In order to enhance and solidify the structure of the digital payments in India, Prime Minister Narendra Modi announced the launch of e-RUPI on 2nd August 2021, a cashless, contactless, voucher-like digital payment system that is aimed to further “ease of living”. The e-RUPI platform has been collaboratively developed by the National Payments Corporation of India (NPCI), the Department of Financial Services, the Ministry of Health and Family Welfare, and the National Health Authority.
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What is e-RUPI?
The person and purpose-specific payment system will function in the form of an SMS string or QR based code, which will be sent straight to the beneficiary’s phone and will be redeemable at designated centers without the need for any credit/debit card, mobile banking applications, or more, thus eliminating any physical interface. Essentially, it will work like a pre-loaded, prepaid voucher that can be encashed without the intermediate need for debit cards, internet banking, and more, thereby seamlessly connecting beneficiaries and sponsors. Also, taking payment security a step ahead, the system ensures that the service provider payment is only made after completing the transaction.
“Being pre-paid in nature, it assures timely payment to the service provider without the involvement of any intermediary,” said the official PMO statement.
Given the close involvement of various ministries in its development, the immediate use case of the new system could be well-placed in delivering timely and leak-proof transfers under schemes that cover mother and child welfare, fertilizer subsidies, drugs and diagnostics, tuberculosis eradication, nutritional support and more. Moreover, even the private sector can leverage this system for their employee benefit and corporate-social welfare programs.
How does it work?
Under the umbrella entity of NPCI’s UPI platform, both private and public sector banks will be onboarded as issuing entities. Once that is done, these entities will be approached by various government agencies with specific beneficiary details, the payment purpose, and other information. Once the beneficiary has been identified using their mobile number, a voucher will be specifically generated and delivered to the said person for redemption.
What is the significance of e-RUPI and how is it different than a digital currency?
The government is already working on developing a central bank digital currency and the launch of e-RUPI could potentially highlight the gaps in digital payments infrastructure that will be necessary for the success of the future digital currency. In effect, e-RUPI is still backed by the existing Indian rupee as the underlying asset and specificity of its purpose makes it different to a virtual currency and puts it closer to a voucher-based payment system.
Also, the ubiquitousness of e-RUPI in the future will depend on the end-use cases.
What are the plans for a central bank digital currency (CBDC)?
The Reserve Bank of India had recently said that it has been working towards a phased implementation strategy for central bank digital currency or CBDC — digital currencies issued by a central bank that generally take on a digital form of the nation’s existing fiat currency such as the rupee. Speaking at a webinar on July 23, RBI deputy governor T Rabi Sankar said that CBDCs “are desirable not just for the benefits they create in payments systems, but also might be necessary to protect the general public in an environment of volatile private VCs. While in the past, RBI governor Shaktikanta Das had flagged concerns over cryptocurrencies, there seems to be a change of mood now in favour of CBDCs on Mint Street. Although CBDCs are conceptually similar to currency notes, the introduction of CBDC would involve changes to the enabling legal framework since the current provisions are primarily synced for currency in paper form.
Does India have appetite for a digital currency?
According to the RBI, there are at least four reasons why digital currencies are expected to do well in India: One, there is increasing penetration of digital payments in the country that exists alongside sustained interest in cash usage, especially for small value transactions.
Two, India’s high currency to GDP ratio, according to the RBI, “holds out another benefit of CBDCs”. Three, the spread of private virtual currencies such as Bitcoin and Ethereum may be yet another reason why CBDCs become important from the point of view of the central bank. As Christine Lagarde, President of the ECB has mentioned in the BIS Annual Report “… central banks have a duty to safeguard people’s trust in our money. Central banks must complement their domestic efforts with close cooperation to guide the exploration of central bank digital currencies to identify reliable principles and encourage innovation.” Four, CBDCs might also cushion the general public in an environment of volatile private VCs.
Are there global examples of a voucher-based welfare system?
In the US, there is the system of education vouchers or school vouchers, which is a certificate of government funding for students selected for state-funded education to create a targeted delivery system. These are essentially subsidies given directly to parents of students for the specific purpose of educating their children. In addition to the US, the school voucher system has been used in several other countries such as Colombia, Chile, Sweden, Hong Kong, etc.
Source: PIB.in, Money Control, Indian Express, Quint