By Indraneel Pinnamshetty
In an attempt to catalyse the digitalisation of payments, the government is considering providing a 2% incentive over the applicable GST tax rate. The reduction of the tax rate is particularly limited to digital payments, on bills up to Rs 2,000.
According to latest sources, the proposalwhich may give the benefit in the form of a discount or cash-backis being discussed among finance ministry, RBI, Cabinet Secretariat and the Ministry of Electronics and IT.
Dampening digital atmosphere
Since November 2016, the government has been attempting to alienate customers long tradition of cash is king and promote embracing digital alternatives. This attempt to spark the idea of cashless transactions to perpetuity is being challenged lately as the number of electronic transactions has fallen to low levels. A report by RBI, quantifying this trend, states that only Rs. 84 crore transaction were recorded in June 2017, against a peak of Rs. 89 crore in March 2017.
Last mile connectivity
With incentives in favour of digital transactions, the demand side of digital payments is well established. It is the supply side that requires immediate interventions to improve the numbers related to electronic transactions.
A significant roadblock to the growth of digital payments in urban areas is the recurring cost incurred through maintenance of the technology infrastructure to the merchants. The major component of this increase in costs for the merchants is, surprisingly enough, the telephone bills which have more than trebled. Similarly, in the countryside, traditional fear of unknown technologies has made people unreceptive to digital payments.
Without educating the rural masses about the benefits of digital technologies, without simple interventions like changing English numerals on electronic devices to local languages, the government can only provide half-baked solutions to digitalise payments in India.
Consumer safety in the digital world
Advocating and embracing digital technologies is not more important than installing systems that protect and perpetuate their continuance.
Digital payments appear idealistic, yet they face fundamental problems in their functional necessities. A case in point is the laws governing e-wallets. E-wallets do not fall under the purview of standard banking laws. This makes them open to ambiguity and further distortion of consumer and producer rights.
Since there is an absence of rules by the RBI, it is section 43A of the Information Technology(IT) Act which is the sole clause for providing security and privacy of the information held by the private corporations. Fintech corporations like e-wallets are mandated to maintain reasonable security practices and procedures under section 43A of the IT Act. Without a way to evaluate the implementation of these security measures, there is a possibility that fintech firms may bypass the laws.
Does less cash equal less corruption?
The provision of 2% tax incentives to consumers is a prudent policy to restore the desired numbers in electronic transactions. Although the policies are apt, it is the objectives of less-cash economy and digital transaction that are flawed. The Modi government, among other objectives of a less-cash economy, has been emphasising on a corruption-free society. However, taking clues from global experiences, less-cash economy is not the necessary driving force to achieve low corruption levels.
Countries like Malaysia and Greece are similar to India in terms of Cashless Consumer transactionan index representing the extent of cashless transactionsyet score better than India in terms of CPI, which is a widely established index for corruption developed by Transparency International. Similarly, Brazil has the required macroeconomic conditions to opt for a cashless economy. It also has 7 times more cashless transaction presence than India but nevertheless, is said to be equally corrupt as India.
This evidence points out the possible pitfalls and the means through which the digitalisation exercise is reaching out for its objectives. It is imperative for the government to tackle crucial problems of the nation by omitting generic solutions and embracing those that are tailored according to the contextual needs of the country.
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