The Reserve Bank of India (RBI) has released its ‘Report on Currency and Finance (RCF) for 2023-24’ on 29th July 2024. The report highlights the challenges that an economy faces by the rapid adoption of digital technologies in the financial sector.
- The theme for the RCF 2023-24 report is “India’s Digital Revolution”.
- According to the RCF 2023-24, India’s digital economy currently at 10% of the Gross domestic product (GDP) and is expected to double to 20% by 2026.
About the RCF 2023-24:
i.The RCF is published annually by the RBI.
- This report gives an insight about the currency trends, inflation rates, and financial stability of the economy.
ii.It also highlights the advantages, opportunities and challenges that the economy (particularly the financial sector) experiences by adopting digitalization and digital technologies.
Key Highlights of the RCF 2023-24:
India’s digital economy poised to constitute 1/5th of GDP by 2026
i.The report by RBI has projected that, the increased use of digitization of the financial markets and payments system will constitute a fifth or 20% of the GDP by 2026 which currently accounts for a tenth of the GDP.
ii.The Internet user base has increased by 199 million in the recent three years though reach of the Internet was at 55% in 2023.
iii.In India, cost per gigabyte of data consumed is the lowest globally at an average of Rs 13.32 ($0.16) per GB and also has one of the highest mobile data consumptions in the world, with an average per-user per-month consumption of 24.1 GB in 2023.
Digital payments clock 50% volume growth between FY18 and FY24
i.According to the report, digital payments have seen a Compound Annual Growth Rate (CAGR) of 50% in volume and 10% in value terms in the last seven years (between 2017-18 and 2023-24).
ii.Digital payments, including NEFT (National Electronic Funds Transfer), UPI (Unified Payments Interface), credit and debit cards recorded 164 billion transactions worth Rs.2,428 lakh crore in 2023-24.
- In value terms, NEFT transactions had the highest share (49.4%) in total retail payments in 2023-24, followed by UPI (25.3% share in 2023-24).
- UPI has seen a tenfold growth in transactions by volume over the past four years, increasing from 12.5 billion transactions in 2019-20 to 131 billion transactions in 2023-24 (80% of all digital payment volumes).
- Currently, the UPI is recording nearly 14 billion transactions a month, having 424 million unique users in June 2024.
iii. The average value of transaction per capita for total digital payments has increased from Rs.0.4 lakhs in 2005-05 to Rs.16.8 lakhs in 2023-24.
India set to lead global labour supply, remittances to hit $160 billion by 2029
i.India is expected to be the world’s leading supplier of labour, which will increase the remittances to around USD 160 billion in 2029 from USD 115 billion in 2023.
ii.India accounts for 13.5% of the world’s total remittances making it the highest remittance recipients in the world.
iii. The ratio of remittances to GDP for India has gradually increased from 2.8% in 2000 to 3.2% in 2023 and is now above that of gross FDI inflows to GDP ratio (1.9% in 2023)
iv.With reference to the World Bank data, the report showed that global remittances influenced by mobile money and digital platforms are estimated to have increased to USD 857.3 billion in 2023, led by India (USD 115.3 billion), Mexico (USD 66.2 billion), China (USD 49.5 billion) and the Philippines (USD 39.1 billion).
Informal finance still thriving in rural India
i.A large number of lower-income households and businesses in the informal sector remain excluded from availing credit as they often lack the necessary information that financial institutions need to assess their creditworthiness.
ii.Among the total outstanding loans of rural households, 31% is sourced from informal lenders and these are particularly high among the lowest economic group of households.
iii.Consumption smoothing, social ceremonies and medical emergencies together account for nearly 30% of total loans availed by rural households in 2018-19 (NSO, 2021) .
Cross-selling and embedded finance models may raise anti-competition concerns
i.India is amongst the top ten countries in terms of embedded finance (integration of banking and various financial services into non-financial applications and services) revenue and it is expected to expand at a CAGR of 30.4% over 2022-29 to reach USD 21.1 billion in 2029.
ii. While cross-selling (involves suggesting related or complementary products to existing customers and leveraging established relationships tooffer additional items or services aligned with their needs or previous purchases) and embedded finance models enhance customer convenience, they may raise anti-competition concerns due to bundled services.
iii.The major disadvantage of digitalisation are the dark patterns where consumers are tricked into making decisions against their interests.
- Moreover, extensive use of customer data by companies leads to data protection and privacy that compromises customer trust.
About Reserve Bank of India (RBI)
The Reserve Bank of India (RBI) is responsible for monetary stability, currency management, targeting inflation, regulating the banking system, and setting interest rates. It was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934.
Headquarters – Mumbai, Maharashtra
Governor –Shaktikanta Das
