBI on the sidelines of the Annual Meetings of the World Bank and International Monetary Fund in Washington, DC.

• Malhotra gave a brief overview of India’s Digital Public Platforms’ ecosystem and their role in digitalisation and financial inclusion, especially in government transfer payments.

Why Digital Public Platforms matter for central bankers?

• During India's G20 Presidency, Digital Public Platforms were formally defined as a set of shared digital systems built upon minimal, modular digital building blocks that can be utilised by governments, businesses, academia, and civil society to facilitate society-wide development.

• These platforms comprise open, secure, and interoperable systems that enable access to public and private services. 

• Digital identity, payments, and data exchange form its foundational building blocks.

• Digital Public Platforms are of immense importance for Central Banks.

• Central Banks not only serve as the ultimate guardians of economic resilience. In many countries, they are also responsible for enhancing financial inclusion and for operating and regulating critical payment and settlement infrastructure that form the backbone of modern economies.

• Digital Public Platforms are an effective tool for achieving these objectives. They collectively lower barriers to inclusion and facilitate access to financial services. 

• As a result, globally, around 865 million individuals opened their first account with financial institutions enabling quicker and hassle-free receipt of governmental grants and subvention.

• Development of fast payments systems (FPS) aligns with key public policy objectives, including creation of safe and efficient payment systems for everyone, reducing cash dependence, and supporting digitalisation. 

• Fast payments systems continue to grow in both number and usage, having been established in more than 70 jurisdictions across the world.

Digital Public Platforms’ ecosystem in India

India’s Digital Public Platforms constitute a well-structured, multi-layered system of interconnected digital building blocks including:

i) Digital identity through Aadhaar

ii) Instant payment systems via the Unified Payments Interface (UPI)

iii) Secure data sharing through the Data Empowerment and Protection Architecture (DEPA).

• While the public sector establishes the foundational infrastructure layer, the success of Digital Public Platforms is bolstered by active private sector participation. 

• Private sector engagement drives innovation and enhances competition, thereby elevating service quality and user experience.

• Further, the private sector plays a vital role in innovating and nurturing vibrant developer communities and expanding digital markets. 

• All of these contribute to the maturity of the ecosystem around the DPPs while maintaining the core principles of accessibility, inclusivity, and public benefit.

• This approach has resulted in significant positive externalities for growth and development of digital payment systems in India. 

• A unique identity platform like Aadhaar is the very basic fundamental block for any digitalisation effort in a country. Aadhaar today has over 1.3 billion users. Using this identity platform, over 566 million bank accounts have been opened, 316 million of these belong to women. This has provided a significant fillip to financial inclusion initiatives.

• It has also enabled direct benefit transfers (DBT) bypassing cash-based subsidy distribution and crediting subsidies directly into bank accounts. Over $500 billion have been transferred directly to beneficiaries, significantly reducing fraud and leakage.

• The Unified Payments Interface (UPI) is another critical Digital Public Platform. It has transformed the payments landscape. It enables transfer of payments in real time, efficiently from one account to another across banks.

• Around 85 per cent of the digital payment transactions in India today are carried out through UPI. About 20 billion transactions are made using UPI every month, representing value equivalent to over $280 billion.

• Small vendors and micro enterprises can now accept payments digitally, and build financial history, thereby enabling access to formal credit at much lower costs.

• There are other benefits too. A recent research study on the impact of UPI suggests that higher UPI adoption is associated with lower cash demand. 

• Another study shows that a one percent increase in UPI transaction volumes correlates with a 0.03 percent increase in GDP growth.

• Digital payment systems have decreased delivery costs, minimised revenue leakages, and facilitated rapid deployment of emergency relief programmes, particularly during the global COVID-19 pandemic.

• Foundational platforms for digital identity (Aadhaar) and real-time payments (UPI) have successfully demonstrated how to build resilient, cost-efficient public service delivery systems at scale.

• To conclude, Digital Public Platforms have proved to be central to inclusive growth in India.