The Ministry of Finance’s Economic Affairs Deprtment isn’t answering the question on whether the recommendations of the Watal Committee report (download), which pushed for a comprehensive overhaul of the regulation of digital payments in India, are binding on it. They possibly can’t claim that they are, because the government has missed every deadline set by the report for implementing changes. However, what the government has done, is amend the Payments and Settlements Act to facilitate the creation of the Payments Regulatory Board, as a means of making payments independent of the functions of central banking.
In response to an RTI filed by MediaNama, the Department of Economic affairs of the Finance Ministry has also outlined which department is looking into implementing which aspect of the Watal Committee recommendations but declined to specify a timeline for implementation (despite the fact that we requested for one). The Watal Committee report was finalized on 9th December 2016, and each deadline has been missed. This looks it will take a few years to implement, and we still have nothing on ensuring interoperability and improving governance at NPCI and addressing the RBI’s lack of neutrality.
Department of Economic Affairs, Ministry of Finance
12 tasks in all, the most among departments, one of which is shared with MEITY.
- R1: Make regulation of payments independent from the function of central banking. This included the setting up of the Payments Regulatory Board, independent of the central banking function of the RBI, although, in a conflict between regulations, the RBI will prevail. Deadline: 9th January 2017
- R2: Update current Payment and Settlement Systems Act, 2007 to provide for (i) competition and innovation; (ii) consumer protection including graded penalties and independent appeal mechanisms; (iv) open access (v) regulations on systemic risks; (vi) transparent and smart regulatory governance; and (vii) data protection and security. A part of this was meant to be ensured by the Payments Regulatory Board, but other measures such as enabling open access to authorized payment service providers (like wallets) by payment systems (such as UPI), in a non-discriminatory manner, still haven’t been implemented. There is also no clarity on data protection. Deadline: 9th January 2017.
- R4: Create a fund from savings generated from cashless transactions – Create and utilize Digital Payments Action Network (DIPAYAN). To be used for “public education about digital payments, incentivise higher usage of digital payments among socially and financially excluded, and help improve equitable outreach to women through women’s self-help groups, MGNREGA, outreach through women teachers, women ICDS and NHM functionaries, digital coupons in government co-operative store or fair price shops, extending additional seed capital to women’s self-help groups, priority digital cards for skill development etc”. Deadline: 9th February 2017
- R7: Consider outsourcing of payment systems. This includes systems such as RTGS and NEFT. Deadline: 9th June 2017
- R8: Consider updating payment systems to operate on 24*7 basis. This includes RTGS and NEFT. Deadline: 9th March 2017
- R9: Allow non-bank PSPs direct access to payment systems. This includes legal obligations on all direct Payment Systems Providers to not unfairly discriminate between authorized indirect payments system providers in providing access. The RBI was to issue regulations imposing this legal obligation. Deadline: 9th February 2017
- R10: Improve shareholding and governance of retail payment organizations. This was because of the poor governance and transparency at the NPCI, and the suggestion was to classify it as an SIFI (Systemically Important Financial Institution) by the government of India. Deadline: 9th February 2017
- R11: Enable interoperability (between bank and non-banks – such as wallets – and within non-banks). “This would enable almost all of adult population to transact money digitally on their phones using their Aadhaar or phone number. This would enable open loop non-bank wallets”. The idea was to create an interconnect regime between entities. Deadline: 9th February 2017
- R12: Create a formal mechanism to allow innovations and new business models. Essentially create a regulatory sandbox to carve out a safe and conducive space to experiment with FinTech. Deadline: 9th April 2017
- R13: Other Measures – Regulations on SIPS (Systemically Important Payment System) and SIFI (Systemically Important Financial Institution). Deadline: 9th June 2017
- R13: Other Measures – Promote cross-border payments. That “non-bank PSPs be permitted to bring inward remittance without the need to depend on a bank. RBI should allow non-bank players to act as Indian agents under the Money Transfer Service Scheme (MTSS) and issue PPIs to approved Overseas Agents.” Deadline: 9th February 2017
- R6: Other Measures – Create parity between cash and digital payments. This includes ensuring that transactions in cash that don’t require KYC to be allowed on digital without KYC, requiring all government agencies and merchants to provide at least one digital payment option to their consumers and vendors. Deadline: 9th March 2017. Note: this task is shared with MEITY
Ministry of Electronics and Information Technology (MEITY)
8 tasks, and the most complexity, given that three of the tasks are shared with other departments
- R3. Promote digital payments within Government – POS and mobile based acceptance infrastructure
- R5: Create a ranking and reward framework. This is meant for giving awards across key institutions, states and/or district for reaching higher thresholds of usage of digital payments. Deadline: 9th March 2017.
- R6: Other Measures – Create awareness and transparency. Deadline: 9th March 2017
- R13: Other Measures – Support POS, card based and other digital transactions. Deadline: 9th February 2017
- R13: Other Measures – Develop metric for digital payments, to “quantitatively measure and monitor the enhancement of digital payment services in India. This would entail categorically defining the scope of digital payment services, and identifying the various strategies required to objectively improve the digital payments ecosystem.” Deadline: 23rd December 2017
- R6: Other Measures – Implement disincentives for usage of cash. Deadline: 9th March 2017. Note this task is shared with Department of Financial Services and Department of Revenue.
- R6: Other Measures – Create parity between cash and digital payments. Deadline: 9th March 2017. Note: This task is shared with Department of Economic Affairs.
- R6: Other Measures – Promote USSD based payments. Deadline: 9th March 2017. Note: This task is shared with Department of Telecom and Department of Revenue
Department of Expenditure, Ministry of Finance
6 tasks, none of them shared with other departments.
- R3. Promote digital payments within Government – Withdraw charges/ fees/ surcharges, etc. The committee had recommended that the government should withdraw “convenience fee/service charge/surcharge presently being levied by some departments/agencies (utility service providers, petrol pumps, railways, airlines, contributions to Relief Funds etc.) on customers for making electronic payments (C2G payments).”
- R3. Promote digital payments within Government – Bear cost of electronic transactions. The committee had recommended that “The Committee recommends that when government acts as a merchant, it should bear the cost of electronic payments and not pass them on to consumers”.
- R3. Promote digital payments within Government – Facility for online payments using cards and wallets. “For example, currently, taxes can only be paid using net banking due to the manner in which the payment systems are designed. CBDT and CBEC should develop an e-commerce based model where their web portals generate the tax challans and accept payments from all electronic modes.”
- R3. Promote digital payments within Government – Provide digital alternatives to cheques. “Mandate that government agencies and organizations should not insist upon cheques including post-dated cheques and instead allow for at least one alternative digital payment mode, including for advance payment.”
- R3: Promote digital payments within Government – Utility bills and payments to Government through digital mode. Deadline: 9th January 2017
- R4: Create a fund from savings generated from cashless transactions – Mechanism to track cash handling and transitioning to digital payments. Deadline: 9th February 2017
Department of Financial Services, Ministry of Finance
3 tasks, one of which is shared
- R3: Promote digital payments within Government – Mandating use of TReDS. More on TReDS here.
- R13: Other Measures – Enable faster and cheaper credit. That Credit Information Companies ” be allowed access to alternate data from like non-financial sources like telecom and utility bill payments etc. Measures involving regulatory changes or executive decisions page 168 This can be enabled by RBI. “. Deadline: 9th February 2017
- R6: Other Measures – Implement disincentives for usage of cash. These include:
- Permit merchants including government agencies to levy a cash handling charge for payments in cash above a certain threshold. The cash handling charge so collected should be exclusively used fund new infrastructure for acceptance of digital payments (like POS devices).
- Gradually reduce threshold for quoting of PAN for cash transaction in banking from Rs 50,000 and for similarly for merchant/other transactions where the current threshold is Rs 200,000. Include quoting of Aadhaar as an alternate (over other KYC) for natural persons not having PAN or who are not required to obtain PAN as per provisions of section 139A of the Income Tax Act, 1961. Deadline: 9th March 2017. Note this task is shared with MEITY and Department of Revenue.
Department of Revenue, Ministry of Finance
5 tasks, two of which are shared with other departments
- R3: Promote digital payments within Government – Remove customs and excise duties (onMicro ATMs used by Business Correspondents; Fingerprint readers and biometric readers either as spare parts or as integrated Electronic Data Capture (EDC) machines / POS terminals; EMV chip and Personal Identification Number (PIN) card). Deadline: 9th January 2017.
- R3: Promote digital payments within Government – Service tax input credit for digital transactions. Deadline: 9th January 2017
- R6: Other Measures – Promote eKYC and paperless authentication. This includes using Aadhaar eKYC and eSign to replace paper, usage of Aadhaar KYC where PAN hasn’t been obtained, making Aadhaar compulsory for Income Tax returns, and making Aadhaar the primary ID for KYC. Deadline: 9th March 2017
- R6: Other Measures – Implement disincentives for usage of cash. Deadline: 9th March 2017. Note this task is shared with Department of Financial Services and MEITY.
- R6: Other Measures – Promote USSD based payments. Deadline: 9th March 2017. Note: This task is shared with Department of Telecom and MEITY
Department of Telecom
One task, which is shared
- R6: Other Measures – Promote USSD based payments. Deadline: 9th March 2017. Note: this task is shared with MEITY and Department of Revenue.
Editors Note: We’ll be filing follow up RTI’s for getting information on the progress in many of these cases. In case you have any ideas or suggestions for us: email@example.com