Bangalore: India has become the first nation to subsidize the use of digital cash after the government unveiled a raft of measures including discounts on online payments for insurance policies, rail tickets and highway toll charges.
Exactly 30 days after junking existing high-value Rs500 and Rs1,000 banknotes, Union finance minister Arun Jaitley sought to draw Indians toward digital payments by offering up to 10% off on insurance policies, highway usage and concessions on train travel. The government will also waive service tax on online transactions below Rs2,000 ($29.6), he added. Apart from these, there will be a 0.75% discount at petrol stations even though oil companies currently add a surcharge for using debit or credit cards.
Prime Minister Narendra Modi’s government is scampering to reduce a reliance on cash as the nation of 1.3 billion grapples with a severe currency shortage after he outlawed four-fifths of the its currency on 9 November. The gas station move alone is expected to reduce the country’s cash requirement by 2 trillion rupees annually, according to figures from the finance ministry.
“I have never seen anything like this in my ten years of tracking digital payments globally, it is phenomenal," said Sanjay Swamy, managing partner at the Bengaluru-based venture fund Prime Venture Partners, which has invested in over half a dozen fintech startups. “By making digital cash cheaper than physical cash, India has declared that cash is queen, digital cash is king."
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While countries from the US to Sweden and Singapore have led a push toward digital payments, the inducement driving users toward electronic payments has often come from businesses waiving processing charges, rather than the government.
A relative laggard in digital transactions, India has more recently seen 50% year-on-year growth, according to a study by Google and Boston Consulting Group. The pace may accelerate with demonetisation giving digital wallets like Paytm, MobiKwik and Freecharge an extra push. Paytm has seen average daily wallet transactions double to about 5 million to 6 million since demonetization, its founder Vijay Shekhar Sharma said.
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The new measures will make millions of Indians comfortable with digital payments, initially at government-owned outlets to build trust before easing them into regularly transacting electronically, said Naveen Surya, managing director of digital payments startup, Itzcash Card Ltd.
“We Indians love our cash, cash is auspicious, cash has meant power," said Surya, who is also the chairman of the Payments Council of India. “By making digital cash cheaper than physical money, the government is trying to cure India of the disease of cash." Bloomberg