Budget 2017-18: Digital push towards cashless economy
Prime Minister Narendra Modi Demonetisation scheme was an initiative planned in secret by a group of insiders to demonetise Rs.500 & Rs.1000 currency notes. This was a massive step to fight against black money and digital economy.
This government move led to widespread adoption of online payment and digital wallet options have suddenly gained traction. This also calls in for resilient technology players that can help enable such an environment along with the government. India had an internet base of about 354 million in June 2015 which is expected to cross 500 million mark this year. This gives an opportunity to online players to enter the market along with the fact that India is largest internet market globally according to a report by Morgan Stanley research. A significant growth in purchasing power in tier II and tier III cities along with the widespread reach of the internet servers is also pushing online growth.
Amidst this the Union Budget of 2017-18 seems to be taking this move of digital economy further. With the launch of various schemes in this budget Finance Minister Arun Jaitely gives a push to digital economy. The propositions made in the budget are in sync with the idea to discourage use of cash and digitise Indian economy. The government has pushed the digital theme in every area of the budget.
To reach the goal the government has proposed various schemes, to promote the usage of BHIM app for digital payment. Under this the government has launched two schemes the referral bonus scheme for individuals and cash back scheme for merchants. This move will give a positive dimension for online payments by merchants as well as individual.
Aadhar pay, a merchant version of Aadhar Enabled Payment System is to be launched for the benefit of those who don’t have debit cards, mobile wallets or mobile phones. A mission will be set to target 2500 crore digital transactions for 2017-18 through UPI, USSD, Aadhar pay, IMPS and debit cards. Over 111 crore of the 125 crore people in India have Aadhar cards. Out of this 49 crore have bank accounts linked to Aadhar. This will help overcome the glitches in digital transactions prerequisites. Digital payments leave a footprint which helps to track every transaction that will help bring a large portion of the parallel economy into the formal sector, widen tax net, and increase government revenues which can be used for developing infrastructure and digital economy mission.
Roll out of 10 lakh new Point of Sales (PoS) terminals by March 2017. This will help eradicate lowest PoS terminal penetration in the world and also help nurture better card based payments. This initiative would facilitate bank agents to operate on the field, doing transactions for their customers in an effective manner. Measures are also taken to improve biometric authentication responses which would help Aadhar enabled PoS to be an alternative payment system.
The government in the budget is also focussed on enhancement of connectivity. For the same an allocation of Rs. 10,000 crore will be provided to the existing BharatNet project. This initiative will provide 1.5 lakh gram panchayats with hotspots and access to digital services at low tariffs. If done, this will solve network issues and connectivity in rural areas and will drive digital growth.
Also to boost digital payments Union Cabinet has decided to remove service tax on e-tickets booked online through IRCTC website. Also there would be waiver of duties on components and devices used in cashless transactions.
In the budget, Finance Minister mentioned that digital transactions would increase which will enable small and micro enterprises to seek formal credit. Government would encourage SIDBI to refinance credit institutions which provide unsecured loans to borrowers based on transaction history.
The minister also plans to ban cash withdrawals over Rs. 3,00,000 from April with a view to move to less cash economy. While payment upto Rs. 3,00,000 can be done in cash but for the remaining payment you need to use other modes of payment.
It has also promised to create Payments Regulatory Board in the Reserve Bank of India by replacing the existing board.
Finance Minister also assured that it will consider and work with various stakeholders for early implementations of the interim recommendations of the Committee of Chief Ministers on digital transactions.
We hope you enjoyed this article. For regular updates from the world of financial markets, subscribe us via email and we will deliver our next article, right in your mailbox!