Secured cess to Insure and accelerate National Growth

The Reserve Bank continued its efforts to develop state-of-the-art payment and settlement systems in the country and enhance the digital payment experience of the consumers while ensuring adequate security measures.

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Secured cess to Insure and accelerate National Growth

This article gives an innovative solution for accelerated self-sustained growth post the great loss created by Covid and also covering up various impediments by losses created by Natural disasters, Cybercrimes, NPAs, Mismanaged fallouts, etc. This creates a large fund planning with minuscule outflow to Insure loss to citizens, exchequer, and others. This provides a Secured cess to Insure these losses and provide for the needed funds for National growth. With the rapid advancement of technology and the advent of new developments and innovations in the payments ecosystem, the Government enhanced its focus on the safety and security of payment systems. In addition, it continued its efforts to nurture efficiency, innovation, competition, customer protection, and financial inclusion. Going ahead, the Govt’s endeavor would be to promote innovation in the financial sector by leveraging technology for a sustainable Information and Communication Technology (ICT) infrastructure designed for operational excellence with a focus on resilience, reliability, security, integrity, and cost-efficiency.

In the recent past, the payments ecosystem in India has witnessed many developments, resulting in a bouquet of payment systems and platforms, payment products, and services, which are available for consumers for undertaking digital payments, be they individuals, firms, corporates, governments, or other economic agents.

In sum, the Reserve Bank continued its efforts to develop state-of-the-art payment and settlement systems in the country and enhance the digital payment experience of the consumers, while ensuring adequate security measures. These initiatives have facilitated a smooth transition towards a less-cash society with improved transaction efficiency and a delightful digital experience. Amidst difficulties arising from the COVID-19 pandemic, efforts were also made for the smooth functioning of the payment system. Further, the Reserve Bank focused on enhancements in the IT infrastructure for internal users also contributing to improved efficiency. It also helped expand coverage for government

transactions using digital technologies.Going ahead, strengthening the payments ecosystem, enhancing awareness, and ensuring the facilitation of digital payments across the length and breadth of the country will be the key areas of focus of the reserve Bank.

India’s journey of creating a digital financial infrastructure has been characterized by collaboration between the government, the regulator, banks, and fintech. This has helped to advance the country’s goal of enabling financial inclusion and also provided rapid payment digitization for citizens. The pandemic has further accelerated the adoption of digital payments with many first-time users adopting digital payments and significant uplift by merchants,

The new Normal for Payments

The last few years have witnessed tremendous growth in digital payments in the country. Digital modes like electronic fund transfer have seen greater adoption, along with increased use of cards backed by customer propositions around loyalty and privilege programs, exclusivity, etc., and an increase in the merchant base aided by a proliferation of e-commerce sites and apps.

Over the years, successive governments and the RBI have issued enabling guidelines that have been instrumental in

driving the growth of digital payments in India.Secured cess to Insure and accelerate National Growth

Key outcomes due to the efforts of multiple stakeholders over the years:

To boost digital transactions and enhance security as well as a customer convenience, the RBI has taken numerous steps such as the adoption of the National Common Mobility Card (NCMC), licenses to White Label ATM operators, issuance of Europa, Mastercard, and Visa (EMV) and Near Field Communication (NFC) based cards and customer grievance redressal. The Government played an active role in popularising digital payment instruments by organizing Digi-Dhan Melas across the country and incentivizing customers and merchants through the Lucky Grahak Yojana and Digi-Dhan Vyapari Yojanaand cashback offers at fuel stations on payments through digital modes.

The growth and potential of digital payments have allowed numerous FinTechs and payment companies to flourish in recent years. Payment companies have leveraged investor funding to diversify their existing product portfolio and become full-stack financial service providers, with a lot of them venturing into lending, wealth management, and insurance aggregator platforms. Customers are now offered a one-stop solution for all their financial needs, and this has significantly boosted the customer experience.

However, COVID-19 affected the growth trajectory of payments and reduced economic activity across the nation. Falteringconsumer spending led to a decline in digital payments in the short term. As per the data published by the NPCI, April 2020 saw a drop of 20% in the volume of UPI transactions. However, transaction volumes have started recovering and have already reached pre COVID-19 levels. The increase in UPI transactions is due to increased consumer interest in making bill payments and recharging mobile phones online, and purchase of non-essential goods on e-commerce platforms. There has been a shift in the consumer mindset during the COVID-19 crisis and the subsequent lockdown as they have started using digital modes of payment even in sectors like education.

Future of top payment modes

From cash as the primary mode of payment and usage of debit cards being limited to cash withdrawals at the beginning of the century, the Indian payment landscape has evolved to widespread adoption of multiple payment products and systems like prepaid payment instruments (PPIs), Immediate Payment Service (IMPS), UPI, NETC, BBPS, and Aadhar enabled Payment Service (AePS). Use cases of cards for e-commerce transactions have expanded and form factors have changed through tokenization. IMPS and UPI have provided faster mobile-based payment options to customers. Low-value transactions are increasingly being made through these modes, and prepaid wallets and cards are also emerging as other preferred options.

These instruments have helped acquirers (banks) deepen their merchant base.BBPS has provided an organized platform for bill payments. Similarly, NETC and NCMC have allowed digitization of payments at toll gates on highways and public transport respectively. In addition, players are offering remittance services to the migrant population. The COVID-19 pandemic, which brought the global economy to a standstill, triggered a transformation in payments, and customers are expected to increasingly opt for contactless, QR, and mobile-/wearable-based digital payment modes. In addition, wallet providers received an impetus after the RBI announced a new PPI category, and wallets are likely to see greater adoption soon.

Impact of Lockdown Measures on Digital Transactions

Based on RBI’s annual report, it was observed currency in circulation has more than doubled in the last five years despite an increase in digital transactions. According to RBI, in the year 2020-21, a higher-than-average increase in banknotes in circulation was observed due to precautionary holding of cash by the public because of the pandemic and its prolonged continuance. Restricted mobility due to lockdowns and the need to reduce physical contact to avoid infection could have encouraged more people into resorting to online platforms for financial transactions instead of cash. At the same time, severe lockdowns may have had an impact on digital transactions as most businesses except the essential ones were completely shut down. In other words, the lockdown measures while pushing people to hoard more cash also may have impacted digital transactions. We analyze the data on various types of digital transactions to understand if the volume of transactions has grown or shrunk during the lockdown months.

The promotion of cashless transactions and conversion of India into a less-cash society was an important goal of the program. In fact, one of the objectives of the demonetization exercise in November 2016 was to build a less-cash society and encourage people to use digital platforms.

The RBI Ombudsman Scheme for Digital Transactions (2019) defines digital transactions as “a payment transaction in a seamless system effected without the need for cash at least in one of the two legs, if not in both. This includes transactions made through digital/electronic modes wherein both the originator and the beneficiary use digital/electronic medium to send or receive money.” AePS, BHIM UPI, Credit and Debit Cards, IMPS, Internet Banking, Mobile Banking, NACH, NEFT, NETC, PPI, and RTGS are some of the popularly used modes of digital transactions in India.

In fact, Secured Insurance(SI) concept, has proposed a system to complement all direct and indirect taxes levied by the Union government, the various state governments, and all local bodies across the country, except for customs and import duties that function as international trade balancers.

A single-point system to be levied by commercial banks on all bank transactions would be simple to implement and have practically zero compliance and negligible cost. Simplifying banking procedures and improving the quality of and access to other support services should help achieve that.

As the velocity of the payment system and banking transactions increase, the Secured Insurance would also be good enough to provide a huge surplus as well. I believe, that, post COVID-19 after the economy stabilizes.

The Secured Insurance is what I see as a fair system to revenue source of government, without burdening the common person—it will bring into its fold, almost everyone in the country from a tax perspective (currently, less than 10% of India is part of the direct tax system) and give huge revenues to the government and most importantly, without inconvenience to the common man.

If we consider 0.01% of total banking transactions will be enough to offset any losses due to Natural disasters, Cybercrimes, NPAs, Mismanaged fallouts, etc. and also enhance GSTand GDP of India to offer the needed funds for National infrastructure growth and reduce the debts as per the data given below the table. If we calculate only outward transaction of NEFT and RTGS would bring many folds of revenue to the Government. The calculation is given below the table.

Year-wise NEFT, RTGS & Mobile Transaction in India (in INR. Lakh Crores)

Secured Insurance will be (If 0.1% of Total Transaction)

Year NEFT

Outward & Inward(in INR. Lakh Crores)

RTGS

Outward & Inward

(in INR. Lakh Crores)

Mobile Transaction

(in INR. Lakh Crores)

Total

(in INR. Lakh Crores)

IF 0.1% OF TOAL TRANSACTION

(in INR. Lakh Crores)

FY 2020 – 21 50,261,819.2 2,112.00 86,772.81 50,350,705 50,350.70
FY 2019 – 20 184,785,447.2 2,623.15 57,815.15 184,845,885.5 184,845.88

 

Secured Insurance will be (If 0.01% of Total Transaction)

Year NEFT

Outward & Inward(in INR. Lakh Crores)

RTGS

Outward & Inward

(in INR. Lakh Crores)

Mobile Transaction

(in INR. Lakh Crores)

Total

(in INR. Lakh Crores)

IF 0.01% OF TOAL TRANSACTION

(in INR. Lakh Crores)

FY 2020 – 21 50,261,819.2 2,112.00 86,772.81 50,350,705 5,035.07
FY 2019 – 20 184,785,447.2 2,623.15 57,815.15 184,845,885.5 18,484.59

 

Average Per day Transaction

Year NEFT

Outward & Inward(in INR. Lakh Crores)

RTGS

Outward & Inward

(in INR. Lakh Crores)

Mobile Transaction

(in INR. Lakh Crores)

Total

(in INR. Lakh Crores)

FY 2020 – 21 137,703.61 5.78 237.73 137,947.12
FY 2019 – 20 506,261.50 7.19 158.40 506,427.09

 

Changes Needed for Implementation:

Making necessary changes in Banking Software to deduct Secured Insurance amount from the transactions and credit it to Central Government and Banks. To revive the Indian Economy from the massive blow of COVID – 19 Pandemic, Secured Insurance is putting a Pragmatic Solution for serious consideration.

The Proposal in Brief

  1. NEFT & RTGS, Mobile transaction mode in public and private banking system.
  2. Every transaction routed through Bank / Digital Mode will attract a certain deduction in appropriate percentage (say 0.01%) as a Secured Insurance (SI) for financial institution transaction services.
  • This deducted amount will be credited to the Central Government and Transacting Bank Agency in justified proportions.
  1. Cash transaction CESS amount at 0.5%.
  2. TRANSACTIONS below INR. 1000 to be exempted.
  3. Select transactions of Government and Banks will be exempt.

Anticipated Benefits:

  • Banks as a critical cess collecting agency, in addition to their usual services, would get a service charge on every bank transaction say @ 0.01% of Transacted Amount. This will provide banks an additional source of revenue and employment growth. Banks then will not need an otherwise certain bailout package from the Central Government in the given circumstances.
  • Reduced fuel prices will drastically reduce Transportation and Energy Costs making goods and services cheaper, benefitting the entire society.
  • Reduced Transportation and Energy input costs will help industries revive and become globally competitive in a considerably short time.
  • Social sectors such as Education and Healthcare will be totally free for all citizens of our country due to the surplus of funds available in the government system.

Secured Governance

The role of infrastructure in spearheading the economic development of a country and setting its pace can hardly be over-emphasized. As a foundation in an edifice, the place of infrastructure as well as its soundness, are crucial to the nation’s total development. The economic growth of a country has evidently happened hand in hand with the development of its infrastructure. A sound infrastructural foundation is a key to the overall socio-economic development of a state. This acts as a magnet for attracting additional investment into a state and thus provides a competitive edge over other states. Availability of adequate and efficient infrastructural setup not only promotes rapid industrialization but also improves the quality of life of the people.

SELF–SUSTAINED ECONOMIC GROWTH THROUGH SECURED GOVERNANCE

“Secured Governance offers a strategy for the government to get all the basic infrastructure development with a negligible investment by the Government. It is a concept of developing Techno-Economic Corridors connecting HUBs which will act as a growth center for individual sectors. The very concept of “Secured’’ here implies a secured convergence or knitting with various sectors defining a growth for an economy.”Secured cess to Insure and accelerate National Growth

SECURED GOVERNANCE – A HOLISTIC APPROACH TO INFRASTRUCTURE DEVELOPMENT

Secured Governance is a concept that is catching the attention of many as a holistic approach to infrastructure needs, promising a great deal. It professes taking advantage of the valuation of assets created and delivering at negligible cost to the government. It aims at balanced growth in all sectors in need of better facilities, in a more holistic manner, rather than focusing only on saying expressways, or power, or any one of numerous other sectors. While addressing any one of them, the others also get due attention ensuring all-around development. It promises more societal participation and benefit-sharing with transparency. Underlying this is a strategy of developing techno-economic corridors connecting urban areas across the country.

SECURED GOVERNANCE ADVOCATES A PRAGMATIC APPROACH OF TAKING ADVANTAGE OF THE VALUATION OF ASSETS CREATED

This is not new. We all know when development takes place there is valuation in the property. Who benefits from this? Often it is incidental and taken advantage of by land and property sharks. Imagine a model where this valuation can be plowed back into the project and benefit the people around. First, the cost of the project is reduced and can be at negligible cost to the government if carefully planned. Next, the population sees it as benefitting them and so they participate more enthusiastically, helping with the early completion of the project rather than being an impediment.

Conclusion

The suggested structure for the Secured Cess to Insure any Natural disasters, Cybercrimes, NPAs, Mismanaged fallouts, etc. would also give infrastructure Growth, huge investment toward a greater formalization of the economy. This is bound to lead to an acceleration in per capita income of the people and large-scale employment. The government clearly holds the key to realizing this potential and taking a proactive stance. The growth of digital payments also needs to be supported by robust and scalable infrastructure, strong regulations, and the participation of diverse players. Developing and implementing tighter cyber and information security guidelines to make the payment ecosystem more secure will help in ensuring that users are able to trust digital payment modes. In the future, all participants in the digital payment ecosystem – regulators, payment system operators, financial institutions, banks, FinTechs, and service providers – will be required to continue collaborating amongst themselves to sustain the growth achieved in the digital payment space over the last few years.

Once the above is done, it is expected that the various pillars of economic growth will automatically start to move and move at an increased pace. Over time, the shift to a Secured Insurance approach should greatly enhance domestic consumption, increase domestic savings, further reduce interest rates for lending and make exports competitive, apart from helping to generate surplus funds for development (including infrastructure), enhance investment, eliminate poverty, and transform India into a rapidly growing, stable and inclusive economy.

The introduction of a simple SI should also help in building a more competitive industrial base in India, especially among the micro, small and medium enterprises (MSMEs) and also in manufacturing in general. Various manufacturing clusters that are doing badly should now be able to do better and without a doubt, exports will pick up. The move to SI (with additional reforms in the real estate and other sectors) should also enhance the overall size of the economy, especially given that the informal sector and the parallel (black) economy in the real estate sector would have been fully absorbed into the mainstream.

One last point is in order. Much has been tried for the past 72 years (with varying degrees of success) about building a vibrant economy and I strongly believe that it is a now or never situation for the Indian economy today. Here is a great opportunity to create a vibrant and dynamic economy and that should be utilized. That is what India needs today and that is what will cure our ailing age-old system of economic governance and push us into an era of dynamic and vibrant entrepreneurship based on sound fundamentals into a period of long-lasting (hopefully, double-digit) growth.


By,
Dr. P. Sekhar,
Chairman,
Unleashing India,
Global Smart City Panel,
MTGF
Dr. P. Sekhar the policy times


 

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Secured cess to Insure and accelerate National Growth
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The Reserve Bank continued its efforts to develop state-of-the-art payment and settlement systems in the country and enhance the digital payment experience of the consumers while ensuring adequate security measures.
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THE POLICY TIMES
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