Home / Opinion / Views /  India's experiments for reducing the digital divide

In his memoir, former finance minister Yashwant Sinha had written about one of his key achievements as a member of the Vajpayee government. It wasn’t about the initial dismantling of the administered interest rate regime which opened the way for freeing up interest rates then or other reforms. It was a policy change, and a rather unglamourous one for the financial press, markets and analysts then. It was the launch of the Kisan Credit Card (KCC) scheme in 1998, in the first budget of the Vajpayee government.

Over the subsequent decades, after tweaking by successive governments, this scheme has been recognised as having transformed rural credit delivery in India with its offer of a revolving credit to farmers. It eliminated the uncertainty over loan approvals to farmers from banks and other institutions and enabled them to borrow for seeds, fertilisers, pesticides and allied farm activities against sanctioned credit limits at low interest rates.

By 2004 itself, banks had issued close to 4.5 crore cards. The number has swelled considerably since then, with credit disbursed also rising substantially.

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With the Rupay card, crop insurance and personal insurance now bundled into this, it has emerged as a social security scheme for farmers as Sinha described it. But India’s fintech revolution may not have quite touched the hinterland. The recognition of that appears to have prompted the Reserve Bank of India (RBI) to launch a pilot project on digitalisation of Kisan credit lending in a few districts in Tamil Nadu and Madhya Pradesh.

The digital lending for KCC developed by the Innovation Hub of the RBI is aimed at cutting the turnaround time, which could be up to four weeks in the form of branch visits and approvals, and to make the process more efficient. There is much to gain from this move. For banks which issue these cards, new smart cards instead of the physical cards promise savings on costs since they are cheaper to roll out. For farmers and others, given the mobile phone penetration, even a feature phone can be handy to authenticate transactions through messaging services.

But the wider objective of the proposed digitisation of these cards could well be eliminating duplication and possible frauds. With direct cash transfer and many other benefits increasingly being routed to farmers, it would make the task of identifying beneficiaries and routing and monitoring of subsidies and credit easier to track. It will also be easier to carry out possible course corrections for institutional credit delivery. There is also the potential to offer financial services or products over time to those in rural areas as incomes grow, and help narrow the digital divide.

It makes sense to kick off digitisation on an experimental basis. Yet, the RBI and the government need to be mindful of the rising number of online frauds. Given the low level of financial literacy and customer protection against online frauds, both the central bank and the government ought to address this to protect a far more vulnerable segment of borrowers and savers—and not just by reporting frauds on the bank’s central fraud registry. The bulk of the complaints being handled by banking ombudsmen in the country now relate to digital transactions.

The government has much skin in the game, not just politically but fiscally too. The RBI itself reckons that not even half of India’s small and marginal farmers are covered under formal credit. That is a shame. If the automation of the lending process to farmers and allied sectors and digitisation help boost rural banking with its knock-on effects and impact many more farmers including those with land holdings, the wait can’t be longer. Banks too are big stakeholders in this. So far they have delivered reasonably well. Now for the final frontier.

Elsewhere in Mint

In Opinion, Ajay Piramal & Monal Jayaram argue why literacy should be much more than what it means today. Parmy Olson explains how contact lenses are replacing phone screens. Deepak Nayyar argues growth is more than arithmatic and economics. Long Story predicts the future of moonlighting in Indian companies.


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