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Wednesday, October 08, 2025

Digital ecosystem - Newspaper Summary

 The sources describe India’s Technology and Digital Ecosystem in October 2025 as a dynamic area marked by aggressive regulatory intervention focused on stability and security, strategic private investment in emerging technologies like Artificial Intelligence (AI), and a concerted government push toward indigenous digital platforms to assert technological sovereignty.

1. Digital Finance and Regulatory Imperatives

The Reserve Bank of India (RBI) and related bodies are actively shaping the digital financial ecosystem, focusing heavily on security, inclusion, and next-generation infrastructure.

Securing Digital Payments (UPI)

A major regulatory action was taken to secure the highly popular Unified Payments Interface (UPI). The National Payments Corporation of India (NPCI) phased out the “collect request” option for peer-to-peer (P2P) transactions starting October 1, 2025, to combat financial fraud.

  • Rationale: The collect request feature had become a vulnerability, exploited by fraudsters who tricked users into entering their UPI PIN to transfer money out of their accounts, disguised as incoming payments (e.g., in online marketplace or lottery scams).
  • Impact: The withdrawal of this feature is seen as a decisive step to combat the surge in fraud, placing control back in the hands of the payer and strengthening the security framework of digital payments. This move signals India's willingness to make trade-offs between convenience and user security.

Fintech Market and Regulation

Fintech remains a major investment area, but one heavily influenced by regulatory oversight:

  • Fundraising and IPOs: The period saw a rush among mid-sized fintechs aiming to tap public markets. TPG-backed online lending platform Fibe hired bankers for a potential IPO (mid-to-late next year), aiming to raise ₹1,000 crore to ₹1,500 crore at a targeted valuation exceeding $1 billion.
  • Regulatory Impact: Regulatory actions have a significant business impact. The financial slowdown experienced by Cashfree Payments India Pvt. Ltd, resulting in flat operating revenue, was largely driven by a regulatory pause (embargo) placed by the RBI on onboarding new merchants.
  • Inclusion Mandate: RBI Governor Sanjay Malhotra mandated that fintech companies design products that are accessible, inclusive, and tailored for underserved populations. He urged fintechs to leverage India's Digital Public Infrastructure (DPI) to set up quickly and scale rapidly.

Next-Generation Infrastructure

The RBI is conceptualizing advanced digital infrastructure:

  • Unified Markets Interface (UMI): The RBI is conceptualizing the UMI as a new, next-generation financial market infrastructure. This interface will have the capability to tokenize financial assets and enable settlement using wholesale Central Bank Digital Currency (CBDC). Early efforts and results from the inaugural CBDC pilot are described as "encouraging".
  • Security for the Future: SEBI, the securities market regulator, is proactively bracing India’s markets for the existential threat posed by quantum computers, which could break current encryption standards. SEBI is working toward implementing a quantum-safe computing system by 2028 or 2029.

2. The Strategic Role of AI and Competition

AI is both a major driver of investment and a source of competitive and regulatory scrutiny in India.

Investment and Market Disruption

  • Venture Capital Focus: VC firm Z47 (formerly Matrix Partners India) is shifting its focus, prioritizing investments in startups that are AI-led wealth-tech and fintech. The firm sees wealth management as particularly suited for AI due to its consultative nature.
  • Global Players Entering: Global AI start-up Anthropic (backed by Google and Amazon) plans to open its first office in India in 2026, recognizing India as its second-largest consumer market for its chatbot Claude.
  • IT Services Challenges: The rise of AI poses an existential risk to legacy IT services firms like Tata Consultancy Services (TCS). TCS is planning layoffs of 2% (12,000 engineers) and has been restructuring its internal AI strategy, reflecting significant turbulence in the sector. AI is expected to structurally reduce the demand for a medium-skilled workforce in the IT industry.

AI Regulation: Pragmatism over Prescription

The Competition Commission of India (CCI) is tackling the competitive challenges presented by AI:

  • Risks Identified: The CCI's study on AI identifies risks such as algorithmic collusion (where pricing algorithms align tacitly without human agreement) and data concentration (where firms with large datasets become 'AI gate-keepers').
  • Regulatory Approach: India is avoiding rigid AI legislation, unlike the EU. Instead, the CCI study suggests a pragmatic and incremental approach, favoring the use of regulatory sandboxes, pilots, and self-audit frameworks to maintain flexibility and foster innovation. This strategy aims to mitigate risks without stifling the growth of startups. The goal is to ensure fair competition and greater market transparency.

3. Indigenous Technology Push (Swadeshi Tech)

The Indian government is actively promoting indigenous technology to ensure digital sovereignty and prevent "digital colonisation" by global tech giants.

  • Zoho's Consumer Bet: Enterprise software company Zoho Corporation is making a big bet on consumer technology, evidenced by the viral attention received by its messaging app, Arattai. Arattai saw downloads exceeding 10 million after Union Ministers publicly promoted it.
  • Government Support: Ministerial support is integral to this push, with the Minister for Railways and IT, Ashwini Vaishnaw, shifting to the Zoho Office Suite, following Prime Minister Narendra Modi’s strategic agenda of building indigenous social media platforms.
  • Challenges and Future Plans: Zoho faces the daunting challenge of competing with giants like Meta’s WhatsApp, which has half a billion users in India. To gain user stickiness and monetize, Zoho is exploring features like UPI integration, commerce via the ONDC network, and business accounts within the Arattai app.
  • Indigenous Telecom: India achieved a major milestone by joining a select list of five countries globally that possess the capability for the Made in India 4G Stack.

4. Connectivity, Infrastructure, and Regulatory Overreach

The connectivity landscape is driven by significant infrastructure investment, even as established players voice concerns over uneven regulatory treatment.

  • Satellite Communication (Satcom) Growth: The Indian satcom market (including telecom and broadcasting) was valued at $4.3 billion last year and is expected to triple to approximately $14.8 billion by 2033.
  • Government Oversight: The Union telecom minister announced an investment of ₹900 crore to establish a National Satcom Monitoring facility to safeguard the country’s spectrum assets and data resources.
  • Rural Focus: Starlink, one of the three private constellations licensed for satellite broadband services in India, stressed that utilizing its network capacity depends on bringing rural residential users into the fold, noting that the capacity it can serve in metro areas is significantly lower than in rural districts.
  • Telecom Regulatory Tensions: Bharti Airtel’s MD Gopal Vittal flagged concerns regarding increasing regulatory overreach in the telecom sector, arguing that mobile network operators face a disproportionate regulatory burden compared to other players in the digital ecosystem, specifically Over-The-Top (OTT) communication apps like WhatsApp and Telegram. Telcos have a long-standing demand for the government to bring these OTT apps under regulation. The government, however, stated its commitment to ensuring regulation without stifling innovation, promoting futuristic technologies like 6G and quantum computing in a mission mode.

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