From invisible to invincible: Digital payments and the rise of India’s informal economy

Times Of India | August 3, 2023 reload
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India’s great economic narrative is not just about soaring skyscrapers, bustling IT parks, thriving manufacturing or burgeoning start-ups. Equally significant are the silent yet potent forces building the country from the grassroots – the informal economy. This ‘invisible workforce’, the backbone of India’s growth is witnessing unprecedented integration into the digital fabric of our nation.

The ubiquity of smartphones coupled with affordable internet access is fueling this digitization. Apps like WhatsApp have overhauled communication, dismantling language barriers and eliminating the need for emails, facilitating smoother interactions between businesses and informal workers. The surge in job and skill enhancing apps integrated with identity verification, offer an added security layer enhancing trust and transparency. Furthermore, the increased smartphone usage has ignited aspirations among informal workers exposing them to the latest consumer trends and empowering them as not only contributors but also consumers within this digital landscape.

Digital Payments: The Gateway to Economic Inclusion

At the heart of India’s vast informal economy supporting close to 450 million livelihoods, a financial transformation is also underway. From the construction worker receiving cash wages at a bustling site, an agricultural laborer trading his day’s toil for currency to a textile factory dispensing cash payments to its casual workforce – the transition to digital payments is reshaping their financial standing while enabling professional autonomy. This shift promises to dismantle cycles of poverty, paving the way towards financial security and upward mobility for millions.

Digitizing transactions between businesses and their informal workforce spur three significant innovations. Firstly, digital payments, paired with digital identities, are bolstering transparency, accountability and generating valuable user data, birthing novel financial services. Secondly, digital payments unlock the potential of micro-transactions, seeding new business opportunities. Lastly, digital payments are democratising e-commerce, stimulating consumer spending in areas with limited retail access.

Evidence of this shift is seen in the drastic reduction of cash in circulation within India’s economy from 50% a few years ago to just about 10% of GDP, as of July 14th, 2023. This acceleration has been largely fueled by widespread adoption of the Aadhaar identity rails and the interoperable Unified Payments Interface (UPI); digital infrastructures effectively serving both public and private sectors.

Informal workers, now growing comfortable with trustworthy online payment gateways, can benefit from the added ease and safety of digital wages. With these payments packing vital immutable details such as identity, banking information, skillset, earnings, productivity, and work history – the sector is set to undergo a significant transformation.

This transition extends beyond just a change in transaction mechanism, it’s a powerful force propelling financial inclusion, social security, and economic growth for India’s informal workforce. The repercussions for the economy are immense, promising a bright future for the nation’s informal sector.

Data: The Key to Unlocking Future Growth

The future of the informal sector is intrinsically linked with data. Access to essential financial, social, professional and personal data if systematically gathered and ethically used, can become a powerful enabler, helping the informal workforce access a multitude of essential services that are currently out of reach.

Traditional challenges like securing credit due to lack of formal credit history can be overcome by creating authenticated digital footprints via online transactions, mobile recharge patterns, attendance records and earnings data. This rich data unlocks access to affordable credit, insurance, healthcare, early salary, online education fostering an environment that boosts professionalism, productivity and overall economic growth, a win-win for everyone.

From a government perspective, this sector represents a largely unreached, untapped and unregulated portion of the economy with tremendous potential. Consider the construction industry: As on April 2023 Nearly half the Rs 87,478 crore collected as cess on construction projects remains unutilized by worker welfare boards across the country. Meanwhile, workers report substandard working conditions and lack of access to welfare measures such as health coverage, pension, insurance, and accident protection. By linking worker records with government databases, an effective conduit welfare fund distribution can be established, ensuring they reach those who need them most.

Steering through Obstacles for Sustainable Digital Evolution

While the journey towards digital transformation holds tremendous potential, it also presents challenges that demand our attention and innovation. To encourage the transition to formality, India needs simpler regulatory frameworks that eases compliance burdens on businesses and heightens the tangible benefits for workers. Strengthening digital literacy, ensuring reliable internet connectivity, improving cybersecurity, and ensuring data privacy are critical milestones on this journey. Similarly, safeguarding against digital fraud, fostering healthy competition, promoting data portability, and curtailing platform dominance are essential focus areas.

As this silent digital revolution gradually but steadily transforms India’s informal workforce from ‘invisible’ to ‘invincible’, it promises to be the cornerstone of India’s future economic narrative, illustrating that truly inclusive growth leaves no one behind.

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