In a major move to limit the use of cash in the economy and to promote more organised payments, Finance Minister Arun Jaitley on Wednesday proposed to ban cash payments above Rs 3 lakhJaitley also said the government would reduce the levy on point-of-sale machines. This would mean that for all transactions greater than Rs 3 lakh, while payments of up to Rs 3 lakh could be done in cash, but the remaining amount would have to be paid using other instruments, such as bank cheques, demand drafts, online/digital money transfer.
In another move, which may have far reaching impact on the way political funding is carried out in India, Jaitley also proposed to limit political parties receiving funds from a single source to Rs 2,000. Prime Minister Narendra Modi and the government has been pushing for an increasingly cashless economy, ostensibly to stem the use of unaccounted wealth and keep a better record so as to eventually increase the tax base. It has been promoting more and more digital transactions, following the surprise demonetisation of high-value currency notes on November 8.
The government has ever since announced incentives on using digital wallets in forms of cash-back on making payments for various utilities such as petrol and daily dairy supplies. Indian government has also built India Stack – a set of open APIs contributing towards a digital infrastructure to facilitate cashless and paperless delivery of services through electronic verification, data transfers, digital lockers and more. India stack has drawn praise as being a cutting-edge system from Microsoft’s Bill Gates and Google’s Sundar Pichai.
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Earlier last month, a government panel had also recommended de-incentivising cash transactions, citing India’s cash-GDP ratio of 12% – the highest in the world. The panel sought to bring this ratio down to 6% in three years.
Use of digital wallets and payments banks has indeed surged in India, following demonetisation, which sucked out 86% of the currency from circulation, leaving people scrambling for cash to meet their daily needs.
Paytm – India’s largest mobile wallet by number of users – claims it has over 150 million e-wallet users. Telecom services giant Airtel, which launched a payments bank earlier this month, already enrolled over one million customers during the pilots. Airtel said it will have a network of 250,000 banking points through its retail stores across 29 states from day one – more than the total number of ATMs in the country