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Budget 2017: Need of robust infrastructure creation to enable a smooth digital economy

To promote a cashless economy, government, banks, financial institutions, payment intermediaries and companies will have to work together. All will need to make sure that the transformation of the Indian citizen from cash based economy to a cashless economy happens in a convenient and safe way.

BVR Mohan Reddy   New Delhi     Last Updated: January 20, 2017  | 19:40 IST
Budget 2017: Need of robust infrastructure creation to enable a smooth digital economy

BVR Mohan Reddy
The upcoming budget for the year 2017-18 will be unique for multiple reasons and there is big expectation from every segment of the society. One of the noticeable aspect of this budget will be that it will have the railway budget merged with the general union budget.

Also, this budget becomes even more important as the nation is going through a big initiative of demonetization which has impacts in various size and forms. In a country like India, where 86 per cent of the transactions happens in cash, this is a bold step by the government to push the economy to a digital highway.

FULL COVERAGE: UNION BUDGET 2017-18

To promote a cashless economy, government, banks, financial institutions, payment intermediaries and companies will have to work together. All will need to make sure that the transformation of the Indian citizen from cash based economy to a cashless economy happens in a convenient and safe way.

There is a need of robust infrastructure creation to enable a smooth digital economy. India today has more than 700 million debit cards in usage. While we have 5.8 crore SMEs and micro SMEs, the debit card is accepted only in 14.4 lakh locations. Infrastructure building is something which needs time and government encouragement. The upcoming union budget should announce a more easier framework and guidelines to own the card payment machines or the POS terminals by the SMEs.

FULL COVERAGE: RAILWAY BUDGET 2017-18

Right now many intermediaries and financial institutions levy transaction charges, like at petrol pumps. The union budget should announce relief on such transaction charges and should a step forward and incentivize the usage of digital payments through discounts and tax waivers.

Another big challenge to cashless economy would be the cyber security. With the sudden flood of digital wallets and payment companies, there is an increased threat of funds and data stealing. In past, many reputed banks across the globe have lost hundreds of crores due to cyber hacking despite having infrastructure in place. It is of extreme importance that government sets up a strong policy framework on cyber security for cashless transaction and encourage the development of supporting infrastructure around it.

For the IT industry, the demonetization had no impact as most of the business was traditionally being run cashless. However the IT and engineering industry of India has been going through different challenges and would be looking forward to the upcoming budget to get some relief and support from the government.

First and foremost is the GST, which has been a major talking point and a bone of contention between central and state government. This week the center and state government have been able to come to a consensus of rolling out the GST from 1 July 2017. This common agreement on the implementation date definitely gives the industry much needed clarity and some additional time for preparation of this huge reform.

Another issue that has been in discussion with government for a long time is the incentivizing of R&D. While India has been able to incentivize the manufacturing related R&D in India as being innovation, this has not been done in the IT sector so far. To make sure India transforms into a digital economy and embraces innovation, it is important that the government announces the R&D incentives for the IT & Engineering Industry as well during this budget. This has been already done in many countries like UK & Ireland.

There have been concerns around the unusually high safe harbor margins (ranging between 20%- 30%) and this has to be revised to a lower rate which is more realistic based on the APA (Advance Pricing Agreement) data. Safe Harbor margins are high in transfer pricing and have not been adopted by the IT companies from India.

The software product development industry has been largely dominated by SMEs which has been suffering with the 10% TDS levied on all software transactions, which has cascading effect. The upcoming budget should address this issue to make sure government provides the required boost to the software product SMEs.

Overall, industry and individuals have high expectations from this Union Budget and we hope to see some good initiatives that will give an additional boost to the economy and eco-system.

The author is Founder & Executive Chairman, Cyient and Former Chairman, NASSCOM

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