As India wakes up to an incredible digital dawn the country’s marginal and mid-level income group has suddenly grabbed the limelight considering the focus and spread of the ‘Digital India’ drive being promoted by the government.
The ‘Digital India’ drive has empowered the country to present a powerful case on the global platform seizing the attention of not only the top CEO’s of the Silicon Valley but also the sort after bureaucrats, policymakers, regulators, researchers and technology innovators back home.
Now, while the government is moving towards ‘Digital India’ it also needs to be ensured, that economically too the country adopts a digital model. And within the economy if money is not digital it may lead to huge friction while serving the macro objectives in the long run.
With the Indian economy growing resilient to encompass the next wave of growth, crafting a cashless economy with technology as the key enabler is all set to help reduce corruption, plug leakages, better target beneficiaries of subsidies, and accelerate financial inclusion.
The government has undertaken multiple initiatives to drive digital cash usage within the economy. The finance ministry has already moved a cabinet note on facilitating electronic transactions more widely, in line with the government’s vision and it is the first time that the government and the policy makers of the country have realized the essence of digital money for the ‘Digital India’ mandate.
At the macro level, paperless transactions through the internet, ATM, cards and mobile devices have surpassed paper-based ones for the year March ‘15, reiterating the fact that Indians are transacting towards the digital structure. However on the consumer side, the great divide still pertains and with the upcoming budget to be unveiled on the 29th of February the expectations are high that it will spell out some key measures as described below to incentivize digital transactions within the economy. Bringing about the parity
Fundamentally the true competition for digital money within the consumer world is ‘cash’. Though cash comes with risk attached, possibility of getting misused and amply promotes black money, it has its own competitive advantages of being universally acceptable, fungible and is inclusive in itself. Hence for digital money to compete in a cash heavy society, it is extremely critical that the government undertakes initiatives to bring about parity between the two structures.
Easy accessibility to e-payment instruments is another critical factor that the government needs to address. The whole process of acquiring any e-payment instrument is cumbersome. Know your customer (KYC) norms therefore acts as a deterrent towards introducing more Indians into the formal financial fold vis-à-vis cash which is immediate, better and a more convenient option for the masses. Hence in order to make e-payments more accessible through prepaid instruments the government needs either simplify the KYC norms or should look at introducing zero KYC with restrictions only on cash withdrawals and forex transactions.
Also it needs to be realized that the rift between the physical and digital eco-systems is almost irreplaceable considering the nature of cash, its powerful alignment to the centre, the RBI which issues it and the backing it receives from the government. Addressing this concern, the RBI can look at setting up a digital money issuing or an e-currency infrastructure which would be at par with cash and regulated just like cash. This would gradually bring in the parity between money and currency with something that we may address as e-currency. Digital Money ecosystem
The digital money ecosystem needs to be perceived as a part of the critical national infrastructure, thereby attributing national significance to the entire ecosystem. Hence whoever is a part of this ecosystem needs to be viewed differently so as to support and nurture the digital trend which is currently naïve in the industry.
While the e-payment industry continues to ensure that more and more Indians have access to e-payment instruments, there is no incentive for them to use their card in lieu of cash. In many other cases, there is no ‘point of payment’ infrastructure where these millions of instruments can be used.
The usage of digital money therefore needs to be endorsed through several measures. ‘Incentives to all’ would be a welcome approach to begin with, like an introduction of a rebate on expenses for transactions undertaken digitally, or a tax benefit to the end consumer among others. Even subsidizing the import duty levied on a POS terminal which actually forms a part of the digital infrastructure would indirectly benefit the system.
The government should also plans to do away with the convenience fee charged for online utility bill payments which is another encouraging move towards going cashless. Payments companies are helping in the process of financial inclusion, but their business works on thin margins and longer gestation periods, hence they should be treated at par with other infrastructure development companies which require the government to look into the tax issues of the segment.
The government can also look at providing a tax holiday of about 10-12 years to investors within the digital payments ecosystem. This will help the segment to gain more traction among potential investors enabling them to review the sector with a fresh perspective and with more preference.Disincentivising cash
Apart from promoting the usage of digital money, it is also important that the government disincentivize the usage of physical cash by altering the conventional usage pattern. This could be either done by levying a fee for physical cash transactions beyond a certain limit or imposing compliances for transacting digitally. The RBI should levy a charge on all cash transactions made by any mode beyond a set limit and use the pool to drive consumer awareness programs on the benefits of e-payments. If the source of cash is charged, there will be fewer propensities from consumers to use it and will be encouraged to use the more efficient system of e-payments.
Korea is a classic example which adopted the digital cash practice rapidly. Within a span of approximately eight years the Korean economy moved from a mere 20% to being 80% digital. The system thrived on the government making it mandatory for every retailer to generate a receipt for any transaction conducted at POS irrespective of it being in physical or digital cash which was then diverted to a central system. There was also a limit set for cash transactions conducted which would be treated as exempt and anything beyond that was charged. Thus creating a structure motivating people to bring in more and more into the economy and creating more acceptances for digitisation is something that needs to be conceived for composing the right model.Unified Policies
The policies pertaining to the digital payments need to be unified at the macro level within the government as well as the financial services sector so that more and more things are aligned centrally such that a customer who undertakes a digital transaction is not restricted to any industry standardization. This in turn would not only help reduce duplication of efforts but also allocate a national recognition to the digital infrastructure thus attracting more takers to the digital model driving the digital India mandate. National Awareness Campaign
The government also needs to undertake awareness operations for the digital infrastructure at a national scale, similar to the ‘Make in India’ or the ‘Swachh Bharat’ campaigns thereby owning the entire eco-system, promoting it as a key ‘national agenda’ and enabling its growth across categories, sectors and industries within the corporate and government undertakings.
To further push for cash-less India, it will be critical that prepaid instrument issuance be brought under the financial inclusion targets of the banks and also incentivize them to accelerate the financial inclusion in the country. This would usher in universal acceptance thereby encrypting the digital model seamlessly with in the eco-system which can then be viewed as a huge game-changer for the entire economy. Author is managing director ItzCash Card