Faced with chaos after eliminating India’s highest value rupee notes, Prime Minister Narendra Modi has roped in a billionaire from the ranks of his adversaries to help.
Nandan Nilekani, a high-profile member of the opposition Indian National Congress party, has joined a committee to map a path to digital payments. India is trying to end its reliance on cash, especially in rural areas where almost every transaction is done in hard currency. It’s not the first time the former head of outsourcing giant Infosys Ltd. has tackled a national project — he spearheaded the country’s biometrics-based Aadhaar unique identity program.
Designed to eliminate corruption, Modi outlawed existing 500 rupee ($7.40) and 1,000 rupee notes on Nov. 8, which wiped out more than four-fifths of the nation’s currency and caused pain for millions, from street hawkers in the south to diamond cutters in the west. The government is trying a Plan B to salvage a situation that Credit Suisse Group AG and Deutsche Bank AG estimate will slow expansion by about 1 percentage point in the year through March.
Nilekani and his 13-person committee are meeting to work out how to get more Indians to adopt digital payments, via everything from their own smartphones to point-of-sale machines in local villages. While the nation has already rolled out its United Payments Interface, with hundreds of millions lacking phones or web access, a multipronged approach is needed to wean the nation of its dependence on cash.
“India has the underlying digital financial architecture in place to get this going,” Nilekani said in an interview after the committee’s first meeting. “How quickly the government can reach everyone is a question of execution and speed.”
As presses run all day to crank out new 500 and 2,000 rupee notes, the committee featuring chief ministers of prominent Indian states as well as the India head of Boston Consulting Group met for the first time last week.
As startups like Paytm, MobiKwik and Freecharge push their digital wallets to a slice of smartphone users, the committee is focusing on two key avenues: getting more merchants to accept the United Payments Interface and procuring more point-of-sale devices.
The interface, rolled out by major banks in April, makes transferring money as easy as sending a text message. With the system already in place, Nilekani says boosting acceptance of the payments interface is achievable in weeks. Getting the estimated one million new POS devices, which would almost double the number in use as of August, would take longer because of the need for a tender.
“Breaking down the problem into digestible chunks is the first step to solving it,” said Nilekani, who lost a battle for a parliamentary seat in the 2014 election to a key member of Modi’s cabinet.
India has also made it easier to make digital payments, with the central bank this week doing away with the two-step authentication process for transactions of less than 2,000 rupees.
The impact of the money ban, known as demonetization, has been felt the most in the countryside, where cash is preferred for everything from buying clothes and selling produce to paying for weddings. The lack of cash notes has slammed the brakes on business in some areas.
“There is no economic activity, transactions are at a standstill,” said Srikanth Nadhamuni, chief executive officer of incubator Khosla Labs which has funded electronic payments startup Novopay. The startup has 40,000 microATMs – no more than a smartphone with a fingerprint scanner attached and sometimes a printer – at small street-corner retail outlets called kirana stores.