The outcome of the polls has paved the way for far reaching decisions in many areas. Financial inclusion is one such domain. Key enablers of digital financial inclusion are already in place — such as the policy, platform, participation, providers, public and promise.
The banking infrastructure has evolved over years and strategic policy changes have helped in building a stable and credible environment. Financial sector reforms have also simultaneously strengthened the overall digital infrastructure by encouraging innovation and quick adoption of new solutions. Innovations in the recent years particularly, have facilitated harnessing digital infrastructure with open banking APIs from banks and crowd sourcing of retail network. A mobile in the hand of every Indian is not just a tool for end-user empowerment or entertainment, but also supports the unison of ‘JAM’ trinity, which in itself gets powered further with NPCI’s UPI to help leapfrog digital payments growth rate, beating past all other growth rates. In effect, the infrastructure has yielded an ‘over-the-top’ banking framework, with capability to connect the next billion, almost certainly within five years.
The government is the most active stakeholder in the transformation. In March 2019 Amitabh Kant chaired the FinTech workshop. In April a detailed workshop conducted by the Department of Financial Services gave further impetus to the movement; and, finally the ideation done by panel headed by Nandan Nilekani with the payment industry participants has further built our confidence. Once implemented, the panel’s recommendations could help us leapfrog into the next orbit of development.
With the intent clear, agenda set and mandate granted, officials across departments are working together with the industry to make this happen. While RBI has effectively liberalised the platform for inclusion over the past decade through various guidelines, a fine math would highlight that the vagaries of technology advancement in the payments system has yielded an unwarranted tax impact, negating the intent of a well-meaning policy. Here are a few areas that require immediate course correction:
1. Actualise the intended and announced GST waiver on financial inclusion for PMJDY accounts and accounts in rural areas, by, applying the waiver for all financial inclusion services offered by Business Correspondent (BC) agent outlets. This is a channel used mostly by poor migrants who either hold a PMJDY account or a normal bank account a rural branch.
In permitted interoperable BC environment, identifying types of accounts is impossible. Thus, it would not be unjustified to waive Rs 80 crore to benefit 85 per cent of assisted service dependent population who are migrating into a digital environment in contrast to Rs 600 crore spent on DigiDhan Yojna which covers only 15 per cent of the people who are digital savvy.
2. Tax breaks need to be provided to participants of the financial inclusion project for their past work. Also, an additional encouragement for future would help to appreciate the good faith that has been built till now. Professional interpretation of guidelines, including interpretations by Justice Shri BN Srikrishna, should be reviewed by regulatory stakeholders and tax officials to appreciate the merit of bringing transparency through digitisation of financial services.
The tax department could reward the financial inclusion industry by giving a weighted tax benefit of 125 per cent on all expenses done on software development for simplifying digital/transparent financial services.\
Any transformation needs a catalyst. And, for a change as big as reimagining the entire transactional culture of India needs this the government to step in. An initiative taken by those in power can be endorsed, adopted, and implemented quickly by all stakeholders.
Publication – Economic Times
Published Date – Jun 25, 2019