Today, almost a year after battling with COVID-19 and its fallout, it is not over yet. India has embarked on the world’s biggest immunization drives while the Finance Ministry is busy finalizing perhaps the most crucial budget to inoculate the dwindling economy. Eyeing fiscal revival following the pandemic-induced lockdown and slowdown, Budget 2021-22 will prove to be a make-or-break deal for the Indian economy.
Every crisis is an opportunity to innovate. India has been on a digital-first trajectory for a few years, spurred by its goal of becoming a trillion-dollar digital economy by 2025 and COVID-19 further pushed tech adoption across industries. Globally, digital adoption has catapulted five years in merely two months. In India, retail, healthcare, and digital payments are witnessing a massive change in consumption patterns. However, our country still lags substantially in terms of wide-scale, mass adoption of a digital-first approach.
Therefore, there is a need for concerted effort to create an ecosystem that brings financial instruments to the bottom of the pyramid, in an agile, cost-effective manner.
Over the past decade, even though the Indian banking sector has witnessed a sustained push in the form of several initiatives and reforms from the government and the RBI, a significant gap remains. There is still a dearth of banking infrastructure in rural and semi-urban centres. With just 4 million active POS machines and 12 bank branches and 13 ATMs per 1,000 adults, India is significantly behind other developing economies in terms of physical banking infrastructure.
Currently, POS terminals are a substantial alternative to ATMs owing to their viability both financially and operationally. Unfortunately, there is still a gaping dearth, considering there are only 4 million active POS machines in the country. Offering incentives by means of a tax subsidy will encourage merchants to adopt agnostic devices more proactively while building a more robust digital infrastructure for friction-free digital onboarding, especially across the hinterlands.
Soft PoS which is transforming smartphones into POS machines, has been yet another technology effectively bringing down maintenance and infrastructural costs monumentally. This allows SME merchants to conduct transactions seamlessly, especially in rural areas, where assisted banking is often the need of the hour.
Additionally, a dedicated fund – an acceptance deployment fund to strengthen digital infrastructure across select markets or tax breaks in GST for merchants providing digital payments on-ground, can also be considered in the upcoming Budget to accelerate mass digital adoption.
Interestingly, COVID-19 put the spotlight on the dire need to push branchless banking in the country to promote banking on the go. Banking correspondents have served as the frontline warriors during the pandemic, working tirelessly to ensure people have access to financial services and have served as the point of disbursal for the government’s direct benefit transfer (DBT) initiative.
Regulatory bodies and the government must be urged to ensure the survival and financial viability of these agents, who are often underpaid for the selfless work. Budgetary concessions such as a GST waiver and cash incentives will further augment cashless payments and allow for large-scale implementation of open banking in India.
The global health crisis has had another huge silver lining for digital adoption. COVID-19 and the impact of social distancing have become the ultimate tech disrupter, driving investment and digitising innovations that could outlast the pandemic. The pandemic has led to massive e-commerce growth and greater adoption of contactless payments in the past few months, fuelling a material shift in payments from cash to contactless payments. The Budget should, therefore, encourage and promote technological advancements and innovations. A dedicated fund to strengthen R&D initiatives across the industry or tax incentives to technology start-ups can be yet another welcome move.
RBI recently introduced offline retail payments to facilitate the adoption of cashless transactions in areas with inconsistent internet connectivity. This is a tremendous move to encourage a systemic dependence on mobile-based payments, even in places with an erratic network. Furthermore, with the small ticket transaction limit being increased from Rs 2,000 to Rs 5,000 this month, it can enhance digital usage. This is likely to catapult a burgeoning move towards cashless payments, propelled by the need for minimal physical contact. To further accelerate the impact of this move, the government should consider GST concession to merchants accepting digital payments. This will encourage more and more merchants on the ground to enter the digital fold.
Building the entrepreneurial capability of rural youth through business training, easing the norms to start businesses and creating a fast loan disbursement mechanism for micro-enterprises, especially in rural and semi-urban markets, will help drive the country’s entrepreneurial capital. Besides, the upcoming Budget should also consider allocating funds towards driving awareness campaigns for mass adoption of digital transactions focusing on rural markets.
With COVID-19 here to stay, the upcoming Budget needs to fortify the economy against this crisis and grow stronger and thrive amidst disruptions and uncertainties.
- Source – CNBC TV18
- Published Date – January 29, 2021