Prime Minister Narendra Modi today launched a digital payment solution e-RUPI, which is in the form of a QR code or SMS string-based e-voucher directly delivered to the mobile number of beneficiaries.
This payments platform, which doesn't require any internet connection, has been developed by the retail payment nodal agency, the National Payments Corporation of India (NPCI), on its UPI platform, in collaboration with other government departments.
Currently, the government's direct benefit transfers (DBT) scheme subsidies are disbursed through the Jan Dhan accounts. The beneficiaries withdraw the DBT money as soon as it's credited in their accounts. In 2020-21, the government made a huge DBT transfer of Rs 2.96 lakh crore, one of the reasons cited by experts as a reason for high cash levels in the economy.
The e-RUPI vouchers will be given for a specific purpose to the end-user beneficiaries, and there is no need to withdraw cash to give cash for a service. The e-RUPI adoption could be extended to many services or payments like DBT, which will go a long way in reducing cash in the economy in rural and semi-urban areas.
Bharat Panchal, chief risk officer at financial technology company FIS, said stronger controls may be required to monitor any possible fraud. "If a real beneficiary starts encashing such vouchers in lieu of cash, it would be difficult to trace such pre-paid instruments once it starts to move from one hand to another," he says.
He suggests it would be "effective to match the beneficiary's details at the time of redemption to make sure the real beneficiary is only using it and not someone else".
The cash to GDP has already breached the 14 per cent mark in 2020-21, despite various digitisation initiatives in the payment space. The 14.6 per cent cash to GDP is much higher than the 12 per cent level before the demonetisation.
The currency in circulation ( CIC) or cash in the economy as a percentage of GDP is a universal indicator of measuring the cash in the system.
The smaller towns and cities are the weakest link in the digital payments chain. In smaller cities, the bank branches are at faraway places and the ATM network is, too, very limited. This forces people to withdraw cash at one go for their monthly expenses.
There are also tax issues in the banking correspondent model, which are actually a link between the bank branches and the account holder. Take, for example, a banking correspondent is liable to pay TDS at the rate of 2.0 per cent for cash withdrawals exceeding Rs 20 lakh in a financial year. The TDS rates increase to 5.0 per cent if the cash withdrawals exceed Rs 1 crore in a financial year.
Most banking correspondents are small-time traders and kirana store wallas, who hardly file tax returns. As a result, many banking correspondents are not doing business beyond Rs 20 lakh, to avoid unnecessary questions from bank officials.
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