The Narendra Modi government plans to leverage its flagship Jan Dhan Yojana (JDY) as well as the Aadhaar cards issuance programme to make India a ‘less-cash’ economy on a similar ‘mission mode’ with clearly defined outcomes and timelines.
It is planning a mega scheme with incentives for the country’s over 14 million mom-and-pop stores in the unorganised retail sector and consumers to adopt digital payment systems, say finance ministry sources.
Since its August 2014 launch, JDY has helped open 13 crore bank accounts, issue 11 crore RuPay cards and mobilise Rs 11,000-crore deposits, besides a Guinness record for the most bank accounts opened in a week.
To ensure that cash transactions fall substantially, the government may also soon sign MoUs with the Bill & Melinda Gates Foundation, USAID and the Better Than Cash Alliance (BTCA). Incidentally, the US-India joint statement after President Barack Obama’s visit said India intented to join the BTCA.
The incentives could include exempting kirana stores from tax/cess when sales to customers involve small-value payments (of, say, Rs 1,000) electronically via debit/RuPay cards (through point-of-sale devices) or through mobile-to-mobile payments. This will not only bring more kirana stores under the tax net and to the organised sector, but these retailers will also gain — delays and costs associated with the cash-based system will be eliminated. India’s retail sector is estimated to nearly double to over $950 billion by FY19.
To encourage more consumers to choose e-transactions, a separate deduction limit is being thought of for debit/RuPay card-based transactions of up to a specified limit (say, Rs 50,000 per year) per person. This is on the lines of the Korean government’s income deduction scheme for individuals to promote debit card payments and its initiatives to stop card firms from imposing high fees on small retailers.
The Modi government is also considering asking the RBI to reduce the transaction fee that merchants pay banks for debit card transactions.
Currently, the fee for transactions up to Rs 2,000 is 0.75% of the transaction amount, and for amounts over Rs 2,000, it is a maximum of 1% of the transaction amount.
Besides, expenses incurred by companies in supporting digital payment initiatives and e-transactions (among the poor and who are newly included in the banking system and the kirana stores) may be counted as a corporate social responsibility (CSR) activity. (The Companies Act specifies that a certain category of companies have to spend a minimum of 2% of their three-year average net profit on CSR activity.)
Tax/duty incentives are being looked at to boost the sale of PoS devices, especially low-cost mobile-PoS equipment, to help facilitate doorstep card payments. As per the National Payments Corporation of India (NPCI, currently the number of non-cash transactions per person (in India) stands at just 6 per year. Only a fraction of retailers in India have card payment acceptance infrastructure — this number stands at just 0.6 million, it said.
Eager to ensure early results, the government wants to push a mobile banking-led model, considering the country has close to 950 million mobile phone users and that smart phone-users are expected to rise from 150 million to 500 million by 2020.
Besides, the number of Aadhaar holders are likely to cross 1 billion this year (from over 730 million now). Over 10 crore Aadhaar numbers have been linked to bank accounts.
Talks are also on with NPCI, whose IMPS Merchant Payments service “allows customers to make instant, 24/7, interbank payments to merchants or enterprises via the mobile phone.” NPCI is launching on February 18 a Unified Payment Interface to “further propel easy instant payments via mobile, web, and other applications.”
As part a proposed ‘national retail policy’, the government is also considering according retail trade ‘industry’ status for better access to bank finance as well as their demand for inclusion of micro/small retailers in the priority sector lending norms.