Prime Minister Narendra Modi on August 02, 2021, launched digital payment solution e-RUPI, a person- and purpose-specific cashless digital payment solution, via video conference. This futuristic reform initiative has come at a time when the country is celebrating the Amrit Mahotsav on the 75th anniversary of Independence. The launch of e-RUPI could address the shortcomings in digital payment infrastructure that will be crucial for the success of the future digital currency as the Government of India is already in the process of developing a central bank digital currency.
Central Bank Digital Currency
A central bank digital currency (CBDC) is the legal tender issued by a central bank in a digital form. It is the same as a fiat currency and is exchangeable one-to-one with the fiat currency. (Fiat currency is a government currency not backed by a commodity such as gold.) Only its form is different. However, it is not comparable to the private virtual currencies (VCs) that have rapidly increased over the last decade. Private VCs are not money (certainly not currency) in the sense of the word as used conventionally.
Reserve Bank of India (RBI) is working towards the implementation of the strategy for CBDC in a phased manner. As per RBI deputy governor, T. Rabi Sankar, CBDCs are desirable not just for the benefits they create in payments systems, but also they might be necessary for the protection of the general public in an environment of volatile private VCs. The introduction of CBDCs would involve changes to the enabling legal framework since the current provisions are primarily synced for physical currency (in paper form).
Scope of CBDC in India
Digital currency can prove quite advantageous for India due to the following reasons:
- There is increasing penetration of digital payments in the country that exists alongside sustained interest in cash usage, especially for small value transactions.
- It has empowered the poor and the deprived, small businesses, farmers, and tribal population. In July 2021 itself, the record 300 crore UPI transactions were made, amounting to ` 6 lakh crore.
- Digital currency would reduce the cost of currency management while enabling real-time payments without any inter-bank settlement.
- Foreign trade transactions could be speeded up between countries adopting a CBDC.
- India’s fairly high currency-to-GDP ratio holds out another benefit of CBDC as to the extent large cash usage can be replaced by CBDC.
- The cost of printing, transporting, and storing paper currency can be substantially reduced.
- CBDCs could enable a cheaper and more real-time globalisation of payment systems.
- It is conceivable for an Indian exporter to be paid on a real-time basis without any intermediary.
- The risks of dollar-rupee transactions, the time zone difference in such transactions would virtually disappear.
- CBDCs can cause a reduction in the transaction demand for bank deposits and will reduce the intra-day liquidity for settlement of transactions. CBDCs might also cushion the general public in an environment of volatile private VCs.
- They could also cause a shift away from bank deposits.
- Money is transferred directly to the accounts of people via the Direct Benefit Transfer (DBT) without any intermediary. More than 3,000 schemes are using DBT and 90 crore Indians are being benefited in some way or the other in areas like LPG, ration, medical treatment, scholarship, pension, and wage disbursal.
e-RUPI
e-RUPI is a cashless and contactless medium of digital payment. It will be delivered to mobile phones of beneficiaries in the form of an SMS-string or a QR code like a prepaid gift-voucher. It will be redeemable at specific accepting centres without any credit or debit card, a mobile app, or internet banking. Thus, the sponsors of the services and the beneficiaries will be digitally connected without any physical interface.
It is aimed to ensure that the money is used for the purpose for which it is provided. It will bring in transparency and integrity in transactions and create new opportunities to make it available to the poor. This platform has been developed by the National Payments Corporation of India (NPCI), Department of Financial Services, Ministry of Health and Family Welfare, and the National Health Authority and partner banks.
The NPCI has onboarded banks that will issue vouchers. Any corporate or government agency will have to approach the partner banks, which are both private and public-sector lenders, with the details of specific persons and the purpose for which payments have to be made. The beneficiaries will be identified using their mobile number. Banks will allocate an e-voucher to the service provider in the name of a given person to be delivered to that person.
Whenever, the government or organisation want to provide financial support, they could share the e-RUPI, e-voucher/coupon in the form of SMS-string or QR code, instead of money and send it to the beneficiaries’ mobile for a specific purpose, like health, education or subsidies, etc. After receiving the e-voucher in his mobile the beneficiaries are required to show that e-voucher to the merchants who accept e-RUPI. The voucher is then paid and the transaction gets completed. The voucher are meant for specific purposes and cannot be transferred or cashed out. The vouchers can be paid by the beneficiary individual only. The service provider is paid immediately as the voucher is prepaid in nature.
Benefits of e-RUPI
e-RUPI will not only prove to be leak-proof in delivery of welfare services, but also for delivering services under schemes meant for providing drugs and nutritional support under mother and child welfare schemes, TB eradication programmes, drugs and diagnostics under schemes like Ayushman Bharat Pradhan Mantri Jan Arogya Yojana, fertiliser subsidies, etc. Besides, the private sector can also leverage these digital vouchers as part of their employee welfare and corporate social responsibility programmes. If any organisation wants to help someone in their treatment, education, or for any other work, they can give an e-RUPI voucher instead of cash.
Global Scenario
e-Voucher-based payment system is prevalent in several countries across the world. For instance, in the US, there is the system of education vouchers or school vouchers which is a certificate of government funding for students, selected for state-funded education to create a targeted delivery system. These benefits (subsidies) are given directly to parents of students for the specific purpose of education. Other countries like Colombia, Chile, Sweden, Hong Kong, etc., also use such system.
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