The less cash budget

Context

Article juxtaposes the budget’s digital strategy to spur a less cash economy as envisaged by the present government in the aftermath of demonetization move

Two schemes

Author states that at the heart of Budget’s strategy to spur a digital ecosystem lies a push towards increased usage of BHIM app. Government has tried to achieve this through introduction of two incentive schemes,

Referral Bonus scheme
Cash back scheme for merchants who accept the payment system

Further steps taken

A merchant version of the Aadhaar Pay system will be launched soon
To stimulate adoption in different situations, the government plans to mandate digital payments at petrol stations, hospitals and universities
Cash transactions over Rs 3 lakh have been banned altogether
Removal of service charge: Indian Railways will no longer levy a service charge on train tickets booked online through the IRCTC website
Boosting digital infrastructure:

Improving point of sale digital infrastructure: Government is going to remove duties on point-of-sale devices and fingerprint readers and there are plans for 10 lakh point-of-sale machines to be introduced by banks by March and another 20 lakh Aadhaar-based point-of-sale machines by September 2017
Broadband connectivity to 150000 gram panchayats by the end of 2017-18 under BharatNetalong with a DigiGaon initiative to be launched to provide tele-medicine, education and skills through digital technology. Overall, the government’s target is to achieve 25 billion digital transactions in 2017-18

Payments Board: A Payments Regulatory Board has also been proposed under the Reserve Bank of India to supervise and regulate payment and settlement systems
Bridging gender gap: Allocation of Rs 1.84 lakh crore for female skill development which will help to close the gender gap and will further help in closing other gaps likeboth socio-economic and digital

Why, government is right in incentivizing BHIM usage?

Because of the following features,

Simple to use: It is relatively simple to use and based on the Unified Payments Interface (UPI) technology
No concerns about interoperability: It allows for bank-to-bank and bank-to-e-wallet payments without concerns about inter-operability
No need for internet connectivity: Currently, there are five payment options on the BHIM app; the Aadhaar number will be the sixth. There is no need for internet connectivity or a smartphone

How does this budget help wallet players like paytym?

Author states that although much of the focus has been around BHIM, a strategy that builds a trustworthy digital payments ecosystem and educates consumers could create benefits for all digital payment players

Point of worry

Author points out that

Concern over cyber-attacks: With growing number of digital transactions the threat of cyber-attacks also increases. While the budget does provide for a Computer Emergency Response Team for the financial sector, which would work in close coordination with all financial sector regulators and other stakeholders, more scenarios could have been anticipated and more resources allocated to bolster cyber defences
Current state of security of Aadhaar-based payment systems: The applications will use the biometric details registered in the Aadhaar card system. Even top-of-the-line fingerprint scanners can be fooled. Fingerprint data can be stolen. Technology against this is being developed but is far from being fool-proof

Way forward: A lot of ground to cover

Author states that despite obvious difficulties India still presents an attractive destination to build up the right digital ecosystem and environment

Study of ‘digital trust’ by Fletcher school: In a first-of-its-kind study of “digital trust” around the world that we are currently conducting at The Fletcher School, in collaboration with MasterCard, we find that out of 40 countries studied,
- A dismal rank: India ranks 36th in the quality of consumer experience and trustworthiness of the digital environment, as measured by security, accountability and privacy features
- Ranked in the middle: In terms of how tolerant consumers are to all the frictions in the digital system, we find the Indian consumer in the middle of the pack — 24th out of 40 countries

What does above rankings imply?

There is a lot of ground to cover in creating a trustworthy environment and enhancing consumer experience
The Indian consumer is both patient and adaptable and is likely to give the government and the providers room to improve

Conclusion

The Budget is a step in the right direction as it incentivizes the people to move towards digital transactions unlike demonetization which forced them to do so.