IPPB : Bridging the Digital Divide

“India Post Payments Bank (IPPB) would usher in economic transformation by bringing banks to the doorsteps of the villagers and the poor.” Prime Minister Narendra Modi had set this goal while launching India Post Payments Bank in 2018. IPPB is the fastest-growing digital payments bank in the country to cross the five crore subscriber mark within 3 years, which has been opened in digital and paperless mode through its 1.36 lakh post offices, of which 1.20 lakh are in rural areas with the help of about 1.47 lakh doorstep banking service providers.

Goal of this ‘Digital-First-Bank’ is to make the “technology” of modern finance available to a wider population. Dealing with the post GFC of 2008, one cannot help but notice that financial technology has been abused and credit growth has been non-responsible. This is where Responsible Financial Inclusion makes IPPB a world class leader in true sense.

The first and foremost target audience for IPPB services are rural population, migrant workers and small capital entrepreneurs. IPPB is well placed to utilize last mile connectivity of DoP to serve the agenda of responsible financial inclusion and financial growth of this prime target audience.

IPPB has achieved the world’s largest digital financial literacy program leveraging the strength of 2.8 lakh post office employees. It has taken digital banking to the grassroots level in more than 13 languages through interoperable payments and settlement systems of NPCI, RBI and UIDAI. Further, about 48% of the total account holders are women.

Building on the current capabilities, IPPB has to strive to become the intermediary by facilitating relevant information and processing and monitoring capability for following and earning fee rather than profit. Three clear domains are Peer-to-Peer lending, Company loan for salaried staff and SME cash management – all helped and managed by IPPB. These and similar business opportunities need to be capitalized upon in response to the changing paradigm of payments services and financial inclusion ecosystem.

Factors of Production

India is a capital starved country and world is now flushed with cheap capital, thanks to shock absorption measures taken by central banks across the developed world since GFC of 2008. Prime Minister Narendra Modi has laid out an enticing recipe to world investors in world economic forum, Davos.

In this Digital age, India has leaped ahead in creating appropriate “Land”, e.g. a huge, secure and successful digital payments platform, fibre connectivity of gram panchayats and many more fundamental assets are ready. Further, Gati Shakti National Master Plan is strengthening connectivity like never before.

Today India is home to over 5mln software engineers and many more are working across the world. There are multiple public and private sector measures to harness the benefits of demographic dividend by providing appropriate skills to the largest young population of the world.

Today India has the third largest number of Unicorns in the world. More than 10 thousand start-ups have been registered in the last 6 months. India has also deregulated many sectors like Drones, Space, Geo-spatial mapping and made major reforms in the outdated telecom regulations related to IT sector and BPO. The spirit of Entrepreneurship is high and shining bright in the times of Atmanirbhar Bharat.

To solve the problems of Capital availability, one route is taken by DIPAM, “Asset Monetization involves creation of new sources of revenue by unlocking of value of hitherto unutilized or underutilized public assets….The objective of the asset monetization programme of the Government of India (GOI) is to unlock the value of investment made in public assets which have not yielded appropriate or potential returns so far, create hitherto unexplored sources of income ….”

Clearly, the global investor is blue to see India as a hub not just for return on Capital but also for a sustainable future. P3(Pro-Planet-People) is a viable slogan from a country which has achieved Paris commitments 9 years ahead of schedule.

Measures like PLIs across 14 sector, improvements in Ease of doing business! reforming retrospective tax, various FTAs, a Competitive corporate tax regime and Gati Shakti National Master Plan are getting noticed by Global investors and investments should spur in the country.

Entrepreneurship: Open Secret

Critics don’t want any failures to happen in the success story of entrepreneurs and start-ups. They claim the stories of failures are well-hidden as if a state-run media doesn’t want the truth to come out. The risk-taking ability of an entrepreneur is squarely equated to a gambling nature and anyone succeeding is just a rare occurrence.

They are not ready to accept that overcoming failures is the only way to success, not giving up. Did we not learn even the most basic activities by overcoming failures or giving up after the first few attempts of walking, eating, or dressing? Rather, making systemic changes to reduce the chances of failure and positively dealing with such failures to fight back should be prioritised. As Prime Minister Narendra Modi outlined, “First, to liberate entrepreneurship, innovation from the web of government processes, bureaucratic silos. Second, creating an institutional mechanism to promote innovation & third, handholding of young innovators, youth enterprise.”. Indeed, Wealth Creators need to be respected by doomsday predictors.

A simple yet powerful framework of risk assessment is a 2×2 matrix of known, unknown and manageable, unmanageable. No one has any issues with ‘known, manageable’ and ‘unknown, unmanageable’ can’t be planned for. You bring in experts for ‘unknown, manageable’ and build a protection mechanism in the form of insurance, etc for ‘known, unmanageable’. This is precisely how an Entrepreneur operates when deciding on team expansion and bringing in investors, she is not a habitual gambler.

What helps with this process is continuous learning opportunities and India is proving to be on the right track. India has the third-largest ecosystem for Startups and is the fasted growing ecosystem for Unicorns. “India has more than 1,000 universities, over 11,000 stand-alone institutions, 42,000+ colleges & lakhs of schools…India is constantly learning & innovating…it’s ranking in Global Innovation Index has jumped from 81 in 2015 to 46 in 2021… In a bid to spread startup culture far and wide across the country, 16 January will now be celebrated as ‘National Startup Day’”, said Prime Minister Narendra Modi in interaction with more than 150 startups which had been divided into six working groups based on themes including Growing from Roots; Nudging the DNA; From Local to Global; Technology of Future; Building Champions in Manufacturing; and Sustainable Development.

With the advent of the digital age collecting and handling a large amount of data has become possible and cheap as well in recent years. This allows any motivated youngster to look around and spot opportunities to solve problems ailing the residents of his family, mohalla, village, town, district, state, country, or internationally. The rise of entrepreneurship has been a big equalizer too as 45% of startups in India are from smaller cities, and 45% of enterprises are run by women. India needs to trust and support its young, they are leading the country to a better future.

Enigma of Adarsh Gram

“You see,” Gandhi began, “the centre of power now is in New Delhi, or in Calcutta and Bombay, in the big cities. I would have it distributed among the seven hundred thousand villages of India. That will mean that there is no power… nobody could deprive them of their assets. There will then be voluntary cooperation between these seven hundred thousand units, voluntary cooperation – not cooperation induced by Nazi methods. Voluntary cooperation will produce real freedom and a new order vastly superior to the new order in Soviet Russia…. a system like the one I have outlined to you did exist though it undoubtedly had its weakness, else it would not have succumbed before the Moghuls and the British. I would like to think that parts of it have survived, that the roots have survived despite the ravages of British rule. Those roots and the stock are waiting to sprout…” Mahatma Gandhi‘s these words were noted by American journalist Louis Fischer in his book “A week with Gandhi” (4 to 10 June 1942).

There have been many attempts to realise this vision of Mahatma Gandhi that Indian villages are empowered and model of development. There certainly is a need to audit why Member of Parliament Model Village Yojana has not been successful since its inception in 2014. On the other hand, PMAGY was started in 2009 but the work could begin only in 2014 and now once more, Prime Minister Adarsh Gram Yojana has set a target to develop 8,000 model villages in next six months. Further, Ministry of Social Justice and Empowerment has determined to convert every scheduled caste majority village into a model village by 2025. As there are over 27,000 such villages, the work needs to be taken up on priority basis to achieve this target.

With monitorable indicators of villages provided with adequate sources of drinking water, villages with school creation, villages connected with all-weather road, and number of villages electrified, this programme is indeed the need of the hour to achieve Mahatma Gandhi‘s vision. Yet less than 20,000 villages have been covered so far under this Yojna. The slow progress highlights the need of much more aggressive redressal of implementation issues.

Why Members of Parliament, cutting across party lines, have not been able to develop model villages is a serious cause of concern. Perhaps a debate on this in the upcoming parliamentary session to find out the causes and resolve them would be a welcome step.

Banking on Unbanked

“Don’t have enough money to meet minimum balance requirements”, was the most cited main reason by unbanked Americans, still around 5.4% of households, FDIC reported last month. In contrast, the visionary step of Prime Minister Narendra Modi to have no such requirement for Jan Dhan Yojana has brought in a silent revolution. More than entire population of the USA has now obtained access to the banking system in India since the inception of PMJDY.

Atmanirbhar Bharat is turning into a mass movement similar to Namak Satyagrah. Access to financial services to the last person of the society – the poorest of poor, by PMJDY led interventions is perhaps the biggest enabler. This national mission for financial inclusion ensures access to financial services, namely, banking – savings and deposit accounts, insurance, remittance, credit, pension in an affordable manner. It is worthwhile to note the pace at which unbanked in India are catching up to the best in the world. The FDIC survey, started in 2009 in the aftermath of GFC, has just now begun to ask questions on bill payment services and use of a website for ETP to send or receive money domestically – which we know is almost ubiquitous now in India.

Indeed, sorting out reported accessing problems of Jan Dhan accounts and Aadhaar enabled payment systems need to be done on priority basis. So too is reaching out for still unbanked Indians, especially women, for enabling PMJDY further to reach 100% of India’s household.

The masterstroke of starting accounts with zero balance is evident in the amount actually deposited in these accounts. Total deposits crossed over ₹1.5 lakh crores. Let’s look at some comparisons to sense the victory of these zero opening-balance account deposits. How much cash does Reliance, India’s largest corporation, have in banks – less than ₹20,000 crores! What is the cash balance of well known national banks, say Bank of Baroda, ₹1.2–1.8 lakh crore.

Success of PMJDY can largely be attributed to uncomplicated access to these banking services to anyone who wants it, i.e. there is no categorisation of beneficiaries, which largely stems from the mantra of Sabka Saath, Sabka Vikas. The provisions made to ease account opening and operations in the form of no minimum balance requirement, embedded accident insurance cover, banking service on any phone (read non-smartphone), active monitoring and grievance–redressal mechanism have made this grand success feasible. India shows yet again a large-scale implementation capability not seen anywhere else in the world.

Start of Indian Defence Start-up Ecosystem

Building on the mantra of Atmanirbhar Bharat, India has added 44 unicorns in 2021 alone bringing the total number to 81. This exponentially growing number of unicorns is not only backing innovative solutions but also large scale deployments. India has become a hotbed of start-ups including some of the difficult domains like defence. The upcoming budget is likely to provide a breakthrough to the defence related start-ups which is a core area for an Atmanirbhar Bharat. Proof in the pudding is the DRDO’s pursuit of self-reliance and successful indigenous development and production of strategic systems and platforms, which have given quantum jump to India’s military might. DRDO’s recent launches include long-range Supersonic Missile Assisted Torpedo (SMART), Stand-off Anti-tank (SANT) Missile, Extended Range Pinaka (Pinaka-ER) Multi Barrel Rocket Launcher System, Air version of BrahMos supersonic cruise missile, and Short Range Surface to Air Missile. Further, DRDO has recently transferred the technology of indigenous extreme cold weather clothing system (ECWS), three-layered and providing insulation upto -50 Celsius,to five India companies.

Around 200 Indian start-ups are seen to be committed to defence sector technology. One of the key domains for the full-fledged development of the defence start up ecosystem is a competitive defence equipment testing system. Presently the air-worthiness, sea-worthiness or the military-worthiness of any equipment is determined only by one institution CQIA. The dependence on just one institution that too at a much later stage of development of any military equipment is very expensive for research to reach production. Government has already paved the way for a competitive market by allowing DTIS, defence testing infrastructure scheme, whereby a requirement of a capital of 400 crores is projected to be invested in segregated labs. 75% of investment in any lab will come from Government of India and remaining 25% will come from private players. Even the involvement of private players has a requirement of minimum five members to participate for each lab constructing a section 8 company. These are expected to commence floater this year and completed in a timeframe of 24 months from then. After these labs are operational, any OEM or a start-up will have choices for testing, either to CQIA or any of DTIS established labs.

The last piece for a flourishing defence start-up ecosystem is the buildup of the order book. The upcoming budget is likely to provide for full 1000 crore in the form of orders for start-ups which is the requirement for sustenance of the ecosystem. Last year’s 1000 crore earmarking for Indian companies saw 498 crores to be given to iDEX start-ups which one hopes to be deployed by the end of the current financial year.

 

LIC : Most awaited IPO

As we look towards the most important budget of PM Narendra Modi’s second term, target of double digit growth rate is essential for generating sufficient jobs, quickly recovering from pandemic induced slowdown and achieving bigger goal of prosperity for all. One of the most important requirements for this is significant increase in the investment rate as measured by gross fixed capital formation (GFCF). In these COVID times, this increase has to be led from front by the Government in the form of public investment. Government savings have to move into positive territory. This need of sharp increase in investment-to-GDP ratio will require significantly higher resource mobilization efforts.

Even though government’s disinvestment plans for Air India, BPCL and Concor kept on getting pushed ahead due to COVID, for LIC, the recent appointments of Edelweiss Financial Services Limited and Deloitte as pre-IPO advisors, the process has started to pick up some speed. This is one of the most awaited IPOs in 2022. The LIC IPO is likely to cover more than a third of the government’s budgeted disinvestment target of ₹2.10 lakh crores this fiscal year.

With around 70% market share of Life Insurance business in the country, LIC is way ahead to any other of 23 players in the Industry. IRDA has reported significant increase in the premium collection by LIC which is nearing ₹1.8 lakh crores. Presently, government holds 95% stake in LIC whose total assets are worth ₹34 lakh crores. Regarding the IPO, since the DRHP (draft red herring prospectus) hasn’t been filed till now, the price band for the IPO is not known as yet. But the issue price is generally announced around a week before the shares are open for subscription by the public.

PM Modi has talked about wealth creation as the area of focus of sabka prayas and this IPO will help retail investors while bringing transparency in the management of LIC. As sale is of less than 10% stake, which allows control with the government itself, hence allaying any chances of adverse impact of IPO on existing stakeholders in general and especially all policyholders. Further, this will bolster the confidence of BFSI sector in post-covid world, which is essential for capital formation and credit flow in the country.