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Mrinal Sinha

Mrinal Sinha is the COO of MobiKwik.

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Digital Platforms to Lead India into a Formal Economy

Budget proposals will boost consumption levels, given that almost 70% of the population resides in rural regions.

Union Budget 2017-18 aims to strengthen the digital payments infrastructure across the country by bringing a major segment of the informal economy into the formal purview. This concerted digital push will help India transforms into a less-cash and more tax-compliant economy.

Considering its rural thrust, the Budget proposals will boost consumption levels, given that almost 70% of the population resides in rural regions.

Simultaneously, the focus on digital payments will drive tremendous transformation in the payment habits of a majority of India’s 1.3 billion people. The digital drive will benefit rural areas too by promoting financial inclusion.

Moreover, better transparency in incomes and the tax trail of transactions will lead to new taxpayers coming under the income tax ambit for the first time, increasing Government revenues. These could later be deployed fruitfully for development purposes, particularly in improving the lives of the have-nots.

The upgradation of digital infrastructure to support cashless transactions in rural and semi-urban zones would encourage more merchants and consumers to transact on non-cash online platforms.

Meanwhile, some concerns exist about the inadequate infrastructure requiring a speedy build-up in order to meet the demand for additional PoS (point of sales) terminals. The 1.5 million PoS terminals throughout India are inadequate to service the needs of a vast nation.

Acknowledging this shortfall, the Budget mentions a plan to build the necessary infrastructure in supporting cashless transactions with a focus on rural and semi-urban areas. Post offices, fair price shops and BCs (banking correspondents) are to be used in promoting cashless transactions. Finance Minister Arun Jaitley also stated that a million PoS terminals will be operational in March, with an additional two million Aadhaar-enabled PoS terminals being introduced by September.

Besides infrastructure, there are concerns relating to security and privacy, while promoting cashless means of financial transactions. Apart from strengthening the digital payments network, the Finance Minister announced a grievance-redressal mechanism would be in place.

Digital payment means, which include the BHIM app, will support transactions at various outlets, municipalities, block offices, RTOs, hospitals as well as academic institutions. A proposal is also being considered that mandates all Government spends beyond a certain threshold being made via electronic means only. A mission is being established to target 2,500 crore digital transactions in FY2017-18 via UPI (Unified Payment Interface), USSD (Unstructured Supplementary Service Data), Aadhaar Pay, IMPS (Immediate Payment Service) and debit cards.

The Budget reveals steps will be taken to implement suggestions by the Chief Ministers’ Panel on Digital Payments, whose final report is expected soon. As per recommendations in this report, the Payments and Settlement Act 2007 will witness amendments.

Another welcome step is the RBI having a new Payments Regulatory Board, which will replace the existing Board for Regulation and Supervision of Payment and Settlement Systems. This has been a long-pending demand of m-wallet companies.

Finally, reducing corporate tax for medium and small-scale enterprises from 30% to 25% should help in attracting more investments, ensure a big push for domestic industry and indirectly help the country in achieving robust GDP growth.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house

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Digital platforms Formal Economy Post Budget Analysis

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