India is leading the world’s economies with its strong growth trajectory, despite many local and global challenges. As G20 host this year, New Delhi is prioritising digitisation in an effort to become a global economic powerhouse.
India’s prospects look promising in the face of a challenging external environment if the forecasts are anything to go by. The Centre for Economics and Business Research forecasts India will become the third $10 trillion economy by 2035, while the Asian Development Bank is forecasting GDP growth to moderate slightly this fiscal year, but inch up to 6.7 % in 2024, driven by private consumption and government investment.
The country is also continuing to see strength in trade as it bounces back from the depths of the pandemic, with merchandise exports surpassing a record $447 billion in 2022-23.
There is strong potential in India’s growth as an export hub, according to Deloitte Insights, thanks to its recent trade agreements that are aimed at integrating the manufacturing sector with the global supply chain.
Powering Indian trade through digitisation
As India’s economy recovers and trade growth pushes ahead, there is a bigger impetus to digitise trade finance processes to unlock further opportunities for India’s banks as well as its importers and exporters.
“As the host of G20 this year, India has placed digitisation as a priority. New Delhi recognises that digital transformation will drive economic change. Whether it’s in manufacturing or trade finance, there is an excitement and energy behind digital developments,” said Chetan Talwar, Head of Global Sales at Contour.
In April 2023, Citi India completed its first end-to-end blockchain-based Letter of Credit transaction on Contour with diversified industrials manufacturing company, Cummins India – the first use case of a domestic LC in the country. Domestic transactions can benefit from a bank obligation to pay at a future date, reducing the risk for corporates and increasing the financing opportunity. As a technology-driven company, Cummins said that by digitising their LC processes, they can drive efficiency across the value chain, which is a win-win solution for all stakeholders.
Tata Power, one of the country’s leading integrated power companies, is another example of a major corporate player which recognises the potential of digitisation. In January 2023, Tata Power joined Contour’s digital trade finance network to further fuel its growth and unlock more value through innovation. This follows in the footsteps of Tata Steel, also part of the Tata Group, which has been actively using Contour since 2021.
“We see strong momentum coming from the corporate space. Tata Steel and Tata Power are great examples of leading corporates that are prioritising digitalisation efforts, as they see the potential to drive greater efficiency in their trade finance processes,” said Talwar.
The future of trade finance digitisation
The sustained momentum behind India’s digitisation is largely thanks to the efforts of the Reserve Bank Innovation Hub (RBIH). In June last year, the RBIH concluded a Proof of Concept (POC) to demonstrate the capabilities of Distributed Ledger Technology (DLT). 11 banks were involved, alongside technology partners and fintech start-ups.
The domestic Letter of Credit (LC) was chosen as a use case for the POC. In one demonstration, Contour teamed up with R3 and four local banks – Bank of Baroda, Federal Bank, HDFC and ICICI Bank, to conduct live transactions on Contour’s Corda-based DLT network.
Based on the insights that emerged, the RBIH has announced that it will be facilitating the adoption of DLT at scale by also working with the Indian Bank Blockchain Infrastructure Company, a consortium of 18 banks that was formed in June 2021.
“As the host of G20 this year, India has placed digitisation as a priority. New Delhi recognises that digital transformation will drive economic change. Whether it’s in manufacturing or trade finance, there is an excitement and energy behind digital developments.”
– Chetan Talwar, Head of Global Sales, Contour
This is the start of an exciting journey to see an interoperable DLT platform in the Indian banking industry. A DLT platform can bring together the disparate islands of data which currently characterise trade finance. The ability to connect data from various trading partners in the trade finance workflow is a game-changer. The result? A seamless, end-to-end trade solution that speeds up and secures transactions.
Strengthening the backbone of the economy
The micro, small and medium enterprise (MSME) sector is the engine of the Indian economy. It is a big contributor to jobs creation, exports and the inclusive growth of the economy. According to the SME Chamber of India, MSMEs account for 40% of total exports and 37% of the country’s GDP.
Digitalisation of this segment can create more opportunities. With just an internet connection through a laptop or smartphone, an MSME owner now has access to digitalisation tools that can transform its business and drive productivity growth.
This democratises access to the world of trade finance and levels the playing field for MSMEs and local banks. It is a known fact that this is a segment of the market that is underserved and struggles to access trade financing. Through Contour’s platform and the ability to digitise the Letter of Credit, MSMEs can manage working capital more efficiently, translating to greater potential to grow their businesses.
Tap into the world of Digital Letters of Credit and learn how Contour can transform your trade finance processes using Distributed Ledger Technology. Contact us here.