Union Budget 2017-18 Has Set The Stage For India’s Digital Revolution

The digital economy is one of clear winners in Union Budget 2017-18. This is unique. Indian finance ministers often pay odes to sectors in their budget speeches but at the end of the praise-laden para, they offer at best one or two goodies. That mould got broken in this budget with respect to the digital sector. There are literally a dozen measures in this budget to promote digital economy:

1. The allocation for BharatNet Project has been stepped up to Rs 10,000 crores in 2017-18. Jaitley said that by the end of 2017-18, high speed broadband connectivity on optical fibre will be available in more than 1,50,000 gram panchayats, with wifi hot spots and access to digital services at low tariffs. A DigiGaon initiative is also to be launched to provide tele-medicine, education and skills.

2. Schemes to promote the usage of BHIM: a) referral bonus scheme for individuals; b) cash back scheme for merchants

3. Aadhar Pay, a merchant version of the Aadhar Enabled Payment System, is to be launched for those who do not have debit cards, mobile wallets and mobile phones. A mission will be set up with a target of 2,500 crore digital transactions for 2017-18 through UPI, USSD, Aadhar Pay, IMPS and debit cards. Banks have targeted to introduce additional 10 lakh new PoS terminals by March 2017. They will be encouraged to introduce 20 lakh Aadhar-based PoS by September 2017.

4. The digital payment infrastructure and grievance handling mechanisms is to be strengthened, with a focus on rural and semi urban areas through post offices, fair price shops and banking correspondents. Petrol pumps, fertilizer depots, municipalities, block offices, road transport offices, universities, colleges, hospitals and other institutions will be encouraged to have facilities for digital payments, including through the BHIM App.

5. There is a proposal to mandate all government receipts, beyond a prescribed limit, through digital means.

6. The Financial Inclusion Fund is to more resources for taking up these initiatives.

7. The Payment and Settlement Systems Act, 2007, is to be reviewed and amended to push digital payments.

8. A Payments Regulatory Board is to be set up in the Reserve Bank of India by replacing the existing Board for Regulation and Supervision of Payment and Settlement Systems.

9. There is a proposal to amend the Negotiable Instruments Act to ensure that payees of dishonoured cheques are able to realise payments.

10. There are plans to limit cash expenditure allowable as deduction, both for revenue as well as capital expenditure, to Rs 10,000. Similarly, the limit of cash donation which can be received by a charitable trust is being reduced from Rs 10,000 to Rs 2,000.

11. The government has accepted the suggestion of the Special Investigation Team (SIT) on black money that no transaction above Rs 3 lakh should be permitted in cash.

12. Various tax sops have been given to miniaturised POS card reader for m-POS, micro ATMs, fingerprint readers/scanners and iris scanners. There is also a push to encourage domestic manufacturing of these devices.

In terms of importance, these measures range from key ones to rather mundane ones. That is to be expected. Also those which appear to have the most traction now may not retain their importance, as the character of the sector changes. For instance, the referral bonus schemes to attract more buyers and sellers to opt for going digital might seem pedestrian a year down the line.

What is of key significance is that India did not have anything resembling a modern digital payment system (leaving out the small credit card infrastructure) till about a year back. Even now, the structure is at a nascent stage.

These are puny numbers. Instead the volume of RTGS and NEFT transactions account for more than 80 per cent of the daily payment market. The set of incentives laid out by Finance Minister Arun Jaitley is consequently an attempt to build a new sector from the remaining 20 per cent, that is, almost from scratch.

India has never made such an attempt before. We have not been here before. The total financial implication of these steps is still in the works. But they don’t even begin to answer the larger picture behind the digital push. The picture is that the Indian government has never tried to create a sector from practically nowhere.

Yet the scale of the ambition is colossal. If 125 crore Indians adopt digital money, as the government has every intention of making them do so, it will be the biggest-ever business opportunity created by a government anywhere in the world. It will also change the face of money in this world from cash to an electronic signal—the biggest change in monetary economics in several centuries. It is possible that the change will be led by the migration of rupee to the digital era. But those changes despite their scale could still be a side show.

It is the opening up of a business sector which has yet to be recognised. Just as it happens for any sector, the contours of the sector are still being worked out. Some elements are falling in place, though. Till now the digital economy and its prospects were discussed in the same breath as were those of Smart India, Make in India and so on as business opportunities. Governments, it was assumed had the right to indulge in a bit of a flourish when painting the scope of a sector. But post demonetisation, as the country was pushed to a digital payment system, some of the scope began to swing in from the horizon—like those of e-wallets for instance. The sum total of incentives laid out in Budget 2017-18 has made those possibilities, vivid.

There are good reasons to feel surprised why the changes have not elicited a corresponding echo from business chambers. There is no ecosystem for this business as of now. E-commerce is about the only sector which recognises the potential of this change, but they too cannot take advantage of them because they are yet to build up robust payment architecture tied as they are to the traditional brick and mortar banks. But this BCG report points out the global retail payment transactions could reach $ 21 trillion by 2020. The potential is awesome.

Long after the fiscal deficit numbers are forgotten, chances are that Jaitley’s fourth budget will be remembered as the one which began India’s digital revolution.