Sunday, January 8, 2017

What is the Government doing to boost Cashless Economy?

In the last two articles we covered why India should move toward a cashless economy as well as whether the move is feasible. Toward the end of the article on whether we move toward cashless system, I had mentioned that the Government of India has offered a lot of Incentives to the Citizens of India to promote this move toward a Digital and Cashless Economy. You will learn about them in this article.

Before we begin: As with many of the recent articles, this is NOT a Politically Motivated article. The contents of this article are entirely my personal views and is not aimed at supporting or opposing any political party.

Why these Incentives?

After the demonetisation of the old 500 and 1000 rupee notes there has been a surge in the number of digital transactions taken up by Indians. In order to further improve this as well as to reduce illegal activities like hoarding black money, hawala, money laundering, tax evasion etc, the Government of India has decided on a package of Incentives to help its citizens continue to use digital means of payment even after new notes are available sufficiently in the market.

What are these Incentives?

Incentive 1: All Central Government owned PSU oil corporations will offer a discount of 0.75% on the sale price of Petrol and Diesel sold through their outlets if payment is made through digital means.

Nearly 4.5 crore customers buy petrol or diesel in such petrol pumps every day totalling to around 1800 crore rupees. Only 20% of these transactions were digital before demonetisation and this number has risen to around 40-50% in the last 2 months. This incentive has the potential to motivate an extra 30% or more customers to move toward digital transactions. This will reduce the cash requirement of nearly 2 lakh crores per year at just petrol pumps.

Incentive 2: The Central Government through NABARD will extend financial support to eligible banks for deployment of 2 POS devices each in 1 Lakh villages with population of less than 10,000.  These POS machines are intended to be deployed at primary cooperative societies/milk societies/agricultural input dealers to facilitate agri-related transactions through digital means in rural areas.

This will benefit farmers from 1 lakh villages covering a total population of nearly 75 crore people who will have facility to transact cashlessly in their villages for their agricultural needs.

Incentive 3: Central Government through NABARD will also support Rural Regional & Cooperative Banks to issue “Rupay Kisan Cards” to farmers to enable them to make digital transactions at POS Machines and ATMs

Incentive 4: The Indian Railways through its suburban railway network will provide a discount of up to 0.5% to customers who purchase monthly or seasonal tickets if payment is made through digital means.

Nearly 80 lakh Indians use seasonal or monthly passes on suburban railways primarily through cash payments worth almost 2000 crores each year. As more and more passengers shift to digital means, this number is expected to come down.

Incentive 5: All railway passengers buying online tickets will get free accidental insurance coverage of up to Rs. 10 lakh each.

Nearly 14 lakh passengers buy railway tickets each day with around 58% being bought online these days. With this incentive more people are expected to shift to digital payment methods which would bring nearly 11 lakh passengers who take the trains each day under this accidental insurance scheme.

Incentive 6: All passengers using railways that avail paid services like food, accommodation, retiring rooms etc. will get a 5% discount if they make payment for these services through digital means

Incentive 7: Public sector insurance companies will provide incentive, by way of discount or credit, up to 10% of the premium in general insurance policies and 8% in life policies of Life Insurance Corporation sold through the customer portals, in case payment is made through digital means. This covers both new and existing insurance policies.
A 8% discount on life and 10% discount on General insurance policies would save a lot of money for the common man. 
Note: Even though the government release says such a big discount there seem to be many caveats around it. I heard from a trusted source who is working in LIC that the actual discount would only be applicable if the policy itself is purchased online and for other policyholders the discount is one 0.5%. If I hear more news on this, will share here. If you have any confirmed news, do share in the comments section for the benefit of everyone. 

Incentive 8: Government has advised public sector banks that a Merchat should not be charged more than Rs. 100 per month as the monthly rental for POS Terminals issued by them.
Cost of procuring and maintaining these POS Terminals is considered one of the main reasons why small merchants and traders don’t want to go cashless. By capping the monthly fees on POS machines issued by public sector banks, the government is directly helping bring more merchants into the digital payment umbrella.

Incentive 9: For all payments at toll Plazas on National Highways using RFID card or Fast Tags/Passes, a discount of 10% will be available for users in the year 2016-17.

Other Additional Steps taken by the Government:

Apart from these incentives, the government has also declared that Service Tax will NOT be charged on all digital transactions up to Rs. 2000 per transaction. Similarly, the government has instructed all Central and Stage government departments/PSU companies to ensure that all the transaction fee/charges for digital transactions be borne by them and this SHOULD NOT be passed on to the consumer. 

They have also offered a reduced tax rate on the digital turnover of small businesses with revenue of up to 2 crore. This will greatly help small businesses too. 

Some Last words:

Even though the government has announced all these schemes, it is up to the officials in the different responsible departments to make sure the benefits and incentives reach the people. This step will take time and will not be easy. 

For a country the size of India and with our population, such a big transition toward a more digital economy will be a very hard feat to pull off. It requires a lot of commitment from politicians, government officials, banking officials and most importantly Us The Citizens of this country.
When we look at China which is showing great progress in this transition to a cashless economy, it gives us hope because when they can do it, why can’t we?

Let’s hope for the best…

What do you think about this move? Sound off in the comments section. Note that vulgar language or politically affiliated comments will be Moderated and WILL NOT be Published.

Disclaimer: All contents in this article were taken from the official Press Information Bureau website. The Author is not liable for any errors or discrepancies.

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