Towards Digital Economy in India : Pushing the Right Buttons
Harvinder Singh (Partner), Sharath Chandrasekhar (Partner), Debarupa Agarwala (Senior Associate) & Anshul Verma (Senior Associate)
Digital economy “for speed, accountability and transparency” is one of the ten distinct themes under which Budget proposals for 2017-18 were made by the Finance Minister, Arun Jaitley (FM). In line with the stated policy of the Government, the guiding principle in terms of digital economy has been touted “to clean the system and weed out corruption and black money”. Speaking of the transformative impact in terms of greater formalisation of the economy and mainstreaming of financial savings into the banking system, which, in turn, is expected to energise private investment in the country through lower cost of credit, and benefit the common man, the FM has proposed a number of measures to promote the digital economy of the country. In reality, these have been made to bolster the country’s cashless economy following the demonetization step that was announced by the Prime Minister Narendra Modi on November 8, 2016 and in furtherance of Government’s flagship initiative “JAM- Jan Dhan, Aadhaar, Mobile”.
Some of the key initiatives proposed by the FM include :
- Launch of two new schemes
- a) Referral Bonus Scheme for individuals
- b) A Cashback Scheme for merchants in order to promote the usage of BHIM app for digital payments through mobile phones. According to the FM, 125 lakh people have adopted the BHIM app so far.
- Launch of Aadhar Pay, a merchant version of Aadhar Enabled Payment System, to be specifically beneficial for those who do not have debit cards, mobile wallets and mobile phones. A Mission will be set up with a target of 2,500 crore digital transactions for 2017-18 through UPI, USSD, Aadhar Pay, IMPS and debit cards. Banks have targeted to introduce additional 10 lakh new PoS terminals by March 2017. They will be encouraged to introduce 20 lakh Aadhar based PoS by September 2017.
- Strengthening of the digital payment infrastructure and grievance handling mechanisms, focusing on rural and semi urban areas through Post Offices, Fair Price Shops and Banking Correspondents. Steps would be taken to promote and possibly mandate petrol pumps, fertilizer depots, municipalities, block offices, road transport offices, universities, colleges, hospitals and other institutions to have facilities for digital payments, including through BHIM App. A proposal to mandate all Government receipts through digital means, beyond a prescribed limit, is under consideration.
- The Government will strengthen the Financial Inclusion Fund to augment resources for taking up these initiatives.
- The Government will consider and work with various stakeholders for early implementation of the interim recommendations of the Committee of Chief Ministers on digital transactions.
- The Government will undertake a comprehensive review of the Payment and Settlement Systems Act, 2007 and bring about appropriate amendments. It is proposed to create a Payments Regulatory Board in the Reserve Bank of India by replacing the existing Board for Regulation and Supervision of Payment and Settlement Systems. Necessary amendments are proposed to this effect in the Finance Bill 2017.
- The Government will consider the option of amending the Negotiable Instruments Act suitably to ensure that the payees of dishonoured cheques are able to realise the payments.
In keeping with the cashless economy theme, while presenting the Rail Budget, the FM also announced that service charges have been withdrawn on reservations through IRCTC and e-tickets and that in the last year, cashless reservations have gone up from 58% to 68%, which points towards increased digitization of payments.
Further, to promote cashless transactions, the FM proposed that Business expenses incurred in cash exceeding INR 10,000 will not be allowed as deduction towards business expenditure. Cash donations exceeding INR 2000 will be taxable in the hands of the political parties. Also, in order to claim exemption in respect of donations, political parties are required to file their income tax return within the prescribed date. Cash transactions above Rs. 3 lakh will not be permitted, other than certain specified transactions. In order to encourage cashless transaction for small businesses presumptive tax rate has been reduced from 8 per cent to 6 per cent in respect of receipts received through banking channels or electronic payment.
The initiatives on digital economy have been well received by industry players with startups and technology based companies being quick to appreciate the Government’s line of thought. Most of the measures announced, if implemented well, have the potential to benefit the common man indeed and catapult the country into the league of cashless nations. It should, however, be noted that, while there is a push for digital economy, there are hardly any specific measures incentivizing start-ups in the fin-tech space. In the end, from a review of the proposed initiatives, it can be said that the government is pushing the right buttons in so far as India Inc.’s digital economy aspirations are concerned and is definitely taking steps in the right direction. What remains to be seen is whether these initiatives are implemented in a manner that will lead to substantial digitization of the economy, especially in an economy which has traditionally favoured cash transactions.