The Evolution of India’s Digital Public Infrastructure

Last month, the Finance Club at London Business School hosted Mr. T. Rabi Sankar (Deputy Governor of the Reserve Bank of India) to discuss the evolution of India’s digital public infrastructure in the context of global integration.

Addressing Cross-Border Payment Challenges and India’s Digital Payments Infrastructure

Paolo Surico (Professor of Economics at London Business School) opened the event by asking Mr. Sankar to discuss his experience with India’s growing digital payments infrastructure.  Sankar began by addressing the critical inefficiencies in current cross-border payment mechanisms. He highlighted the unacceptable delays and high costs—averaging 5-7 days and 6% respectively—that plague these transactions in the modern age of technology. Sankar emphasised the pressing need for innovative solutions that leverage digital public infrastructure to enhance efficiency and reduce these barriers, which are essential for economic and financial integration on a global scale. 

India’s successful domestic digital payments model include: 

Government Role: Central to the success of India’s digital infrastructure is the proactive involvement of public sector bodies. These entities have not only supported but also driven the development of robust platforms necessary for digital transactions. 

Aadhaar System: Conceived by a think tank in India, the Aadhaar system provides a biometric and demographic database that serves as a foundational layer for identity verification across various services, significantly enhancing financial inclusivity. 

NEFT vs. UPI: Traditional systems like the National Electronic Funds Transfer (NEFT) require users to log in and maintain bank-specific customer status, leading to delays. In contrast, the Unified Payments Interface (UPI) streamlines this process by enabling instant bank-independent transactions once a user completes the KYC process, dramatically enhancing the speed and user-friendliness of digital payments. 

Innovations and Roadblocks in Digital Transactions

Highlighting the innovative steps taken to overcome infrastructure challenges, Sankar shared insights into several ground breaking solutions: 

UPI’s Impact: As a platform that links all participant banks, UPI allows for instantaneous transactions and has significantly increased financial inclusion in India. 

Challenges of Mobile Penetration: While India has seen extensive mobile phone penetration, about 50% of the population only has access to basic mobile phones without internet connectivity. This presents a significant challenge for digital transactions which typically require internet access. 

Offline Transactions and Regulatory Sandbox: To address connectivity issues, the RBI has introduced regulatory sandbox environments to trial innovative offline transaction solutions. This approach also includes organising hackathons and collaborating with the startup community to crowdsource creative ideas, such as using the unique audio signature of SIM cards for authentication in offline payments. 

Future Directions: Expanding UPI, Introducing CBDCs and Analysing Crypto

The Unified Payments Interface (UPI) continues to expand globally and is now available in countries such as the UAE, Singapore, Mauritius, and it recently launched in France through a partnership with Lyra Network. This expansion facilitates transactions for Indian tourists, such as purchasing Eiffel Tower tickets, with plans to extend further into the French tourism and retail sectors. Despite UPI’s success, expansion across different countries causes issues in scaling. Thus, its model faces challenges in international transactions due to varying banking regulations and processes across countries. As a result, the RBI is addressing the scalability challenges of global digital payments by enhancing the Central Bank Digital Currency (CBDC). The 3 main features of the CBDC are: 

  1. Programmability 
  1. Offline Functionality 
  1. Real-time Cross-border Transactions 

Designed to overcome regulatory and operational barriers in international transactions, the CBDC features programmability, enabling it to adapt to various legal frameworks and financial landscapes. It also supports offline transactions, allowing users in regions with limited internet connectivity to participate. These features facilitate real-time cross-border transactions without the need for intermediaries, streamlining international trade and remittances. By introducing the CBDC as a globally integrated transaction tool, the RBI not only solves the scalability issues faced by systems like UPI but also positions India as a leader in financial technology, enhancing economic cooperation and strengthening its global economic engagements. 

Turning to the topic of cryptocurrencies, Sankar expressed a cautious stance due to their unregulated nature, which he believes could hinder their acceptance and standardisation. The session also delved into the broader implications of cryptocurrencies on capital controls and the global financial system, highlighting the potential of stable-coins and the need for comprehensive regulatory frameworks. 

Concluding Reflections

In his concluding remarks, Deputy Governor Sankar reiterated the critical need for ongoing innovation supported by robust regulatory frameworks to adapt to the rapidly evolving digital financial landscape. He stressed the importance of international cooperation in adopting and adapting systems like UPI globally and recognised the transformative potential of CBDCs in facilitating efficient cross-border payments. 

The event not only shed light on the technical and regulatory advancements in India’s digital payment systems but also highlighted the broader strategic imperatives necessary to foster a more inclusive and integrated global financial ecosystem.

About the speaker

T. Rabi Sankar, Deputy Governor of the Reserve Bank of India, brings a rich backdrop of experience and knowledge to the table. His career spans various crucial roles including an International Monetary Fund consultant and key positions in the Indian Ministry of Finance and the Reserve Bank of India. His areas of expertise are broad, covering exchange rate management, public debt management, monetary operations, and notably, the development and regulation of financial markets and payment systems.

About the author

Mahesh Jamb, MBA2025 has a dynamic background in Indian tech startups, particularly in the e-beauty sector. With four years of experience, his most recent role involved leading the Data Product Team at a renowned e-beauty unicorn, focusing on pricing automation and other data-driven initiatives. His passion lies in fostering innovative growth and sustainability within SMEs in developing countries, especially in the consumer sector. Mahesh’s journey is marked by a commitment to leveraging technology for strategic advancements and impactful business solutions.

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