Why Should Govt Be In Fintech?

The temptation to get into businesses that are hot is perhaps too great for any politician, no matter what his public slogans are.
Nehru plunged into hot sectors of his time -- engineering and iron and steel.
Modi has plunged into digital payments -- the hot sector of his time, notes Debashis Basu.

Reuters reported recently that Visa Inc had complained to the US government about India's 'informal and formal' promotion of domestic payments rival RuPay, hurting the US giant in an important market.

Visa's rival, Mastercard Inc, way back in 2018 had charged Prime Minister Narendra Modi with using nationalism to promote RuPay.

In 2018, Modi had declared the use of RuPay patriotic, saying since 'everyone cannot go to the border to protect the country, we can use the RuPay card to serve the nation'.

Last year, Union Finance Minister Nirmala Sitharaman said RuPay was the only card banks should promote.

Along with RuPay, the Indian State has promoted the Unified Payments Interface (UPI), which has been a roaring success and attracted global attention.

There are 690 million RuPay cards, which clocked 1.3 billion transactions last year, while the UPI processed around 4.2 billion transactions last month alone.

RuPay accounted for 63 per cent of India's debit and credit cards issuance as of November 2020, up from 15 per cent in 2017 -- a result of India's informal and formal policies supporting it, complained Visa.

Going a step further, the Modi government abolished the merchant discount rate (MDR) on transactions using the RuPay debit card and the UPI from January 1, 2020.

The MDR is the charge paid by merchants to a bank when customers make a card payment.

So when customers use the Mastercard or Visa debit card, merchants will be charged an MDR of 0.4-0.9 per cent. This promoted RuPay, since merchants would save money by accepting RuPay over other cards.

All Indian companies with an annual turnover exceeding Rs 50 crore have to compulsorily offer RuPay payment options to their customers.

In a country where many State initiatives have been marred by glitches, delays, and corruption, RuPay and the UPI are revolutionary achievements.

Indians take pride in the success of these homegrown systems, against the mighty Visa, Mastercard, PayPal and the rest of the global fintech world.

From a consumer perspective, a public digital payment architecture that squeezes intermediation costs and reduces friction is a great feat. But such direct State intervention, however stupendous in impact, hides an important fact.

Before he came to power, Modi repeatedly said the government had no business to be in business. But privatisation has made slow progress, with Air India being the only glorious exception.

On the other hand, the temptation to get into businesses that are hot is perhaps too great for any politician, no matter what his public slogans are.

The Nehru government plunged into hot sectors of his time -- engineering and iron and steel. Modi has plunged into digital payments -- the hot sector of his time.

A broad swathe of erudite critics calls India's economic policies 'neo-liberal', for allowing a free run to private capital, but I would suggest taking a look at tech.

It is not just RuPay and the UPI. This government is continuously involved in launching a series of tech initiatives, which will make neo-socialists proud and private equity investors jealous:

• While pharmacies are private businesses, and there are private equity-funded e-pharmacy and medical consulting sites like 1mg, NetMeds and PharmaEasy, Praco and DocPrime, the government decided to launch a telemedicine platform esanjeevani.in, which allows anyone to register, consult a doctor, and download a prescription. The government has also launched PM Jana Aushadhi Kendra, a chain of pharmacies that will sell generic medicines.
• Last year, during Covid restrictions, the government launched a desi, rural version of Big Basket by creating a village-level online retail chain, which would deliver large volumes of essential items like vegetables, milk, pulses, fruit, and other products through fast-expanding outlets, taking orders online and offline, and carrying out home deliveries. This ambitious plan is being led by the Common Service Centres, a rural digital outreach vehicle of the government that reaches over 600 million people through nearly 380,000 outlets.
• Apart from the UPI and RuPay, the government had launched the payment facility Bharat Interface for Money (BHIM). Initially, only one bank account was allowed to be linked to BHIM, but in 2019, an official was quoted saying 'the next version of BHIM will give full-fledged competition to private payment platforms'.
• Two years ago, National Payments Corporation of India (NPCI) launched the Bharat Bill Pay System, a single platform for all utility billers. At that time the BBPS supported just five categories of payments -- direct-to-home, electricity, gas, telecom, and water bills. Then, one fine day the Reserve Bank of India said: 'To leverage the advantages of the BBPS and harness its full potential, it has been decided to permit all categories of billers (except pre-paid recharges), who provide for recurring bill payments to participate in BBPS.' A direct hit at private players like BillDesk. One news portal correctly called it the creeping socialisation of fintech.
• Reliance Jio, Bharti Airtel, and Vodafone Idea may have spent billions to create a countrywide broadband infrastructure, but the government decided to spend its own $7.1 billion on BharatNet to provide a minimum of 100 Mbit/s broadband connectivity to all 250,000-gram panchayats in the country, covering nearly 625,000 villages. This was conceived by the previous government when the broadband network in the country was weak, but the Modi government gave a big boost to its implementation instead of pushing for the Universal Service Obligation to extend the reach of private networks.

I do not support or oppose any of these moves. I am merely pointing out that while the government wants to sell Steel Authority of India, Shipping Corporation, and public sector banks, it has made it its business to embed itself deeply in fintech, which has implications for data gathering and privacy.

Debashis Basu is the editor of moneylife.in.

Feature Presentation: Ashish Narsale/Rediff.com