22/01/2019 - Indian Economy

KEY POINTS

Reasons for less transactions

·        If UPI digital transactions are to take a quantum leap, it is necessary to ensure that the MSME sector participates in the transition from cash to digital channels.

·        Currently, small merchants and vendors do not want to transact either via digital channels or cards; as they want to stay out of the tax net.

·        The merchant discount rate (MDR) is an additional cost, which they do not want to pay.

Gains for small Merchants

·        Once merchants shift to digital payments, they are registered as GST assessees and there is a data trail, banks should be more open to offering loans at attractive rates of interest and also reduced collateral.

·        This would ensure that merchants are not forced to borrow from the local money lender at usurious rates.

·        Today, the majority of small merchants do not have access to formal credit, and even those that do, are able to fund less than 50% of their working capital needs through bank loans. Once they realise the economics is improving merchant would be more willing to transact digitally.

·        More formalisation of the workforce, improvement in ease of doing business as it will be easy to communicate with Government digitally, and enhancement of social security net for small merchants.

Gains for India

·        The government would stand to gain from more buoyant tax collections.

·        Sufficient financial resources to be allocated for human resource development, tackling the problem of money laundering.

·        Government will have more hold over the Indian economy as digital records help predicting the outcomes more accurately.

·        Rational policy decisions and policy making especially in allocation of financial resources.

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