With the first step towards establishing a digital currency in the country, Prime Minister Narendra Modi launched “e-RUPI” on August 2, 2021. It is a digital payment system based on electronic vouchers. Developed by the National Payments Corporation of India (NPCI), Ministry of Health and Family Welfare, Department of Financial Services, and the National Health Authority will provide users with people and purpose-specific payment options.
e-RUPI and How does it work?
It is a digital payment platform that is cashless and contactless, delivered via QR codes or SMS strings to the mobile phones of beneficiaries. In essence, this would be similar to a prepaid gift voucher. Users can redeem them at specific merchant locations without requiring credit or debit cards, internet banking, or a mobile app. Sponsors of the services can connect directly with beneficiaries and service providers digitally, with zero physical interfaces through e-RUPI.
The Vouchers and How are they issued?
Built on the UPI platform of NPCI, e-RUPI functions with onboarded banks as issuers. Any interested businesses or government entities must approach the partner institutions. Institutions can be private or public-sector lenders, who need to furnish the details of payout recipients and the purpose of payment. Beneficiaries are verified using the mobile number and bank-assigned vouchers. The service provider will make payments only to the verified individual and not the behalf.
e-RUPI: What are its use cases?
e-RUPI as a platform ensures a leak-proof distribution of welfare services, says the government. It provides services through programs that offer nutritional assistance and medicines under Mother and Child welfare schemes, drugs & diagnostics through initiatives like Ayushman Bharat Pradhan Mantri Jan Arogya Yojana, TB eradication programs, fertilizer subsidies, etc. According to the government, even private entities that engage in corporate social responsibility and employee welfare can benefit from these digital vouchers.
How does e-RUPI differ from digital currencies?
The government is in the process of establishing a digital currency for the central bank. e-RUPI could highlight the deficiencies in the existing digital payment infrastructure crucial to the currency’s success. The underlying asset of e-RUPI is still the Indian rupee. The specific purpose of the system distinguishes it from a virtual currency and brings it closer to a voucher-based payment method.
The extent to which e-RUPI becomes ubiquitous in the future will rely on the end-use cases.
Central Bank Digital Currency (CBDC) – The Plans
RBI has come up with a phased implementation plan for the central bank digital currency, the CBDC. The CBDC issues e-RUPI. It essentially represents the nation’s current fiat currency, the rupee. T Rabi Sankar, the RBI’s Deputy Governor, said that CBDCs are necessary not just to increase the effectiveness of payment systems but may also be required to protect the general public in an environment characterized by volatile private VCs. Shaktikanta Das, RBI governor in the past, had voiced concerns about cryptocurrencies. But the mood on Mint Street seems to have changed now in favor of CBDCs. Despite the conceptual similarities between CBDCs and currency notes, the introduction of CBDCs would require changes to the regulatory framework since existing provisions are geared mainly towards the paper currency.
Is there an appetite for a digital currency in India?
RBI claims that digital currencies are likely to do well in India for several reasons. The first is the growing adoption of digital payments. The reason for this is a well-sustained interest in small-value transactions, cash. The RBI says that India’s high currency to GDP ratio provides another consideration in favor of CBDCs.
Thirdly, the proliferation of private digital currencies such as Bitcoin and Ethereum may be contributing to CBDCs becoming important to central banks. The BIS annual report mentions the words of the ECB’s president, Christine Lagarde, who proclaimed – central banks are obligated to protect people’s trust in their money.
To identify sound principles and encourage innovation, central banks should enhance domestic efforts by fostering close cooperation in exploring central bank digital currencies. Fourth, CBDCs might also protect the general public against volatile private VCs.
Voucher-based welfare system – Global examples
The US has an education voucher system, under which selected students receive state-aided grants in the form of a voucher for their education. These funds are a direct aid to parents as a means of educating their children. Besides the US, school vouchers are familiar across Chile, Colombia, Hong Kong, and Sweden.
Although it is not the government endorsing cryptocurrency, it is a significant move towards digitalization. It demonstrates that the government is supportive of electronic payments using vouchers, stirring enthusiasm among crypto enthusiasts. The initiative would also strengthen India’s position as a global leader in digital payments. As a result, the voucher redemption process is equally safe and secure, just as it is for cryptocurrencies since no private personal information is required.