digital economy essay upsc

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Digital Economy

The Government is working on a comprehensive legal framework for the digital economy. 

• The digital economy is the worldwide network of economic activities, commercial transactions and professional interactions that are enabled by information and communications technologies (ICT) . 
• It can be succinctly summed up as the economy based on digital technologies.
• The digital economy reflects the move from the third industrial revolution to the fourth industrial revolution. 
• The third industrial revolution, sometimes called the digital revolution, refers to the changes that happened in the late 20th century with the transition from analog electronic and mechanical devices to digital technologies. 
• The fourth industrial revolution builds on the digital revolution as technologies today continue to bridge the physical and cyberworlds.

Advantages of The Digital Economy

• Increased productivity: The digital economy has increased the productivity of businesses as they can now use technology to automate their operations and processes.
• Increased competitiveness: Businesses can use technology to improve their products and services. This has increased the competitiveness of businesses.
• Reduced costs: Digitisation has helped businesses replace manual tasks with automated processes. This has reduced the costs of businesses and has led to lower prices of products and services for consumers.
• Better & Convenient Products: Today, digitised businesses can offer their customers better products and services at lower prices. New business models like e-commerce and m-commerce have made it possible for customers to shop anytime, anywhere.
• Increased employment opportunities: The digital economy has generated new job opportunities as new businesses are springing up. It has also created new job roles spread all over the world.
• Improved quality of life: The digital economy has made it possible for people to work from anywhere in the world. This has improved the quality of life of people as they can now balance their work and personal life.
• Faster transactions: The digital economy has made it possible for businesses to conduct transactions faster as they can now use online payment methods.
• Improved efficiency: Digitisation of processes has helped businesses become more efficient by removing error-prone manual tasks. 
• Innovation: The digitisation of businesses and its processes leads to innovation with respect to not just offerings but also the way businesses operate.
• Increased transparency: The digital economy has increased the transparency of businesses as they can now use technology to share information with their customers.
• Improved communication: Increased connectedness in the digital economy has made it possible for businesses to communicate with their customers more effectively. They now have a number of channels through which they can reach their customers including social media, email, and SMS.
• DigiLocker: It was launched in 2015 to create a cloud-based platform to issue, exchange and verify essential documents or certificates.
• MyGov: It was launched in 2014 to bring the government closer to the people by providing an interface (online forum) for exchange of ideas.
• BharatNet: It was introduced to connect all 250,000 Gram Panchayats (GPs) in the country and provide 100 Mbps internet connectivity.
• Smart Cities: It was initiated in 2015 to transform all Indian cities into smart cities by leveraging various technologies.
• Digitisation of Post Offices
• Pradhan Mantri Jan Dhan Yojna 
• Digital India 

Disadvantages Of Digital Economy

• The digital divide: One of the biggest disadvantages of the digital economy is the digital divide. This is the gap between those who have access to technology and those who don’t. This has created a new form of inequality in the world.
• Cybercrime: The increased use of technology has also led to an increase in cybercrime. This is because criminals can now use technology to commit crimes like identity theft, fraud, and money laundering.
• Data security: With businesses collecting more and more data about their customers, there is a risk of this data being leaked or stolen. This can lead to a loss of trust between businesses and their customers.
• Unemployment: The digitisation of the economy has led to job losses in some sectors as businesses have replaced human workers with technology. This has increased unemployment in these sectors.
• Privacy concerns: As businesses collect more data about their customers, there are concerns about the misuse of this data.
• Heavy investments: The digitisation of businesses requires heavy investments in technology. This is a challenge for small businesses which might not have the resources to invest in technology.
• Monopoly: The digitisation of the economy has led to the rise of a few big companies which have become very powerful. This has created a monopoly in some sectors.
• Addictive nature: The digital economy is very addictive in nature. This is because it is designed to keep people hooked on their devices. This can lead to a number of problems like addiction, anxiety, and depression.
• Potential environmental impact: The increased use of technology in the digital economy has led to an increase in the number of e-waste and heavy carbon footprint. 
• There is a need to leverage today’s emerging technologies , such as IoT and prescriptive analytics, to better connect with existing and potential customers and to be more responsive while also being more efficient and effective.
• To compete in the years ahead, organizations — whether they are for-profit businesses, service-oriented entities, such as healthcare systems, or nonprofit and government institutions — will need both leaders and employees who are able to innovate.
• Become better prepared to explore how best to develop or use emerging technologies or risk being left behind as the digital economy moves forward.

Source : TH

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Digital Economy

• January 12, 2023

• The Reserve Bank of India (RBI) recently launched the pilot for its digital rupee — India’s very own digital currency.
• The pilot covers select locations in a closed user group (CUG) comprising about 15,000 customers and merchants across the country such as Mumbai, New Delhi, Bengaluru and Bhubaneswar.
• So far, four banks — State Bank of India, ICICI Bank, Yes Bank and IDFC First Bank – are part of the first phase of the pilot.

E-RUPEE Project:

• Central Bank Digital Currency (CBDC) or e-rupee is an initiative of the RBI.
• The CBDC is legal tender issued by the RBI in digital form , which can be transferred electronically from one holder to another.
• It is the same as a fiat currency and it is exchangeable one-to-one with government-issued money.
• Simply put, the digital rupee is the same as a banknote or coin that we use daily, only it is in a digital form.
• E-rupee will be issued in the same denominations as paper currency and coins .
• It will be distributed through intermediaries, i.e, banks .
• To send or receive digital money, a digital wallet is a must.
• Users can link their wallet to their bank accounts and load them and use digital money for individual payments or at the merchant shops.
• These digital wallets offered by the participating banks are stored on mobile phones and devices.
• E-rupee transactions can be both person to person (P2P ) and person to merchant ( P2M ).
• For P2M transactions, such as shopping, there will be QR codes at the location.
• Users will be able to withdraw digital tokens from banks in the same way they currently withdraw physical cash.
• Users will be able to keep the digital tokens in the digital wallet
• These digital tokens can be spent online or in person, or transfer them via an app.
• Like a person making a cash transaction above a certain threshold needs to submit his or her PAN . The same rule will apply to the digital rupee.

Significance/Objective

• Faster since it requires no intermediation of banks. Providing instant transfer of funds for the customer.
• No requirement of settlement for the banks or ecosystem participants
• Saving on cost of printing , transporting and storing currencies and coins that can be rationalised through e-Re.
• Financial inclusion and formalising the digital consumption of money .
• E-Re is also targeted at those who don’t have a bank account , but can use digital currencies similar to a pre-paid mobile recharge card.

Difference between E-rupee and UPI:

• Digital rupee is a store of value like currency , while UPI is just an overlay infrastructure on top of any form of store of value like bank accounts (which have normal currency), prepaid instruments, credit cards, etc.
• No intermediation of banks – UPI or NEFT or RTGS must go through a bank while in the case of the e-Rupee, the money gets transferred from one wallet to another
• Anonymity – The transactions via digital rupee are more anonymous than the current digital transactions including UPI, NEFT, RTGS (can be easily tracked since involves intermediary banks)
• Holding limit – SBI has allowed Rs 1 lakh holding limit for the wallet while upper limit per UPI transaction is Rs 2 lakh.
• Process – When we pay in UPI, the amount is deducted from bank account, while on payment using e-rupee, the amount is deducted from digital wallet.
• Settlement risk – exists in UPI since it works on settlement basis between two banks and at the backend it takes about a day for settlements among banks to conclude.
• Cheaper – e-Re usage of cash does not involve any charges. UPI is free now, but could become chargeable going ahead.

Issues in E-rupee:

• Anonymity – In digital currency, even though the transactions are recorded in the centralised ledger, it is anonymous as the owner of the wallets are not known to the government or intermediaries in the ecosystem
• While UPI is a bank-to-bank payment mode, there is a transaction or audit trail it leaves.
• Cannibalisation of UPI – UPI works on a settlement basis between two banks; at the backend, it takes about a day for inter-bank settlements to conclude. Hence there is a settlement risk in UPI
• Delay in transactions – If there is a delay in a transaction or if it fails, customers prefer paying using other digital payment modes, which are currently faster
• Practical problems – A customer who paid using e-rupee is later unable to make the CBDC transaction
• Success depends on Acceptability by large and reciprocal number of users.
• Established ease of use of UPI – From a customer perspective, whether merchant or retail, UPI has established ease of use. Therefore, e-Re needs to prove that it is equally user-friendly with sound technology and data privacy provisions, to lure users.
• Digital theft such as hacking and virus attacks, which could deter some people.
• Cultural and social mind-set in the country, which leads to greater use of physical currency, is also a hinderance.

Measures to enhance digital economy:

• Digital infrastructure and connectivity including regular maintenance and upgrades
• An improvement of just 6% on connectivity will cover more than 99% of the population with at least 3G services.
• Securing and maintaining the infrastructure
• Policy changes – evaluate existing policies and practices to reduce conflicting regulatory roadblocks that impede the growth of the digital economy.
• continue to improve data accessibility and relax data localization policies
• World Bank’s Ease of Doing Business ranking must be continuously improved, particularly in reducing red tape and encouraging cross-border trade
• Skilling and capacity building – upskilling its labor force and improving the quality of education at all levels
• Improving the quality of digital services will require action and cooperation from both the private and public sectors.
• Structural reforms such as a reduction of 40% in the market entry barriers to FDI in infrastructure, an improvement of 13% on the indicator for FDI regulations, and improvement of 43% in market competition in the e-retail sector can facilitate market competition across industries and help India close the gaps with the G20 median, unlocking inclusive digital economic growth.
• Increase in access to e-payment platforms by 17% will help close the gender and urban rural gaps , facilitating digital development among hard-to-reach and less-developed regions.
• Participation of private sector – For example, Reliance Jio’s strategy of bundling virtually free smartphones with mobile-service subscriptions has spurred innovation and competitive pricing.
• Data costs have plummeted by more than 95 percent since 2013
• As a result, mobile data consumption per user grew by 152 percent annually—more than twice the rates in the United States and China

Way forward:

• The digital economy can contribute up to 20% or $1 trillion of India’s $5 trillion economy vision.
• But in developed countries, they have been spending ~1.2% of their GDP on digital infrastructure.
• The Indian government too needs to acknowledge digital infrastructure as a fundamental transformational area and give it the same importance it gives to physical infrastructure, where 80% of its investment goes.

Source Indian express

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