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Payments Policy direction from the Economic Survey 2016-17

There are key suggestions related to the approach to policy mentioned in the Economic Survey of India 2016-17 (pdf), released yesterday, and key among them is creating an incentive structure for digitisation of payments. But first, there was a significant change in approach:

1. The approach to digitisation: “In the medium term, the impetus provided to digitalization must continue. A few principles must guide this effort going forward. Digitalisation is not a panacea, nor is cash all bad. Public policy must balance benefits and costs of both forms of payments. Second, the transition to digitalisation must be gradual; take full account of the digitally deprived; respect rather than dictate choice, and be inclusive rather than controlled.”

It’s as if someone writing this had read our post on issues with how India has approached technology policy, wherein it has been robbing people choice instead of giving them options. We had criticized the lack of an incremental approach to policy making, and the digital exclusion being created, which the Economic Survey appears to agree with when it says that policymaking should be inclusive and respect choice.

2. Incentive based approach: “Demonetisation was a potentially powerful stick which now needs carrots as complements”…”Above all, ensuring that demonetization indeed proves a catalyst for long-run changes in behavior will require measures to complement demonetisation with other non-punitive, incentive-compatible measures that reduce the incentives for tax evasion.”

3. Government and RBI must bear the cost of digitisation: “To the extent that digitalisation must be incentivised– and the incentives favouring cash neutralized–the cost must be borne by the public sector (government/RBI) and not the consumer or financial intermediaries”… “Incentivisation should be strictly time-bound because as volumes increase digitalisation should become privately profitable.”

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This is critical: we have written in the past about the lack of parity between cash and digital money, and issues related to MDR. Does this mean that the RBI, which largely represents the interests of banks, will force them to take on the cost of MDR? Does this mean that payments businesses cannot be built relying on MDR?

Also read, by Anand Raman: Cash needs to lose this battle, where he does the math on MDR and suggests ways of charging MDR.

4. Interoperability needed for UPI: “One key need is to ensure inter-operability of the payment system, which will be at the heart of increasing digitalisation going forward, building upon the newly created UPI.”

This largely because the UPI, which is owned by the bank owned NPCI has chosen against interoperability. Read the Watal Committee’s comments on governance at NPCI here.

5. Cybersecurity key in building trust in digital payments: “To increase trust in digital payments, cybersecurity systems must be strengthened considerably.”

Remember that there was a major security breach last year, where 3.2 million debit cards were compromised.

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6. On the use of BIG data: “Finally, it is imperative that the effort to collect taxes on newly disclosed (and undisclosed) wealth does not lead to tax harassment by officials at all rungs of the hierarchy. There must be a shift to greater use of data, smarter evidence-based scrutiny and audit, greater reliance on online assessments with correspondingly less interaction between tax payers and tax officials. At a time when the GST will be providing so much more data on individual transactions, greater information sharing between the direct and indirect tax departments at the centre, along with coordination with the states, could lead to greater compliance through non-punitive means, not just in relation to indirect but also direct tax collections. Big Data and the digital age, and the promise they offer, should also be embraced by the tax administration.”

As Shefaly Yogendra wrote about demonetization: the main game is data.

Written By

Founder @ MediaNama. TED Fellow. Asia21 Fellow @ Asia Society. Co-founder SaveTheInternet.in and Internet Freedom Foundation. Advisory board @ CyberBRICS

MediaNama’s mission is to help build a digital ecosystem which is open, fair, global and competitive.

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