India’s plan on issuing official digital currency premature
Published: Feb 01, 2021 12:23 PM

Illustration: Tang Tengfei/GT

As countries, especially developed economies, are paying accelerating efforts on developing official digital currencies, India has also repeated its intention to follow up the agenda, with latest efforts on weighing a new law to ban private crypto-currencies and to pave the way for official digital currency issuance. However, with currently insufficient financial and technological prerequisites, it may not be a mature decision for India.

India considers to roll out a law to ban private crypto-currencies including bitcoin, which will "create a facilitative framework for creation of the official digital currency to be issued by the Reserve Bank of India (RBI)," media reports said, citing an official statement.

It is not the first time for India to make mention of its official digital currency issuance plans. Without sufficient economic and technological basis, New Delhi's intention to quickly introduce an official digital currency may only be in the hope of winning a place in the future international currency reserve system. The timing may not be mature yet as, for starters, the financial system of the nation has not developed as mature as in many other countries.

Even after India's banknote demonetization campaign in 2016, ordinary residents in the country still prefer banknotes for payment. A cashless era has not yet been initiated in India, with insufficient development on e-commerce, as well as mobile payment sectors.

Besides a mature financial system, the rollout of official digital currency requires comprehensive technological accumulation from issuance, to circulation and implementation. The populous South Asian countries still has a lower penetration rate of network and smart phones, especially compared to other major economies.

It is crucial for policy-makers to adopt practical and appropriate approaches based on its unique conditions, rather than following the agenda of other countries. The major South Asian country has been setting ambitious goals, while narrowing down its development paths.

The Indian economy encountered headwinds in recent years, even before the outbreak of the COVID-19 pandemic. The country's GDP growth in July-September quarter in 2019 was recorded at a mere 4.5 percent, the sixth consecutive quarter to register declining growth rates, reported Indian media.

The populous emerging market has been regarded as a hot land for global investments, however, it has also raised accelerating counter forces from domestic capital, impeding policy-making and reformation of the country.

By playing up nationalism and populism, domestic plutocrats become a growing force of the country to isolate the market from the global value chain. For years, the nation has held a relatively unfriendly attitude toward foreign capital. 

From New Delhi's relentless efforts on cracking down on Chinese investment, to its refusal to join the Regional Comprehensive Economic Partnership (RCEP), as well as the country's recent intention to tighten foreign investment rules for e-commerce which may hinder Amazon and other global industrial giants' development in India, the essential background is domestic plutocrats trying to wrest market share through administrative influence.

It's the country's long-term growth that will bear the losses if such a trend of stripping itself from global value chain continues in India. While integrating into Asian value chains, such as joining RCEP, will benefit the country's development fundamentally, though it may not become an upstream player of the industrial chains overnight.

The article was compiled based on an interview with Liu Zongyi, secretary-general of the Research Center for China-South Asia Cooperation at the Shanghai Institutes for International Studies.

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