Report on Currency and Finance

Home » Report on Currency and Finance

Context:

The Reserve Bank of India (RBI) released the Report on Currency and Finance (RCF) for the year 2023-24 with the theme – India’s Digital Revolution.

Relevance:

GS III: Indian Economy

Dimensions of the Article:

Leadership in Digital Public Infrastructure: India is at the forefront of the global digital revolution, bolstered by its robust digital public infrastructure (DPI), evolving institutional frameworks, and a tech-savvy population.
Global Rankings: India ranks first globally in biometric-based identification (Aadhaar) and real-time payments volume, second in telecom subscribers, and third in the startup ecosystem.
Unified Payments Interface (UPI): UPI has transformed the retail payment landscape in India, providing a faster and more convenient transaction experience for users.
Central Bank Digital Currency (CBDC): The Reserve Bank of India (RBI) is leading the charge with pilot runs of the e-rupee, India’s version of a central bank digital currency.
Digital Lending Ecosystem: This sector is gaining momentum with initiatives like the Open Credit Enablement Network and the Open Network for Digital Commerce. FinTechs are partnering with banks and non-banking financial companies (NBFCs) to offer digital credit services.

Next-Generation Banking: Innovations in digital payments and credit assessment models are streamlining loan disbursements in the retail sector.
Efficient Financial Markets: Digitalisation is enhancing access to affordable financial services, improving the efficiency of direct benefit transfers (DBTs), and boosting e-commerce through embedded finance.
Global Impact: India’s digitalisation is fueling growth in service exports and reducing remittance costs. The RBI’s participation in Project Nexus aims to interlink India’s UPI with fast payment systems in Malaysia, the Philippines, Singapore, and Thailand for instant cross-border retail payments.

Cybersecurity and Data Privacy: The increasing digital footprint raises concerns about cybersecurity, data privacy, and data bias, along with risks associated with vendors and third parties.
Complexity and Risks: Emerging technologies bring new financial models that users may not fully understand, increasing the risk of exposure to fraudulent apps and manipulative practices.
Human Resource Challenges: The financial sector may face a skills gap, necessitating significant investments in upskilling and reskilling workers.

Global Context: According to the World Bank, global remittances reached an estimated US$ 857.3 billion in 2023, with India contributing US$ 115.3 billion, the highest share globally.
Regional Sources: In 2021, more than half of India’s inward remittances came from Gulf countries, with North America contributing 22%.
Economic Impact: The remittance-to-GDP ratio in India has increased from 2.8% in 2000 to 3.2% in 2023, surpassing the ratio of gross FDI inflows to GDP (1.9% in 2023), strengthening India’s external sector.
Future Outlook: India’s working-age population is expected to continue growing until 2048, positioning the country as a leading labor supplier globally. This demographic trend could drive remittances to around $160 billion by 2029.

Enhanced Regulatory Frameworks: To ensure financial stability, customer protection, and competition, India’s regulatory and supervisory frameworks must evolve. The Digital Personal Data Protection (DPDP) Act 2023 is an example of efforts to safeguard personal data in a digitalized environment.
Balancing Regulation and Innovation: The goal is to maintain a balance between effective regulation and the promotion of financial innovations within a safe and trustworthy ecosystem.

-Source: Indian Express