Budget 2018: Be it populist or practical, expect incentives for digital payments

Since the demonetization, the volume of digital transactions has increased. However, to give it more momentum the government might offer incentives to the digital transactions.

Prajeet Nair Jan 30th 2018

Finance Minister Arun Jaitley will present the Union Budget 2018-19 on February 1. This will be the last full budget of this government before the elections in 2019.

Speculations say that the government might present a populist budget to woo the voters. However, the current priority of the government is also to boost the GDP growth rate. Hence they might introduce a more practical budget to bring back economy on track.

Reports suggest that Jaitley might bring down charges on digital transactions to promote cashless economy. Since the announcement of demonetization on November 8, 2016, the Narendra Modi government has pushed for cashless economy. The sudden changes pushed people to adopt digital transactions.

Post demonetization, the growth rate of digital payments has accelerated to 40-70 percent range from 20-50 percent, according to the Payments Council of India. In order to woo its voters, this government is expected to introduce a tax rebate, which will boost digital transactions and will drive the country faster towards a cashless economy.

Tax rebate on digital transactions can definitely help to boost digital transactions further and will create traction for the same.

D.D. Mishra

D.D. Mishra, Research Director, Gartner

D.D. Mishra, Research Director, Gartner said, “Tax rebate on digital transactions can definitely help to boost digital transactions further, and will create traction for the same. Digital transactions need a booster at this point in time as the penetration has not yet attained the expected rates. One of the reasons for this is the limited financial incentives for digital transactions even though this has been alerted by experts from time to time.”

Payments Council of India (PCI) has charted out its budget expectations and presented to the government, a framework related to digital payments. The framework recommends to strengthen the ecosystem to promote digital payments with a focus on reaching financially and socially excluded groups.

The Watal committee recommends promotion of digital payments for all the government transactions. Here are some of the other important points shared in the report:

  1. Withdraw all charges levied by government departments and utilities on digital payments, and bear the cost of such transactions.
  2. Mandate government departments and agencies to provide option to consumers to pay digitally.
  3. Incentivize consumers to make payments (including payment of fines and penalties) to the government electronically, by giving discounts or cashback.
  4. Enable consumers to make payments (including taxes) to the government through suitable digital means like cards and wallets.
  5. Promote digital payments for recurring low value transactions
  6. Reduce customs duties on payments processing equipment.

The report also proposes to create a ranking-and-reward framework to encourage and recognize government departments, state governments, districts, panchayats and other market participants who lead the efforts on enabling digital payments.