"Digital payments are to finance what the wheel is to transport," so began the Watal Committee report that came out in December 2016. Rightfully recognising that we are on the cusp of a massive digital revolution, the finance minister in his budget speech outlined various proposals that will accelerate the pace of digitisation in the Indian economy.
Tax sops for enablers
The adoption of digital payments requires supporting infrastructure such as point-of-sale (PoS) or mobile-based equipment. Tax sops in the form of customs/excise duty exemptions have been proposed on miniaturised PoS card readers, fingerprint readers/scanners and iris scanners. Tax exemption for specific components for manufacture of such devices has been mooted to encourage domestic manufacturing of these devices.
There has been a concerted effort to ensure that the digital revolution reaches the unbanked areas of the country and the hinterland. To this effect, introduction of the Aadhaar Pay mechanism will facilitate digital payments by persons without access to a debit card/credit card/mobile wallet. Besides, the Digi-Gaon initiative for education and tele-medicine services in rural areas and digital literacy awareness initiatives through 'Mahila Shakti Kendras' to be set up at the village level will bring about a gradual mindset change.
Digital payments within govt
The introduction of an e-payment framework for all payments made to the government is right on target, and the e-assessment mechanism is likely to be in place in near future
One of the key recommendations of the Watal Committee report was to have an independent regulator for digital payments under the framework of Payments and Settlement Act, 2007 (PSA). The proposed Payment Regulatory Board, to be set up under the RBI, will ensure a proper legal framework to maintain a level playing field amongst various stakeholders. Besides, amendments to the PSA and the Negotiable Instruments Act to regulate the digital economy have been proposed.
A Computer Emergency Response Team (CERT) is proposed to be set up specifically for cyber security in the financial sector under the aegis of the regulators concerned.
Resisting the urge to tax cash transactions above Rs 50,000, the budget has introduced referral and cash-back schemes for the government's BHIM app, following the trend set by private players in the payments space. Staying away from quick fixes, it is essentially a set of progressive ideas aimed at laying a solid foundation for India's digital economy. Once again, however, data protection seems to have been the forgotten stepchild.
Sharanya Ranga is partner at law firm Advaya Legal