E-transactions: A fillip to the cashless economyhttps://indianexpress.com/article/business/banking-and-finance/e-transactions-rs-500-and-rs-1000-notes-cashless-economy-internet-banking-4368904/

E-transactions: A fillip to the cashless economy

Finance minister Arun Jaitley said that the decision to remove the high denomination notes was aimed at making India a cashless economy.

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The plan to develop front-end interface facilitating e-transactions across govt departments assumes significance in the backdrop of the Centre withdrawing older currency notes. (Illustration: Subrata Dhar)

A framework has been issued by the Ministry of Electronics and Information Technology (MEITy) advising government’s all central and state departments, along with bodies to ensure all payments going in and out of these agencies happen in a cashless manner, a senior government official told The Indian Express, adding that currently the ministry was working on a plan to develop a front-end for these institutions which may face infrastructural challenges while implementing the framework.

“We have issued a framework, where we have said that all government departments and bodies belonging to both the Centre and the state should make their payments in a cashless manner. The idea is that no payments to or from government departments involve cash,” the official said.

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Even as the plan has been in the works for the past few months now, it assumes significance in the backdrop of the Central government withdrawing the older currency notes of Rs 500 and Rs 1,000 denominations from circulation. Also, a system of electronic cashless payments is considered to increase cost effectiveness and flexibility of monetary transactions in an economy, especially for relatively big-ticket dealings.

The official cited above revealed that the government had conducted a pilot program for this plan on its own, and would soon seek bids from application service providers to develop a front-end interface that could be used by various bodies and agencies such as schools, hospitals, colleges, etc to collect payments from their users.

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“Close to 97 per cent of the transactions that involve the Consolidated Fund of India, such as Central government wage payments, and other payments to various organisations have become cashless. Now the attempt is to bring this practice to those at the bottom of the pyramid that directly deal with a customer,” the official said.

“Shortly we are going to create a platform for bodies such as PSUs, their agencies, trusts, courts, etc which do not have any mechanisms. For them, we are creating a single window that they can customise. This will enable them to convert their payments process, at least the front end, for a user to online,” he added, explaining that the size of total transactions made it a “mammoth project”, for which the government did not have the adequate back-end infrastructure.

Since the announcement of the high denomination notes being withdrawn was made on Tuesday, the private sector online payments operators have reported significant surge in usage patterns by their users. Oxigen Wallet witnessed increase in the load money transactions by up to 40-45 per cent by the first half on Wednesday, and India’s largest mobile payments platform Paytm also recorded 435 per cent increase in traffic on its platform, with add money transactions increasing by 1000 per cent.

The government’s proposal to develop a front-end system to enable online payments for these bodies and departments, for which it would come out with a request for proposal (RFP) by December, could come as an opportunity for various players involved in the payment bank business. In August 2015, the Reserve Bank of India gave conditional licences to 11 among 41 applicants for setting up such banks. Earlier this year, three of the 11 applicants opted out, citing non-feasibility in the payment bank business.

“The issue is not of the back-end, it is of the front-end. People need a user-friendly application from where they can make payments seamlessly,” the government official said, suggesting that organisations could have the front-end interface customised to suit the payments needs of their respective users. For example, a college can have details of different semesters and disciplines for which the fee is being collected, while a hospital can have payment details listed according to case numbers.

Even as online payment services have gained momentum in the urban centres of the country, not all hinterlands have been connected to the internet for this framework to be enabled. Also, with the pullback of older currency notes, several instances of people wanting to pay utility bills arose even in cities and metros.

On Thursday, however, giving some relief to the common man, the Centre said that old Rs 500 and Rs 1,000 notes could be used to pay utility bills, taxes, penalty and fees to central and state governments till midnight of November 11. While withdrawing the high-value currency notes on Tuesday, the government had permitted people to use such notes for payment of certain services like rail and metro ticket, rail catering, airline ticket, buying LPG cylinder and medicines with doctor’s prescription.

Finance minister Arun Jaitley said that the decision to remove the high denomination notes was aimed at making India a cashless economy. “It doesn’t merely nudge the economy in that direction (cashless economy), but significantly pushes it,” Jaitley said.

To include the rural settlements into the proposed online financial network, the Centre’s Jan Dhan Yojana could come handy, under which 25.45 crore accounts have already been opened, according to government data, which could work alongside the 2 lakh plus common service centres (CSCs). These CSCs are also proposed to be made internet hubs in villages that are connected under the National Optic Fibre Network.

Furthermore, during various consultations while the framework was being developed, the idea of cost effectiveness of online payments vis-a-vis traditional cash payments was discussed. It was identified that the cost incurred for setting up the system was lesser than the long-term expense of deploying manpower towards collecting payments, logistical transfer of cash, and various physical infrastructure costs.