May 2022 / India

May 5 2022

The road ahead for UPI payments

The COVID-19 pandemic has introduced new systems of interacting in the socioeconomic world which focus on digital methods to deliver products and services. This has additionally led to severe innovations in the digital finance space. In the pursuit of following appropriate social distancing protocols amidst repeated waves of infections and the resultant mobility restrictions, the country has witnessed an increasing adoption of several forms of cashless transaction methods, particularly Unified Payments Interface (UPI) or QR code-based merchant payments, across businesses and consumers. This has also led to a boost in real-time payments in the country.

The goal to make India a cashless economy is not new. The demonetisation drive of 2016 was primarily aimed at initiating the transition of the country to a cashless economy. However, owing to the lack of alternatives in cashless payment methods, individuals graduated towards app-based virtual wallets. This prompted a need for an intervention and in December 2016, the government launched the Unified Payments Interface (UPI), linking bank accounts to individuals’ smartphones directly for digital transactions. This platform, since then, have performed fairly well. In the first year, UPI registered an over 1000 per cent growth, albeit over a small base, and has grown in triple digits since. India accounted for the highest volume of real-time payments among businesses around the world, with over 40 per cent of all such payments made through 2021 originating in the country. It is thus has been best known to provide P2P and P2M transactions in India with ease, safety, and security and has successfully positioned itself as the world’s most successful real-time payments system. Furthermore, the government has also utilised the platform for direct benefit transfers to beneficiaries, including making payments to farmers directly in their bank accounts.

The country provides an appropriate template for mobile wallet integration with underlying real-time payment systems. Recounting the success of the digital payment mechanism, the Prime Minister said India’s share in real time digital payments world over is more than 40 per cent.

A recent report by NPCI reveals that the digital payments platform Unified Payments Interface (UPI) recorded 5.58 billion transactions in April 2022 alone, setting a new record for the payments platform in India since its inception in 2016. In April 2021, UPI processed only 2.64 billion transactions worth INR 4.93 trillion. To recall, UPI achieved its first milestone by recording over 1 billion transactions back in 2019. The report further mentioned that real-time payments in India are expected to grow at a compound annual growth rate of 33.5 per cent through 2026. Additionally, the report highlighted the value addition of real-time payments to India’s economic output. This stood at $ 16.4 billion or 0.56 per cent of the nation’s gross domestic product in 2021. By 2026, this contribution is tipped to rise to $ 45.9 billion – or 1.12 per cent of the nation’s GDP.

Major reasons driving this transition towards UPI and its scope of growth in India include cashback initiatives from companies like GooglePay, Paytm, and even WhatsApp. The government is also piloting initiatives like 123pay aiming to include feature phones in digital transaction models. And UPI Lite to further enhance the digital payments sector in the country. Furthermore, the Reserve Bank of India (RBI) has launched interoperable cardless ATM withdrawals utilising UPI platforms. This will enable the customers to benefit from transactions while safeguarding them from fraudulent actions.

The evident increase in the reliance on digital transactions has been instrumental in improving liquidity in financial systems of the country. For instance, workers and employees are paid quickly, allowing them to better plan their finances, businesses have more flexibility and reduce the need for heavy procedural cash flow management, among others. Moving forward, there is immense potential in this area for growth. Focussed efforts being laid on enhancing customer options for payment, enhancing security, undertaking innovations in technology like distributed ledger technology (DLT) and emerging tech like internet of things (IoT) can contribute extensively to further the scope of digital payments and smoothen the transition to a cashless economy. Moreover, the industry can enhance customer experience by focussing particularly on offline payments through UPI. Several regions in the country are still in the process of achieving continuous accessible internet. This would significantly contribute in countrywide acceptance and utilisation of the UPI, eventually leading to a less-cash and digitally empowered economy.

This is co-authored by Devika Chawla and Srijata Deb.

Source: Invest India

May 26 2022

India: Preferred Destination for Foreign Investments

Foreign direct investment (FDI) inflows to India have been increasing year after year. In FY22, gross FDI inflows totaled $ 83.6 billion, up from $ 82 billion the previous year. In FY20, it was $ 74.4 billion. The services and industrial sectors received the majority of FDI in FY22, according to the RBI's monthly report.

India's total FDI is estimated to be over $ 570 billion. FDI investments usually consider a country's long-term potential and are rarely revoked. The high level of FDI suggests that India is a promising investment destination. IT, finance, FMCG, auto, medicines, telecom, and other emerging sectors like startups, critical technologies have immense potential in the growing Indian market. Such investments are often made by companies looking to form joint ventures or acquire shares in domestic businesses. They could be venture capital funds that help local entrepreneurs.

In 2021-22, FDI equity inflows into manufacturing sectors surged by 76% ($ 21.34 billion) over 2020-21. ($ 12.09 billion). Computer software and hardware drew the most inflows of all sectors. The services sector and the motor industry came next. In the context of the cooperative sector, a recent proposal to allow foreign direct investment (FDI), particularly in Primary Agricultural Cooperative Societies (PACS) with an aim to enhance infrastructure is also being pondered over. Consistent and high-quality FDI can help states expand their cooperative infrastructure, particularly the cold chain network, which is critical for storing, transporting, and preserving perishables, including fruits, vegetables, and dairy goods.

Over two-fifths of the 1,200 global business leaders polled in a survey in the United States, the United Kingdom, Japan, and Singapore said they plan to invest in India again or for the first time. Since the US Federal Reserve started cutting down its purchases of treasury bonds and mortgage-backed securities to boost the economy during the pandemic, FPIs have begun withdrawing. The Reserve Bank of India (RBI) liquidated dollars from reserves to slow the rupee's devaluation and reduce foreign exchange volatility, bringing reserves down to $ 596 billion at the end of May from a high of $ 642.453 billion on September 3 last year.

Several reforms by the central and state government authorities have been taken in the sectors of coal mining, contract manufacturing, digital media, single brand retail trading, civil aviation, defence, insurance, and telecommunications, among others. This has resulted in progressive implications. For instance, during the period 2021-2022, Karnataka received 53 per cent of FDI equity inflows in the domain of "Computer Software and Hardware," followed by Delhi (17 per cent) and Maharashtra (17 per cent).

The government analyses the FDI policy on a regular basis and makes significant changes from time to time to ensure that India remains an attractive and investor-friendly environment. Most sectors are open to FDI under the automatic route, and the government has developed a liberal and transparent FDI policy. Since 2014, FDI inflows have accelerated, with FDI increasing extensively since then. Singapore, the United States, and Mauritius are among the top FDI equity inflow countries.

Research highlights that the country is anticipated to attract a $ 100 billion FDI inflow in 2022-23, owing to several distinct ground level economic reforms and significant ease of doing business in recent years. It has further been suggested that such investment will be instrumental in aligning with the central government's strategy to strengthen the economic growth and achieve the target of becoming a $ 5 trillion economy in the coming years.

The need of the hour for India is to complement its record high FDI levels with focused efforts to accelerate infrastructure investments, inclusion of more sectors under the Production Linked Incentive scheme, increase in public investments in agriculture sector, addressing the high commodity prices and shortages of raw materials to firmly position itself as a lucrative investment destination.

This has been co-authored by Srijata Deb and Devika Chawla.

Source: Invest India

May 1 2022

India-UAE Comprehensive Economic Partnership Agreement (CEPA) enters into force

The historic India-UAE Comprehensive Economic Partnership Agreement (CEPA) which was signed between the two nations on 18 February 2022, officially entered into force today. Secretary, Department of Commerce, Shri BVR Subrahmanyam flagged off the first consignment of goods comprising of Jewellery products from India to UAE under the India-UAE CEPA at a function in New Customs House in New Delhi today.

In a symbolic gesture operationalizing the landmark Agreement, Shri B V R Subrahmanyam, Hon’ble Commerce Secretary to Government of India, handed over Certificates of Origin to three exporters from the Gems & Jewellery sector. The aforementioned consignment which will now attract zero customs duty under this Agreement is expected to reach Dubai today, 01 May 2022.

Gems & Jewellery sector contributes a substantial portion of India’s exports to the UAE and is a sector that is expected to benefit significantly from the tariff concessions obtained for Indian products under the India-UAE CEPA.

Overall, India will benefit from preferential market access provided by the UAE on over 97 % of its tariff lines which account for 99% of Indian exports to the UAE in value terms particularly from labour-intensive sectors such as Gems and Jewellery, Textiles, leather, footwear, sports goods, plastics, furniture, agricultural and wood products, engineering products, pharmaceuticals, medical devices, and Automobiles. As regards trade in services, Indian service providers will have enhanced access to around 111 sub-sectors from the 11 broad service sectors.

CEPA is expected to increase the total value of bilateral trade in goods to over US$100 billion and trade in services to over US$ 15 billion within five years.

Speaking at the ceremony, Commerce Secretary said it was a momentous occasion. Highlighting the immense potential for strategic partnership between the two nations, he said that the agreement is a trendsetter because of the short time in which it was negotiated.

He added that although the agreement had envisioned a target of USD 100 billion worth of trade, given the size of India's market and the access that UAE would give to India, much more could be achieved. Noting that the agreement was an outcome of the vision of the leaders of the two nations, the Commerce Secretary said that for India, UAE would be a gateway to the world.

Underscoring the need for India products to be competitive in the international market, the Secretary said that there was a need to build and augment our capacities. He also added that the government was working on reducing the logistics cost so that the products from hinterland could also be competitive.

The Commerce Secretary informed that India was negotiating trade agreements at a very fast pace with complementary economies and that talks were ongoing with UK, Canada and EU.

He also spoke of the need to communicate the benefits of such trade agreements to the exporter community in layman's language so that they understand the provisions of the agreement and make the best possible use of it. Highlighting the need for market intelligence and data analytics, which the government would be focusing on in future, the Secretary urged the exporters to take advantage of free trade agreements.

Stating that USD 670 bn of exports (goods and service) during last fiscal year constituted 22-23% of the GDP, Shri Subrahmanyam said that exports are an important engine of growth in every economy and added that the world was looking to India as a reliable partner.

Conveying a vision for India's future in 2047, the Secretary said that we would be a USD 40 trillion economy in the next 25 years. He asserted that the Department of Commerce has also been strengthening itself to be future ready and meet the challenges of tomorrow with focus on trade promotion.

Shri Santosh Kumar Sarangi, Director General of Foreign Trade; Shri Surjit Bhujbal, Chief Commissioner of Customs; Shri Sanjay Bansal, Commissioner of Customs; other senior officials from Department of Commerce; and representatives from Industry/Exporters Community and media fraternity witnessed this ceremony.

Press Information Bureau