Model Answer

Importance of Digital Transactions in India

Digital payment transactions in India have surged significantly, reaching 8840 Crore transactions in FY 2021-22 from 2071 crore transactions in FY 2017-18, showcasing the collective efforts of the government and stakeholders. Various modes like BHIM-UPI, IMPS, NETC, and RuPay have seen substantial growth, transforming the payment landscape by enabling P2P and P2M transactions. Key significance includes:

Instant and Convenient Payments

• Fact: Digital modes like BHIM-UPI and IMPS allow instantaneous money transfers, enhancing convenience for users.
• Source: Government data.

Financial Inclusion

• Fact: Digital payments bridge gaps for those deterred by physical banking access, promoting financial inclusion.
• Source: Government reports.

Government Transparency

• Fact: Direct Benefit Transfers (DBT) via digital modes ensure transparent and efficient distribution of government benefits.
• Source: Government initiatives.

Enhanced Credit Access

• Fact: Digital transactions build financial histories, expanding access to formal financial services, including credit.
• Source: Financial reports.

Security

• Fact: Digital payments in India are secured with multi-level authentication, ensuring safe transactions.
• Source: Cybersecurity reports.

Recommendations by Nandan Nilekani Committee

Targets for Digital Payments

• Fact: The committee aims to increase per capita digital transactions tenfold, double the value of digital transactions as a percentage of GDP, and triple the number of digital payment users in three years.
• Source: Nandan Nilekani Committee report.

Subsidized MDR

• Fact: The committee suggests subsidizing the Merchant Discount Rate (MDR) paid by merchants to banks for accepting digital payments.

Government Payments

• Fact: All government payouts, including procurement, DBT, salaries, and pensions, should be conducted digitally as per the committee’s advice.

Grievance Redressal

• Fact: The committee proposes establishing a vernacular-language grievance redressal system for resolving connectivity and authentication issues in DBT.

Transaction Efficiency

• Fact: Utilizing validation services like PFMS and NPCI can reduce transaction failures due to incorrect details, as recommended by the committee.

To further deepen digital payments, improving connectivity, enhancing cybersecurity measures, promoting awareness, and digital literacy are essential focus areas for the government.