Since the demonetization of the Rs 500 and Rs 1,000 notes, the government has been active in pushing digital payments in the country. While actively pursuing the idea of making India a "cashless economy", the government has been extensively encouraging people and merchants in adopting e-wallets, digital as well as card-based payments.
As a result, digital payment has seen a huge surge in adoption. Significantly, the adoption has been seen in urban areas. But, on the other hand, the technology still remains beyond the reach of people in rural and remote areas of the country.
This might be due to the fact that the smartphones or internet-enabled phones has had low penetration in the rural areas and simultaneously resulting in low uptake of platforms like UPI or even private platforms like Paytm or any other digital payments app. Moreover, the cost of smartphones seems to be an obstacle for the people in rural and remote areas of the country.
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Currently, after analyzing the smartphone market, the cheapest 3G smartphones are available at around Rs 2,600, while 4G phones cost a lot more. So, for feature phone users who make up the majority in rural areas, affordability and use cases may be the factors behind these people being averse to switching to smartphones.
However, at such juncture, the government is looking to solve this problem and is working on extending the reach of smartphones by introducing a low-cost smartphone through which the people in rural areas will also be able to carry out financial transactions from anywhere and at any given time.
Economic Times reports on the matter and states that the Government has now asked the local handset manufacturers like Micromax, Lava, Intex and Karbonn to develop sub-Rs 2,000 smartphones with capabilities to "scan for Aadhaar-based financial transactions" and eventually carry out digital payments with ease.
With this directive, the government is truly aiming to bring the majority of masses onboard to the digital economy. However, there's a rather absurd condition, the government has no intentions to subsidize the cost of smartphones. Instead, as per the announcement in a meeting between the Niti Aayog and the smartphone developers, the government wants the smartphone companies to come with solutions to bring down the prices. The government further has indicated that at least 20-25 million units of such ultra-low-cost smartphones should be rolled out.
Well, with the government making such move, it only sounds like there's a huge load on the local smartphone manufacturers now. Besides, the government has left them on their own. And, adding to that, the government doesn't intend to have just a 3G or 4G smartphone, but a phone with a fingerprint scanner or iris scanner for biometric authentication along with high-quality processors and build quality.
As far as the current smartphone market scenario is concerned, the government's plan for Rs 2,000 smartphones only seems like a distant dream.
Competition from Chinese Manufacturers
Moreover, considering the Indian handset players, they are already losing their grip on the market to Chinese handset players like Xiaomi, OnePlus, Huawei and Lenovo-Motorola amongst others. It has also been already revealed that China-based smartphone makers have accounted for more than 40 percent market share in the top 30 cities in India.
Further, with the demonetization, it is creating new challenges for the local companies and it might also result in smartphone players exiting the market altogether. So in reality, the smartphone players, especially the Indian companies, may not be ready for the government's ambitious sub-Rs 2,000 smartphone plans. What's surprising is that the government hasn't approached the Chinese companies currently dominating the budget smartphone segment in the country. Larger multinationals such as Samsung and Apple didn't even attend the meeting.
Rs. 2,000 Smartphones not Feasible
According to Parv Sharma from Counterpoint Research who had been interviewed by BGR India also commented on the matter saying that at this point it was not feasible for brands to make sub $30 (Rs. 2,000) phone without incurring losses.
He also added that consumers would not buy phones for transactions purpose only, the expectation from smartphones were high. In the end, to accommodate all the features, the smartphone industry must compensate certain level of price which could be minimum $50-$60 (Rs. 3,000-Rs. 4,000).
Taking the Necessary Step
With all that being said, as the government has set the agenda for pushing cashless transactions, it looks like the government is taking the necessary steps in realizing the "Digital India" initiative. It has already launched the Bharat Interface for Money (BHIM) app, a platform that connects 31 major banks using UPI.
Now with this announcement, the government may be trying to support its app and other UPI-based payments, to further increase the reach of its cashless nation plan. Nonetheless, mobile payment systems seem to be the key driver to this digital shift.