India’s efforts to expand financial inclusion by leveraging digital technologies have been much publicized and lauded, both within India and internationally. But how effective have they actually been in expanding the usage of digital financial services across India’s huge population? And what is constraining their further growth?
CGD Policy Blogs
Today, June 30, marks six months from the day Indians had to change their old 500 and 1000 rupee notes following the “demonetization shock” announced by the government. The turmoil in the economy has since calmed to a large extent. In the past six months, the government also launched a concerted effort to wean Indians away from cash as the preferred method of payment for transactions.
Demonetization is yesterday’s news. The India of today is going full steam ahead towards a digital economy powered by financial inclusion, the mobile revolution, and Aadhaar—the biometric ID system that now covers 90 percent of its 1.3 billion population. And the social compact of the future will restructure subsidies and provide a basic income for the poor.
The Indian Ministry of Finance’s 2017 Economic Survey considers—though does not commit to—the idea of a large-scale experiment in UBI, or universal basic income. How would it work? What effects would it have? Arvind Subramanian—lead author of the Survey, chief economic adviser to the government of India, and a CGD senior fellow on leave—joins me to discuss the big ideas currently shaping India’s economy.
It has been more than 100 days since the Modi government declared that the two largest denomination notes in India—the 500 and 1000 rupee notes—would no longer be accepted as legal tender. The announcement of “demonetization” had an immediate and sweeping effect on Indian households, which were no longer allowed to use the notes (outside of a few narrow exceptions) and were given less than eight weeks to deposit or exchange them.
Businesses working at the intersection of development and increasing shared value constantly find themselves navigating the question of whether or not they are having an impact. Impact, in this scenario, is defined by scale in number of customers (or beneficiaries) reached. Though the language may be fuzzy and the impact hard to measure, the question for any business working with those at the bottom of (or near the bottom of) the pyramid remains: to scale or not to scale?
Prime Minister Narendra Modi’s announced a bold measure on Wednesday to reduce the role of unaccounted for cash or “black money” in the country’s economy by “de-monetizing” higher-denomination currency notes. The new policy bans the use of 500 rupee and 1,000 rupee currency notes. While this measure may have the positive (though potentially temporary) effect of forcing illicit activity out of the regulated economy, the process could be disorderly, with the poorest members of society bearing the brunt of the disruption.
Now the Government of India and the World Bank have adopted an approach using principles we describe as Cash on Delivery (COD). The program follows three of these principles by linking payments to outcomes, not inputs; independently verifying outcomes; and allowing recipients to take the lead. India has become the single largest payer for outcomes in a nationwide sanitation initiative.
The Indian government has sent a clear message with its latest budget: it is now up to the states to take leadership on health and invest more from their own coffers.
India matters for global health. It accounts not only for about one-fifth of the global population, but also one-fifth of the global disease burden. Yet the Indian government spends only 1 percent of its GDP on public health—a paltry amount compared to what other large, federal countries like Brazil and China allocate (4.7 percent and 3.1 percent, respectively). This has a direct impact on Indian citizens who pay more out-of-pocket for health care than citizens in any other G20 country.