View from India: Budget gives thumbs-up for digital transactions

India's Finance Minister Arun Jaitley presented the Union Budget 2017-18 in the Lok Sabha on 1 February. While this is the FM’s fourth consecutive presentation, what differentiates this Budget from the others is that it is the first since the November 2016 demonetisation move. Naturally this Budget has grabbed attention and has evoked a mixed reaction.


The FM has announced that demonetisation has two tectonic policy initiatives. “We have witnessed historic and impactful economic reform and policymaking. A number of global reports show India has considerably improved its policies, profile and practice,” Jaitley declared. The FM dwelled on the fact that the pace of remonetisation has picked up and is expected to soon reach comfortable levels. According to him, the effect of demonetisation is not expected to spill over to next year.

The good news is that India is being viewed as an engine of global growth. The mood is upbeat as the International Monetary Fund (IMF) expects India to see the fastest growth among the major economies.

The spotlight is on digital transactions, for which a Mission will be set up with a target of 2,500 crore (25 billion) for 2017-18. Existing platforms like the Unique Payment Interface (UPI), Unstructured Supplementary Service Data (USSD), Immediate Payment Service (IMPS) and debit cards will facilitate digital processes.

Along with that, consumers can look forward to options like Aadhar Pay, a merchant version of Aadhar Enabled Payment System. This will provide a platform for those people who do not have debit cards, mobile phones and mobile wallets.

In response to the Budget, India’s IT trade association Nasscom commented: “The budget evangelises digital payments and infrastructure, along with promoting a transparent business environment. It is also promising that the Government is dedicated to ‘change the colour of money’ on the back of tax reforms, political funding, digital transactions and policies that dis-incentivise the use of cash for high value transactions.”

Banks are laying the ground for forthcoming digital transactions like the Aadhar Pay. They intend to expand the existing  number of point-of-sales terminals in order to introduce 20 lakh (two million) Aadhar-based PoS by September 2017.

“This budget is transformational at its core, aimed at propelling India towards becoming a digital economy while increasing employment opportunities and having a determined focus on rural development. The government’s push for digitising infrastructure is heartening,” said Sashank Rishyasringa, co-founder and managing director of Capital Float. “Incentivising cashless transactions at fuel stations, hospitals and railways, rolling out one million PoS terminals by March 2017 and proposing a payment regulatory body to the RBI will help create a robust architecture for digital transactions. Activating Aadhar Pay and providing referral bonuses and cashback schemes to promote BHIM will drive digital money in Tier 2 and Tier 3 markets.”

BHIM is the acronym for Bharat Interface for Money, which enables fast, secure, reliable cashless payments through the mobile phone. So far, 125 lakh (12.5 million) people have adopted the BHIM app. The government will launch two new schemes to promote the use of BHIM; these include a referral bonus scheme for individuals and a cashback scheme for merchants.

The technology sector sees many emerging opportunities arising out of government’s reliance on technology-driven development initiatives like a separate policy for the Metro with a focus on indigenisation, apart from a pension platform for defence personnel. There’s also Study Webs of Active Learning for Young Aspiring Minds or SWAYAM, a government-backed online education scheme that aims to reach out to disadvantaged students and bridge the digital divide. Digi Gaon is a new initiative will provide telemedicine, education and skills using digital technology.

Budget 2017 has other highlights. For creating an eco-system to make India a global hub for electronics manufacturing a provision of Rs 745 crore (£873,000) in 2017-18 has been made in incentive schemes electronics manufacturers’ schemes like Modified Special Incentive Package Scheme (M-SIPS) and the Electronics Development Fund (EDF).

“The Finance Minister’s announcement of a strong push for a digital economy and the expansion of digital infrastructure in the country are landmark decisions. Apart from e-commerce and banking, this positive policy support for digitisation will also fuel the growth of allied services in the software sector,” reasoned Satyen Vyas, CEO of Symphony SUMMIT, and added, “The potential increase in online transactions and the decentralisation of the IT industry from cities to rural areas will provide impetus for the rapid growth of the IT support segment. Cloud-based SaaS services will be in greater demand to aid the transition to a less cash economy, creating more jobs and opportunities for innovation in the saturated IT market.”

The Budget 2017 also has its fair share for the telecom sector. “The most important one appears to be the Government’s commitment to strengthening India’s telecom network with the allocation of Rs 10,000 crore (£12m) to the ambitious BharatNet project. The fact that nearly 155,000km of optical fibre has already been laid down speaks volumes about the progress of the project,” explained Naveen Aggarwal, Partner and COO – Tax, KPMG in India on Telecom sector. “Connecting 150,000 gram panchayats will be a giant leap towards fulfilling the Digitisation vision of the Government and will provide the necessary boost to all the players in the telecom ecosystem.” (Gram Panchayats are the local self-government institution at the village level whose head is the focal point of contact between government officers and the village community.)

To sum up, given the Government’s focus to promote digital economy, the Budget proposals contain a slew of measures to promote digitisation and curb black money.  “Reduction in presumptive tax rate on digital transactions and reduction in import duty rate of digital payment equipments and components, clearly underlines Government’s intention to promote digital economy and curb black money,” concluded Aggarwal.

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