Demonetisation: Special fund to aid spread of digital payment infrastructure

Gaurav ChoudhuryMoneycontrol

The government will likely set up a dedicated fund for subsidising digital payment infrastructure in the country as part of the push towards electronic transactions and reduce dependence on cash.

The fund, likely to be announced in the budget for 2017-18 on February 1, is based on the recommendations of a panel, headed by Ratan P Watal, Niti Aayog Principal Advisor and former finance secretary.

“The setting up of a financial inclusion and digital infrastructure acceptance fund is being explored to create formulae-linked acceptance infrastructure,” said a government source.

The Watal-committee, which submitted its report on measures necessary to push digital payments, has recommended creating a new “Digital Payments Incentive Fund” resourced from the Centre’s savings generated from the movement towards less cash.

The details of the how the fund will be deployed for creating PoS-based infrastructure in rural and remote areas, particularly in sectors such as health and public services, are currently being worked out, sources said.

All market participants and institutions may be allowed to use the fund to finance innovative solutions for adopting digital payments.

For instance, a village panchayat may be allowed to draw money from the fund to aid creation of PoS and other digital payment infrastructure in its area, sources indicated.

Besides, the fund will also be used to “promote public education and acceptance of digital payments, as well as changing expenditure-related habits.”

This could be by incentivising greater usage of Jan Dhan accounts for digital payments above a certain threshold by more vulnerable communities and individuals.

These would include those living below the poverty line, SC, ST, minorities, people with disabilities, people living in remote areas with no banking access, areas with connectivity problems and natural calamity affected areas among others.

The government is also framing a mechanism for cashback—similar to the ones that mobile wallets operate—transactions through cards and digital means.

This special corpus will also fund this cash back or a discount on price incentive system that will be introduced on digital payments made for government services and public utilities.

Prime Minister Narendra Modi in a surprise announcement scrapped Rs 500 and Rs 1000 notes, taking away their legal tender status from midnight of November 8.

The government has pitched the move as part of a broader strategy to clamp down on India’s bustling parallel economy where deals take place in cash as well as ushering India to “less-cash” society.

The demonetisation move had set in motion the world’s largest currency culling exercise with people given 50-days to deposit old notes in banks and post-offices by December 30, 2016.