e-RUPI - A revolution?
In this week's FinMail we understand e-RUPI, a voucher-based benefit distribution system. We also understand why it was created and what it aims to achieve.
The Story:
PM Narendra Modi on 2nd August launched a digital payment solution based on the infrastructure of UPI, coined as e-RUPI. e-RUPI aims at revolutionising the Direct Benefit Transfers (DBT) that the government undertakes. e-RUPI will act as an electronic medium for transferring benefits more effectively and will give a new dimension to digital governance.
But wait, you might have already heard about e-RUPI in the news and from the other content creators but what are we here for? Discussing it again? Umm, yes. But also, we are here to simplify it down to basics and we are also gonna explore how all of this came to life and what all does it plan to be.
All in this FinMail, let's just start right away.
What was the need?
"Necessity is the mother of all inventions" - Plato
Before we understand what is e-RUPI in simple terms let us look at what was the reason behind the introduction of e-RUPI. If we had to quote the problem that pushed the need for a system like e-RUPI, that would be - "Inefficient Benefit Transfer System"
But what does it mean? For that let's turn back the calendars and jump to the time when there were benefits given in the form of subsidies. Like if a particular family could not afford daily essentials like grains, pulses, fuel or LPG, then the government would provide such families subsidised products. The family would need to pay some portion of it and the remaining portion would be paid by the government.
But there was a problem. (You know which one, right?) The actual beneficiaries never received a full portion of the subsidised products. Flashback to 1985 when Rajiv Gandhi mentioned that out of a rupee of benefits given by the government, only 15 paise reached to the actual beneficiary. 85 paise worth of benefits were wrongly claimed by the middlemen and the undeserving ones.
For instance, the BPL card which the government meant to issue to those who were from the economically backward section, but many 'not so backward' families also had BPL cards with them. And they were able to get subsidised products even if they did not need them. But that's just not it. Also, the stores or the distribution which were given the task to distribute subsidised essentials would hoard these products instead of distributing them to the beneficiaries and would then sell them at a price higher enough for them to make a profit but lower than the market so that people would buy from such stores. And that was the problem - leakage of government funds.
And then the current NaMo government tried to tackle this situation with the launch of Aadhar and forcing banks to allow general public to open Zero Balance Accounts or the 'Jan Dhan Accounts'. The government aimed to cut all the middlemen in between and deposit the benefits/subsidies directly in the beneficiary's bank account. But there were problems with that too.
The biggest one was the reach of banking services to the most economically backward class. Chest thump our Digital Growth as loud as you want but we all know that our Banking System is inefficient. We have a first of it's kind UPI payment system, we witness transactions worth lakhs of crores through UPI every month but we also have a darker side where a significant amount of the population still does not have access to bank accounts. They are not technologically or information handy people to be able to use bank accounts securely. And that is a problem as well. But how exactly?
For starters, the government can't monitor closely if the money is used for the same purpose and by the same person for whom it was meant. Once the amount of subsidy or benefits are transferred, there is no control of the government over the use of money. Sushila's benefit for school fees that are deposited in her account could be used by her father for some alcohol. It basically feels like 'free money' (Consider what you feel about cashback).
Second, the people who don't know how to use bank accounts, either don't use it or give it to manage to someone else (like a relative who knows how to use it, or to Bablu who's the only one in the village who use a bank account) and there too, there can be a risk that money won't end up in the hands of the beneficiary.
So there are some loose ends that needed to be tackled. And thus there was a need for a system that would ensure:-
1) The benefit amount gets used only for the purpose it is provided for.
2) The benefit ends up right to the person for whom it is meant.
3) Benefit could be provided even to those who don't have a bank account.
4) Benefit could be provided without a need for a middleman.
In short, a direct benefit transfer system that is simple, secure, efficient and fast.
A system like this existed only in the wishlist of the Government's account until e-RUPI.
What is e-RUPI?
Ok, there are problems with DBT but we also have a possible solution Let's understand what actually is e-RUPI. First, the name might sound like a digital currency that the government was planning to launch. But fortunately, it is not that. Instead, it is a digital voucher that will help provide monetary benefits to those who need it and ensuring the benefits (money) are used for the purpose for which they were issued.
National Payments Corporation of India (NPCI) in association with other Institutions and partner banks, developed an innovative digital solution – ‘e-RUPI’. e-RUPI as mentioned is a voucher distribution system, but electronically. The voucher is distributed to the beneficiary through a QR code or SMS String on their registered mobile number which can be redeemed at a specific store for which it was issued. For example, if the e-RUPI voucher was issued for claiming free health checkups then it can only be redeemed at recognised hospitals or clinics. And what's a good thing about it? The beneficiary doesn't need to have the internet on his/her phone.
But how does this even work?
A hint on how it works can be picked up from the logo of e-RUPI, which tells us that the system is built around using the base of UPI. UPI itself is a revolution not only in India but in the whole world. No country had a close substitute for UPI when India launched it. If the base of the system is so innovative, we can only expect another revolution. How come? Let us answer this and also help you understand e-RUPI more precisely, with an example.
Working model of e-RUPI:
Himesh - a 16-year-old student residing at a small village in Gujarat, just cleared standard 12th and as a part of the ongoing program of Gujarat Government to promote rural education, he is promised that he will receive money to pay for the books of his college studies. Under a normal benefit system, Himesh would have received this amount in his bank account but that doesn't guarantee that Himesh would buy books from it. That could be used anywhere. But the government doesn't want that. Lots and lots of kids give up on education when they don't have the money to pay for it and that definitely affects the future of the state. So let's see what change e-RUPI would make.
e-RUPI voucher for buying books will be delivered on Himesh's phone number as a QR code or as SMS. Now, the QR code contains information like the beneficiary's name, the limit of benefit amount, an item for which it is to be used, etc. The QR code is only redeemable at a Book store and thus it would ensure that it is only used to pay for books and not for booze ;)
What Himesh needs to do is go to a recognised book store that accepts an e-RUPI voucher and show the QR code to the bookseller. The seller would scan the QR code and provide him with the books. Himesh would receive his books and the seller would receive money as soon as the QR code goes through as it is based on UPI. The government would also come to know that Himesh has redeemed his benefits and the voucher would now stand invalid. In case, Himesh doesn't claim the voucher in time, (yes, there's even an expiry date) the voucher would expire and Himesh would not be able to use the voucher in the future.
Can you see some familiarity with e-RUPI? We can compare e-RUPI with a Book My Show Gift Voucher or a Paytm Movie Pass. Like for instance, the pass or the voucher can only be redeemed for watching movies and for a limited period of time and of course, up to a certain amount only.
Now that we have understood what e-RUPI is and how it works, let us tell you that NPCI doesn't plan to utilise e-RUPI for the sole purpose of government's benefit transfers. The system that it has built has multiple uses and thus NPCI aims to utilise the power of it make it common just as what UPI is today.
The various uses of e-RUPI
With the launch of e-RUPI, NPCI has potentially opened doors for another revolution like UPI. With e-RUPI currently slated to help the government reach out to actual beneficiaries, its use is not limited to this alone. NPCI has plans to explore the platform for various purposes which we shall discuss now.
e-RUPI for corporates:
e-RUPI ensures that the benefit reaches the person for whom it is intended. Now, a corporate with so many employees can't really track each of its employee's expenses which they have submitted for reimbursements. Instead of reimbursing them for the expenses later on, an e-RUPI voucher could be issued for hotel, restaurant, and ticket costs. A limit could be set on each of the vouchers and they can only be used for a specific purpose. This way, the expenses would also be taken care of and the company wouldn't need to verify if it was used for the purpose for which it was issued.
e-RUPI for donations:
Many people have second thoughts while donating to an NGO or an organisation. The doubt remains whether the donation would be used for benefits or for filling the pockets of the trustees? A donor could issue an e-RUPI voucher to the NGO for the purpose it needs the money for and the rest assured.
Let us list out a few uses in brief as well. Issuing e-RUPI voucher to your house-help for the education of his/her child, issuing e-RUPI voucher to politicians for specific purposes like campaign costs/traveling/refreshments, issuing an e-RUPI voucher to your brother for buying a course and so on.
There are lots and lots of uses where the system could be used and in fact, efficiently. The system could be shared with other nations and multi-national corporates for their internal needs as well and a fee could also be charged in return.
Now that we have covered the future applications of the system, let us put on a pair of critique glasses and try to point out some limitations of the system.
Limitations of the e-RUPI system
Connectivity Issue:
e-RUPI vouchers are to be sent to the beneficiary via an SMS to their registered mobile number. The beneficiary SIM must be active and functional to be able to receive the benefit. While we have seen an Internet boom in India, there still remain some parts in India and the villages that don't have cellular networks and in that case SMS doesn't work. Also, an OTP that is to be read out by the recipient while claiming the voucher could be delayed due to the same issue as well.
One-Time Voucher?
As said, the voucher is received in the registered mobile number of the beneficiary. In cases where the phone is damaged or lost or the message gets deleted, there has been no clearance regarding this whether the voucher can be requested again or it is a gone case once you lose it.
Conclusion
e-RUPI though has its own set of limitations, they are of a lesser kind of pain for the government. The end result totally lies in the hands of the government in how do they implement the infrastructure across the centers that will help facilitate the e-voucher system. Because this time, the work has to be done more from the side of the government in implementation and less from the beneficiaries. Talking particularly about e-RUPI and not about DBT, hands down it has the potential to be a state-of-the-art technology that the world will wonder about just like UPI. NPCI has done a great job here and there's no doubt about that. Whatever the government makes use of it, but e-RUPI will be a revolution and you can note it down. Till then,
That is it for this week's FinMail. Hum sabko Gold Mubarak❤️
Enjoy the win. Keep learning and we will see you next week.
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