Q1. What lies between 100% of Indians and digital cash?

Ans. Physical cash.

So, in November 2016, the Indian government “demonetised” 86% of physical currency in circulation. Overnight, fintech fortunes shot through the roof. Adoption of e-wallets and digital transactions skyrocketed.

Cut to October 2018 and Indians are back to cash. Rs 18,40,000 crore ($250 billion) worth of currency was in circulation by April 2018, up 2.3% from before demonetisation. Far from giving up physical cash, they’re even more in love with it. They’re not only withdrawing more money from ATMs, but they’re also withdrawing more cash per transaction and keeping more cash with them.

Q2. What lies between 95% of Indians using cash and fintech companies?

Ans. The country’s central banker, the Reserve Bank of India (RBI).

The 83-year-old institution, which keeps India’s financial and payments ecosystem in check and clips wings when it has to, is now at the risk of getting its own wings clipped.

It’s been nearly two years since the government believed that demonetisation was the rocket fuel digital payments needed. Debit card usage at point of sale machines was at 357 million transactions in August 2018. That counts for only 15% of all digital transactions. But that is even lesser than the 17% share it had in December 2016 with 321.5 million transactions. The government needs something more potent to help digital transactions take off. After all, digital payments help bring more people under the Income Tax net. It helps reduce the costs involved in cash. And it can help achieve that elusive dream of financial inclusion.

Q3. What’s the best way to achieve this?

Ans. By carving digital payments out of the ambit of the RBI, and bringing it under the scope of a new regulator independent of the RBI. So independent that the proposed board members of that regulator are those that come recommended by the RBI. But no RBI members themselves would be part of it.

This recommendation to break up payments from the RBI was the result of a 10-month-long inter-ministerial deliberation by the who’s who of Indian regulatory superpowers. The Unique Identification Authority of India, Ministry of Electronics and Information Technology, Department of Financial Services, Department of Legal Affairs, and the RBI itself put together a report calling for changes to the existing decade-old Payments and Settlement System (PSS Act 2007).

And the committee stopped just short of calling the RBI what it really meant: ill-equipped.

The draft of the new Payments and Settlement System Bill, 2018, talks about the creation of an entirely new, independent payments regulator.


Arundhati Ramanathan

Arundhati is Bengaluru-based. She is interested in how people use money in the digital age and how new economies will take shape based on that interaction. She has spent over 10 years reporting and writing on various subjects. Previous stints were at Mint, Outlook Business and Reuters.

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