Decoding the policy impact on digital payments of India’s 2017 budget

Photo credit: PDPics.

As the noise around the 2017 Union Budget has toned down and state elections in India have begun to occupy our minds, it’s time to do an analysis on the policy changes in the new budget that could impact digital payments in the country.

In my previous analysis, I looked into the non-policy aspects of the budget. For this article, I will now focus on policy and conclude all my thoughts on the budget.

Let’s jump right in. (The full text of the budget speech is available here.)

Disincentivizing cash

Budget announcement

161. I propose to limit the 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 2000/-.

162. The Special Investigation Team (SIT) set up by the Government for black money has suggested that no transaction above Rs 3 lakh should be permitted in cash. The Government has decided to accept this proposal. Suitable amendment to the Income-tax Act is proposed in the Finance Bill for enforcing this decision.

Analysis

Around the world, the only sustainable and successful way to reduce dependency on cash is first and foremost disincentivizing its rampant use especially for high-value transactions. The reasons are way too many and have been done to death when demonetization was being discussed in the recent path.

This measure will go a long way in consumer behavior as it shifts from cash-based to large-scale adoption of digital payments, which is much-needed.

Transparency in electoral funding

Budget announcement

a) In accordance with the suggestion made by the Election Commission, the maximum amount of cash donation that a political party can receive will be Rs 2000/- from one person.

A new cybersecurity entity

Develop a grievance handling system

Financial Inclusion Fund

Interim recommendations from the Committee of Chief Ministers on Digital Transactions

Structural reforms to Payment and Settlement Systems Act

Amending the Negotiable Instruments Act