On the face of it, the Ratan Watal-headed committee on digital payments has dealt with many important pressure points as far as digital payments in the country are concerned. It asks for interoperability among various digital payment providers like wallets and banks and sets a two-month time-period in which all issues like restrictions on payment service providers (PSPs) had to be fixed – recall SBI’s tweet some days ago, where it told a customer that loading his PayTM wallet from the SBI internet banking had been disabled, and recommended he used SBI’s Buddy-wallet instead.
Should interoperability not happen, the panel says this “could lead to the creation of multiple ‘islands’ of PSPs, thereby reducing the value that can be derived by customers out of the services provided by a particular PSP” – had such interoperability not been mandated by the telecom regulator, in return for a fixed/regulated fee structure, India wouldn’t have the vibrant telecom market it has today. Similarly, on the MDR charges paid to banks for using their POS machines – these have been reduced to zero by the government to popularize digital payments – the committee says “the present statistics suggest that capping of MDR has slowed the growth of deployment of POS terminals”.
Where the panel gets it horribly wrong is in its desire to halve India’s cash-to-GDP levels, to 6% in three years – indeed, the government is in talks with RBI to figure out how much of the demonetized cash should be replaced, in an attempt to force more use of digital payment mechanisms.
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Watal assumes, incorrectly, that India uses too much cash because of its black economy – reduce this, and the black economy gets squeezed. At 20.8%, Japan’s cash-to-GDP is higher than India, but everyone acknowledges it as a cleaner economy; ditto for Singapore whose cash usage at 9.3% is higher than Russia’s 8.8%. Cash usage has a lot to do with the structure of an economy, its degree of formalization, customs and laws – with labour laws being what they are, many employers prefer cash payments to avoid a formal trail; if an inspector requires a bribe, how will less cash stop this; ditto for political parties and their ever-growing need for cash? India’s famed poor infrastructure is also a big hurdle.
There is no doubt India has come up with impressive solutions – NPCI working to simplify the complicated USSD payments will help the 350 mn with feature phones to go digital and the Aadhaar-payments app will help the 450 mn without phones. But this doesn’t do away with the problem of poor internet penetration – just a fourth of Indians have internet connections. And it doesn’t take into account the time, and money, required to change people’s habits – in FY16, for instance,
And it doesn’t take into account the time, and money, required to change people’s habits – in FY16, for instance, Paytm’s losses rose four-fold to Rs 1,549 crore due to the cashbacks it had to offer to popularize digital spending and the marketing effort it needed to make. For an otherwise well-argued report, the overarching ambition – sans reason – is a fatal flaw.