Parity Between Digital Payments And Cash, Concrete Take On Cryptocurrencies: PCI Shares Budget Expectations

The Payments Council of India (PCI), the representative body for all payment companies in the country, has shared its expectations for the upcoming Union Budget 2018. Geared towards facilitating the government’s cashless drive, the points raised by PCI include seeking an update on the Ratan Watal Committee recommendations as well as a parity between digital payments and cash-based transactions, among other things.  

To be presented by Finance Minister Arun Jaitley on February 1, the Union Budget of India for the fiscal year 2018-19 is going to be the last full-fledged budget announced under the current term of the PM Modi-led government and the Finance Minister would be presenting only vote-on-account next year.

Backed by the Internet and Mobile Association of India (IAMAI), the PCI was established in 2013 as the industry body for various regulated non-banking digital payments players. It works closely with the Reserve Bank of India to support government missions like ‘Less Cash Society’ and ‘Growth of Financial Inclusion’.

Following are some of the key expectations for the upcoming Union Budget 2018 as put forward by the PCI:

Update On Ratan Watal Committee Recommendations For Digital Payments

As part of the budget, PCI expects to receive an update on the Ratan Watal Committee recommendations, geared towards accelerating their implementation. Constituted in August 2016, the committee headed by NITI Aayog Principal Advisor Ratan P. Watal had submitted its report on digital payments to the Finance Ministry in December of the same year.

In its recommendations, the committee suggested making regulation of payments independent from the purview of the RBI. Additionally, it called for an update of the current Payments and Settlement Systems Act, 2007.

Furthermore, it highlighted the conflicting share ownership structure of the NPCI, advising the Finance Ministry to “demutualise” it from the payment system participants. These recommendations, PCI pointed out in an official statement, have not yet been implemented.

De-duplication of digital and physical processes for KYC

Over the last few years, government and financial sector regulators have taken various steps to digitise the KYC verification process through Aadhaar, digital signature, etc. However, there are still quite a few government departments that rely on physical documents for KYC. This results in redundancies, which in turn makes the system inefficient.

“It’s time to show full faith by both government and regulators to show their 100% confidence in the digital process and no additional need to have physical documentation to be obtained additionally in a year,” said PCI in a statement released recently.

Parity Between Digital Payments Instrumentals And Cash

Currently, all commerce-related transactions of up to $786 (INR 49,999) are allowed without any proper KYC or other formalities by merchants or payers. In case of digital payments, however, transactions with even small value require extensive KYC.

To counter this problem, PCI has called for free availability of digital payment options like wallets with minimal KYC requirements for all transactions below $786.1 (INR 50,000). The industry body has further suggested making KYC compulsory for cash transactions above $157.2 (INR 10,000).

A spokesperson for PCI added, “Also government should consider providing tax relief to merchants accepting digital payments on overall incremental values especially with an annual turnover of $31,429 (INR 20 Lakh), as proposed in RBI MDR guidelines.”

As per PCI’s official statement, doing so will not only create a sense of parity between digital payments and cash-based transactions in the country, but will also aid the government’s cashless economy drive.

Individual Tax Exemptions On Financial Services Related Investments/Spends

In the past, categories like travel and rent have benefitted extensively from tax exemptions provided by the government. With the aim of promoting financial inclusion in the country, the Payments Council of India is looking for greater individual tax benefits on investments as well as spendings in life insurance, medical insurance as well as mutual funds in the Union Budget 2018.

It said, “It’s time to provide individual category values to expand the overall user base and to drive financial inclusion beyond banking.”

Creation of Acceptance Development Fund To Build Acceptance Infrastructure

The country’s digital payments industry has evolved dramatically over the last one year. The government has taken multiple measures to facilitate the adoption of digital payments, from issuing credit/debit cards to consumers to establishing different acceptance channels through POS, QR and UPI penetration. Consequently, a majority of the country’s merchants are now aligned to accept cashless payments.

Despite the industry’s phenomenal growth, PCI believes that there is still a lot of scope for building a robust acceptance infrastructure in India. It stated, “The upcoming budget must take steps in this direction. One such step would be creation of an acceptance development fund. This is akin to any market development fund set up by new businesses to create awareness and build a repeat-use customer base.”

“On similar lines, acceptance development fund can incentivise merchants, banks, payment processors to enable digital payments at grassroot levels and conduct mass education campaigns to promote awareness and benefits of digital payments,” the industry body added.

To that end, PCI has also suggested offering incentives to the acquirers, so that these entities can continue making investments to expand and bolster the country’s acceptance infrastructure.

Common Procurement And Interoperability For Cash Recyclers

2017 saw the consolidation of several Indian banks, chief among them being the State Bank of India (SBI) which merged with five associates and the Bharatiya Mahila Bank in April last year.

As a result of this consolidation, PCI has stated that ATM/CDM/cash recyclers – which are essentially cash recycle machines that accept cash and give immediate credit to the customer’s account – should be done through common procurement platform for all public and private sector banks.

Furthermore, digital infrastructure should be accorded infrastructure status. As part of the Union Budget, PCI also expects government to institute interoperability for cash deposit machines/cash recyclers.

Increasing Allowable Tax Free Value Of Employee Benefits Under Income Tax Rules:

For the upcoming budget, PCI also expects an increase in the allowable tax-free value of Employee Benefits under the Income Tax Perquisite Rules. Additionally, the industry body is looking forward to employee benefits being linked to a Consumer Price Index to keep the system relevant year after year.

This, according to the spokesperson for PCI, would give a boost to both the digital and cashless segments, while also having a multiplier effect on the economy. 

A Concrete View On Digital Currency And Cryptocurrency

Hoping to usher in a new era of ‘digital Bharat with digital rupee’, the PCI has invited the government to take a concrete view on regulating cryptocurrencies and digital currencies in the country.

It stated, “Privately issued digital cryptocurrencies and their trading need appropriate policies and urgent regulatory framework, absence of which would result in innocent consumers being cheated. Those who are trying to do this as per book would also risk their capital and investment. It’s time government takes a serious view and come out with the appropriate laws.”

According to the industry body for payment companies, for cryptocurrency trading, SEBI can be tasked with managing the market and evaluating the risks associated with it, while the RBI with the support of the Finance Ministry can spearhead the move.

This comes at a time when the government is increasingly becoming cautious of the risks involved cryptocurrency trading. Union Finance Minister Arun Jaitley had earlier clarified that neither the government nor the Reserve Bank of India has authorised any virtual currencies (VCs) as a medium of exchange. Further, the government or any other regulator in India has not given license to any agency for working as an exchange or any other kind of intermediary for any VC.

The Indian digital payments industry is projected to reach $500 Bn by 2020, contributing 15% to India’s GDP, as per a recent report by Google and Boston Consulting Group. Geared towards facilitate financial inclusion by promoting digital payments, PCI’s expectations from the upcoming Union Budget highlight some of the key concerns that are obstructing the industry’s growth at present.

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