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Q. Incentives to encourage non-cash payments: Comment on recently announced incentives for cash-less transactions.
Dec 10, 2016 Related to : GS paper-3

Ans :

Introduction-

In the backdrop of demonetisation of high value currencies, recently central government an incentive package for non-cash payments such as fuel, insurance policy, railway tickets etc. 

Incentives for non –cash transactions-

  • Instead of cash, if consumers pay digitally would get discounts on purchase of fuel, railway services as also for payment of highway tolls and insurance premiums.
  • Similarly for credit and debit card transactions up to Rs.2,000, the Reserve Bank of India has relaxed its stringent two-factor authentication requirement.
  • The service tax stands for upto Rs.2000 transactions has been waived. Services rendered by banks for any single transaction up to Rs 2,000 will be exempt from tax if the payment is done via credit card, debit card or other payment card service.

Analysis-

  • The above mentioned moves to encourage cashless payments are significant not just because they can alleviate the cash crunch following the demonetisation of high-value notes, but it could spur a change in spending habits in an economy where cash has served as the basis of around 95% of all transactions.  
  • The use of cash creates a window to escape the tax net, but cashless payments can be captured electronically through the settlement mechanisms, bringing more revenue to the government and ensuring consumer rights. Given India’s abysmal tax base, this nudge to cashless payments could be a game-changer, with the introduction of the Goods and Services Tax.
  • If some of the proposed measures, such as rationalising the merchant discount rate on card transactions, had been implemented before the demonetisation announcement, perhaps the current pain due to a tight supply of cash could have been ameliorated somewhat. 
  • With new payments banks coming up, along with mobile wallets and banking applications, India’s transaction ecosystem could see a paradigm shift provided the government puts in place effective monitoring systems and ensures interoperability between these alternatives.

Conclusion-

Recently announced incentives for cashless transaction are welcome move.  In the backdrop of demonetisation it not serve as alternative but also puts check on tax evasions and reduces burden on banks due to cash transactions. India needs to develop its financial infrastructure at par with international standards to enhance cash less society.     


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