MUMBAI: A panel constituted by the government to strengthen the digital payment ecosystem has called for a shift in regulatory approach in order to promote competition, innovation, open access and consumer protection. The panel also wants the government to hive off payment regulation into an independent authority within the Reserve Bank of India (RBI).
The committee on digital payments, headed by Ratan Watal, has also suggested that cash payments should be disincentivised by imposing a nominal tax on cash transactions and handling charges on cash payments beyond a certain limit made to government departments or utilities.
Noting that India’s cash-to-GDP ratio of more than 12% is the highest in the world, the report has set a vision of reducing this to 6% over a period of three years. Watal, who is currently principal adviser, NITI Aayog, has suggested special emphasis on increasing digitisation in low-value transactions. “The share of digital payments is at about 5% of total personal consumption or even lower at 2% of total transactions,” the report said.
Meanwhile, the government also proposes to have a sector-neutral ‘Financial Redressal Agency’ (FRA) to address the grievances of retail consumers against all financial service providers (FSPs). The FRA was proposed by the Financial Sector Legislative Reforms Commission (FSLRC) and the government has invited comments on this proposal.
While several of the 11-member Watal committee’s recommendations on promoting digital payments have been overtaken by announcements made by the government in the wake of demonetisation, what stands out is the change in approach to innovation. While earlier the regulator was wary of innovation in the financial sector, the committee talks about creating a ‘regulatory sandbox’ to experiment with fin-tech solutions where the consequences of failure can be protected.
While the RBI has had a protectionist approach with regard to banks, the panel wants payments to be made interoperable between banks and non-banks. “Mobile number- and Aadhaar-based fully inter-operable payments should be prioritised — NPCI may enable this on its platforms over 60 days,” the report said. The report has also suggested that the ownership of the National Payments Corporation of India should be payment-centric and include more banks and non-banks.
Although the panel was constituted before demonetisation, its report recognises the sweeping changes in the payment landscape brought out by the note ban move of the government. Some other key measures include promoting Aadhaar for primary identification, operation of the real-time gross settlement (RTGS) and the national electronic funds transfer (NEFT) systems round the clock and creating a fund to promote digital transactions.