Things to look out for in the 'Interim report on Digital payments' filed by panel of CMs

A committee of chief ministers and experts have submitted an interim report on the steps the government can take to transform India into a less cash economy.


A committee of chief ministers and experts have submitted an interim report on the steps the government can take to transform India into a less cash economy. Andhra Pradesh Chief Minister N Chandrababu Naidu was the head of the committee and had announced that the interim report would be submitted to examine all the aspects, after which a final report would be submitted.

The panel included Madhya Pradesh chief minister Shivraj Singh Chouhan, Maharashtra chief minister Devendra Fadnavis, Odisha chief minister Naveen Patnaik, Sikkim Chief minister Pavan Kumar Chamling, Puducherry chief minister V Narayanasamy, Niti Aayog CEO Amitabh Kant and Niti Aayog Vice-Chairman Arvind Panagariya. The report outlines the constraints of digital transactions, the efforts needed to overcome roadblocks, and a guideline to the kind of policy changes necessary.

where-are-we

Image: Niti Aayog

The report shows that India is behind other countries both in number of cashless transactions as well as number of pay points available. Singapore has 31,096 pay points per million people, and the citizens make 728 non cash transactions per person for every year. India only has 1,080 pay points and makes about 11 non cash transactions, per year. The Aadhaar enabled payment system, mobile banking, and plastic cards are methods of digital transactions in India.

There are a number of roadblocks to overcome. One of the biggest is getting people to opt for digital transactions through initiatives to change the attitudes towards digital transactions, as well as the training required to actually use the technologies. Digital transactions are currently costlier than cash transactions, and this makes people prefer to make payments in cash. Hardware, including the infrastructure needed to accept payments such as fingerprint scanners need to be disseminated.

How an ATM attack works. Infographic from Symantec's blog.

How an ATM attack works. Infographic from Symantec's blog.

There is currently few mechanisms to facilitate high value digital transactions. The government has to come up with an appropriate mode and special measures necessary to handle high value digital transactions. Security experts, including Qualcomm have pointed out that there are many vulnerabilities for electronic financial transactions in India. The report identifies emerging financial technologies and their security as a road block. Finally, there is a lack of interoperability between the various pre-paid payment instruments (PPI).

There are three main objectives for tackling the roadblocks. Improving the security, increasing the infrastructure, and creating awareness. NPCI, RBI, the banks, payment gateway providers, telecom operators, Trai and smartphone manufacturers will be responsible for strengthening the security and expanding the infrastructure. Awareness partners, including PSUs, corporates, NGOs and micro-finance institutions will be tasked with changing attitudes and training people to use cashless transactions.

The recommendations by the panel intend to make cashless transactions more attractive than cash. The government wants to give tax relief to merchants who have opted in for cashless transactions. There is also a proposed tax incentive for consumers who spend a part of their annual incomes through digital transactions. Transactions through the Aadhaar Enabled Payment system are to be encouraged by removing Merchant Discount Rate (MDR) charges.

Payment Authentication through biometric scanning. Image: Narendra Bhooshan Twitter: @nbhooshan

Payment Authentication through biometric scanning. Image: Narendra Bhooshan
Twitter: @nbhooshan

On the hardware front, the AEPS linked to biometric scanners has been rolled out in some parts of the country. Merchants can collect money from customers, and the consumers can make purchases without a mobile phone, using biometric fingerprint scanners to authenticate the transactions. The panel recommended extending tax incentives to local manufacturers of biometric fingerprint scanners, as well as micro ATMs. Fingerprint and iris scanners are to be provided at 50 percent subsidy by the government.

Aadhaar is to be made the primary mechanism for know your customer. Although the government wants to introduce new methods for making large payments, the panel of chief ministers have recommended levying the banking cash transaction Tax (BCTT). There are lower MDR rates proposed for transactions made to governmental institutions. Finally, the panel recommends that government run institutions and organisations go completely digital in their own transactions.

The recommendations of the report will be considered and deliberated over by the government. Based on feedback from stakeholders, the final recommendations are expected from the panel.


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