Digital India is now leading the world

The World Bank reported at the 2023 G20 Summit that Indian digital transactions had exceeded INR14.89 trillion (USD18 billion) by May 2023, marking an unprecedented achievement. It praised India’s strategic use of digital public infrastructure, including the Unified Payments Interface (UPI), Digi Locker (a digital document repository), the JAM trinity (Jan Dhan, Aadhar, and Mobile for direct subsidies to the poor), the Account Aggregator framework (shared banking information), and the Data Empowerment and Protection Architecture (data storage and sharing). It also highlighted the benefits of the Open Credit Enablement Network for MSMEs.

The Reserve Bank of India (RBI) and the National Payments Corporation of India (NPCI) are aligning their practices with their Payment Vision 2025 and government policies. Seven entities have been issued the first payment aggregation (PA) licences. For cross-border (CB) payment transactions for the import and export of goods and services by banks and non-bank PA, the RBI brought non-bank entities under its direct regulation for PA-CB activity. Such entities have to comply with various guidelines and register with the Financial Intelligence Unit-India. For tokenisation, RBI permitted card issuers to act as token service providers and facilitate token generation through mobile or internet banking services.

To address the risks in digital lending, the RBI brought amendments to KYC norms in line with the recent amendments to the Prevention of Money Laundering Rules, Unlawful Activities (Prevention) Act, 1967, Weapons of Mass Destruction and their Delivery Systems (Prohibition of Unlawful Activities) Act, 2005, and the Financial Action Task Force recommendations. The RBI clarified the default loss guarantee in respect of the Digital Lending Guidelines 2022. For outsourcing of Information Technology (IT) Services by Regulated Entities (REs), the Master Directions were issued to enhance corporate governance for IT outsourcing by REs and protect them from potential risks and security threats.

The RBI introduced Special Rupee Vostro accounts to facilitate international trade settlement in INR, making it an alternate transaction mode in light of various US sanctions. To reduce remittance costs and facilitate seamless cross-border transactions, India has partnered with 30 nations to expand UPI. The NPCI introduced UPI for NRIs, UPI Lite, Tap & Pay, Credit Line and Rupay Credit Card for small transactions. An AI-powered conversational payment mode Hello UPI is expected to enhance digital penetration. The UPI transaction limit has been increased to INR500,000 for merchants involved with hospitals and educational services.

The first Amrit Kaal Union Budget, that of 2023-24, aimed to achieve an empowered, inclusive technology-driven economy, emphasising the empowerment of women and sustainable development for a New India 2047. The Digital Personal Data Protection (DPDP) Act, 2023, is a forward-looking law that aims to balance the rights of individuals to protect their data with the need for lawful processing. The Central Bank Digital Currency e-rupee pilot project was launched in phases by the RBI, with 114 countries exploring the concept and 60 at the advanced stage. The Open Network for Digital Commerce enables a transition from a platform-centric model to an open network facilitating e-commerce accessibility for small sellers.

Law and customer safeguards must evolve to counter ever-increasing technology and cybersecurity threats. Currently, the pace of digital innovation is faster than evolution, leading to grey areas. At the G20 conference, the Indian Computer Emergency Response Team Director General emphasised the importance of managing cyber risks for financial stability and the need for global co-operation in cyber drills and exercises.

Based on the RBI circular on Special Rupee Vostro accounts, India made its first rupee payment to the UAE for crude oil. Following the BRICS 2023 resolution and increased geopolitical instability, the frequency of rupee transactions is expected to increase. India is expected to mature in data protection, customer ease and the international digital payment ecosystem. To improve data security and privacy the RBI is expected to establish a cloud facility for the financial sector and a fintech repository to gather essential information about fintechs. Guidelines on the web-aggregation of loans, the implementation of CBDC, and the DPDP act and its rules are expected soon.

Rajesh Narain Gupta is the managing partner and Aniket Vijay Singh Rajpurohit is a principal associate at SNG & Partners.