Cabinet announces steps to promote cashless transactions

The union cabinet on Wednesday approved a slew of measures to promote payments through cards and other electronic means in bid to check tax evasion and transition towards a cashless economy.

The cabinet chaired by Prime Minister Narendra Modi gave its approval for introduction of series of steps towards transitioning to a cash-free economy by promotion of payments through cards and digital means.  For reducing cash transactions, the cabinet approved several short-term measures to be implemented within one year, and; medium-term measures to be implemented within two years for implementation by the various ministries, departments and organisations.

The government feels that promotion of payments through cards and digital means will help reduce tax avoidance.

Towards this, the cabinet proposed migration of government payments and collections to cashless mode, discouraging transactions in cash by providing access to financial payment services to the citizens to conduct transactions through card/ digital means and shifting payment ecosystem from cash dominated to non-cash or lower cash payments.

Government will withdraw all surcharges, service charges, convenience fee, etc, on card / digital payments currently imposed by various departments / organisations and introduce appropriate acceptance infrastructure in government departments / organisations.

It would rationalise merchant discount rate (MDR) on card transactions and introduce a differentiated MDR framework for some key transaction segments, mandating payments beyond a prescribed threshold only in card / digital mode.

Besides, the government plans to introduce formulae-linked acceptance infrastructure by the stakeholders of certain card products.

Other steps include rationalisation of telecom service charges for digital financial transactions, promotion of mobile banking and creation of necessary assurance mechanisms for quick resolution of fraudulent transactions and review the payments ecosystem in the country.

While the infrastructure for card / digital payments in the country is growing, actual transactions remain modest in comparison to cash payments. For card / digital payments to rise, they should be easy to use, readily available and accepted, should not impose any undue financial burden on the merchant and user and should offer an appropriate level of security, the cabinet noted.

The cabinet also noted that despite various payment system initiatives taken in the form of electronic clearing service scheme, national electronic funds transfer, real time gross settlement scheme etc, the benefits of modern card/ digital payment systems are yet to reach all sections of the society and be accepted across the length and breadth of the country. Current experience and evidence indicate that the penetration and success of modern card/ digital payment products and services is concentrated to a large extent in the tier-l and tier-ll locations of the country and mostly to those citizens who have access to the formal banking channels.

The introduction of the Payment and Settlement Systems Act, 2007 has resulted in deeper acceptance and penetration of modern card/ digital payment systems in the country, Aadhaar Enabled Payment Systems (AEPS) has been brought to effect to leverage upon biometric verification and a domestic card network namely, RuPay.

The Reserve Bank of India has also recently approved licences for setting up of Payments Banks with the objective of greater financial inclusion by the payments banks by providing small savings accounts and payments/ remittance services to migrant labour workforce, low income households, small businesses and other unorganised sector entities. This would also facilitate cashless transactions to a great extend.