Digital Economy: Cashless Economy

Digital Economy

The world as we know is rapidly changing and Digital Economy has played an elementary role in such transformation. At its core, digital transformation isn’t just about social networking. It’s about using the latest technology to do what you already do – but better.i.e to say digital economy is SMART economy.

➔      Social

➔      Mobile

➔      Apps

➔      Real-time

➔      Trusted

Technology advances quickly, yet organizations and skills tend to move at a slower pace. In the coming decades, the gap between swiftly evolving technology and the slower pace of human development will grow wider as exponential improvements in artificial intelligence, robotics, networks, analytics, and digitization affect more and more of the economy and society. 

Inventing effective organizations and institutions suited for the digital economy is the grand challenge of our time.

The global economy is undergoing a digital transformation, and it’s happening at breakneck speed.

What is the digital economy?

Digital economy is an umbrella term used to define the worldwide network of economic activities enabled by the information and communication technology.in simple terms it is an economy based on digital technologies,where cash is seldomly used hence can also be termed as Cashless economy.

The digital economy is taking shape and undermining conventional notions about how businesses are structured; how firms interact; and how consumers obtain services, information, and goods.

The aggressive use of data is transforming business models, facilitating new products and services, creating new processes, generating greater utility, and ushering in a new culture of management.

However, the digital economy is not simply about moving business transactions from face to face to online, but also transforming the various facets of business interactions and transactions and also enabling economic innovations. For example, the digital economy both is enabled by and has given rise to the advent of new digital currencies and payment processes (i.e. the Digital Wallets).

The significant risks associated with digital economy are Unauthorized access and use of corporate and personal information .

There are various questions being raised about this new economic model that have yet to be answered. Some have wondered whether cash will become extinct. Others have asked whether a single globally accepted currency will emerge.according to the Economists neither scenario is likely -- at least in the near future.

According to the Goldman Sachs prediction that India - could be the second largest economy by 2030. India’s new leadership considers the digital economy as a major growth enabler. When Prime Minister Narendra Modi strategically listed “Digital India” among the top priorities for the new central government, he delivered a resounding nod to the digital economy’s opportunities.

“I dream of Digital India where mobile and e banking ensures Financial Inclusion”- Narendra Modi

Prime Minister Modi’s vision for a Digital India is a strategic call to embrace the opportunity for India as one of the leaders in the third industrial revolution, and the use of Information and Communication Technologies (ICTs) that has never been greater.

India’s leaders also acknowledge the digital economy’s potential and have substantially invested in digitalization for public and private sectors. The commitment of India’s government to spend Rs1.13T (US$19 billion) within the next five years strategically acknowledges the increasing value of Communication Technologies (ICTs).

Nearly 40 percent of the global value at stake will have new winners and vendors in the next decade. This major opportunity of the digital economy has the power to change the lives of millions of people of India. It could be an important vehicle for change and it could provide the opportunity for India to dramatically expand its role and influence in the global economy and become a powerhouse of digital innovation.

Cisco estimates that all IoE pillars - Internet of things, Internet of people, Internet of data, and Internet of Process for India have a value at stake (VAS) of INR 31.880 trillion (about half a trillion U.S. dollars) for the next ten years. From that INR 7.263 trillion is in the public sector and INR 24.616 trillion is in the private sector during the next decade.

With a clear vision, the present government is pushing ahead the Digital India initiative to transform the country into a digitally empowered society and a knowledge economy. With the launch of Digital India initiative, the government aims to reach out to citizens in the remotest of locations and make them a part of India’s growth story. Since technology is a key driver in causing disruptive change, digital tools will empower citizens and prove to be a game-changer.

Nobel Prize-winning economist Joseph Stiglitz stated, at the World Economic Forum meeting in Davos, Switzerland, that the United States should follow Modi’s lead in phasing out currency and moving toward a digital economy because it would have “benefits that outweigh the cost.”

 

SUCCESSES OF DIGITAL INDIA

  

●      E-Pathshala: Transforming Learning through Technology

The Ministry of Human Resource Development introduced the e-Pathshala programme to promote ‘learning on the go’ among students, teachers and parents. Through this initiative, free access to NCERT books is available to students of classes 1 to 12. These books are available in both Hindi and English.

●      eBiz platform

The initiative, driven by the Department of Industrial Policy and Promotion (DIPP), seeks to provide comprehensive Government-to-Business (G2B) services to business entities with transparency, speed, and certainty. The aim is to reduce several levels of points of contact between business entities and government agencies, establish single-window services and reduce the burden of compliances.

●      My Gov platform

This is a platform for citizens to exchange ideas and suggestions with the government. Through this initiative, the government receives feedback, inputs and ideas from people regarding policy decisions and new initiatives like Digital India, Swachh Bharat, Make in India, among others.

●      Jeevan Praman

The Jeevan Praman programme enables pensioners to conveniently submit their life certificates online through this portal. The certificates are stored in the Life Certificate Repository and available to pensioners and Pension Disbursing agencies.

●      Digital Locker System

DigiLocker is a key initiative under Digital India. This programme is targeted at paperless governance and is a platform for issuance and verification of documents and certificates digitally. A dedicated cloud storage space is given to all those who register for the Digital Locker account. To make it an easy process, this storage is linked to their Aadhar (UIDAI) number. Unified Payment Interface (UPI)

With a system such as UPI, the billing processor is eliminated, and transaction costs are close to zero. The mobile phone and a personal identification number take the place of the credit card as the authentication factor. All you do is download a free app and enter your identification number and bank PIN, and you can instantly transfer money to anyone, regardless of which bank he or she uses. Transfers would happen within seconds, even faster than the 10 minutes that a bitcoin transaction takes.

Digital India has been introduced to with the motive of smooth implementation of e – governance in the country and transform the entire ecosystem of public services through the use of information technology. as there is no better way to promote inclusive growth other than through the empowerment of citizens.

Digital economy as a theme of Budget 2017

Digital economy is one of the nine themes of the budget. According to the Finance Minister, Digital Economy provides speed, accountability and transparency in the country.

“Promotion of a digital economy is an integral part of Government’s strategy to clean the system and weed out corruption and black money.  It has a transformative impact in terms of greater formalisation of the economy and mainstreaming of financial savings into the banking system.  This, in turn, is expected to energise private investment in the country through lower cost of credit.  India is now on the cusp of a massive digital revolution.”

The budget makes several efforts to realize a number of goals related to the digital economy. These include the construction of digital payments infrastructure, enhancement of digital connectivity in rural areas, provision of skill and education to the youth, raising the quality of e-governance, promotion of digital manufacturing and the important goal of ‘cleaning’ the economy and society.

1. Digital payments

Budget has now turned as a promotion platform for digital payments. A Mission will be set up with a target of 2,500 crore digital transactions for 2017-18 through UPI, USSD, Aadhar Pay, IMPS and debit cards. Already, the JAM (Jan Dhan, Aadhaar and Mobile) is linking people and public services. The direct benefit transfers through which transfers are delivered to the weaker sections are using the digital platform. It has proved that shift to digital payments has huge benefits for the common man. Financial inclusion and the JAM are now creating big improvement in the delivery of government services among the people.

Finance Minister declared that the government will launch two new schemes to promote the BHIM app. The first one named Referral Bonus Scheme will be for individuals and the second one named Cashback Scheme will be for merchants. Similarly, another payment facility called Aadhar Pay which is a merchant version of Aadhar Enabled Payment System, will be launched shortly.  Banks have targeted to introduce additional 10 lakh new PoS (Point of Sale) terminals by March 2017.  They will be encouraged to introduce 20 lakh Aadhar based PoS by September 2017.  

Budget also stressed steps to promote digital payment applications including the BHIM App use in important institutions and market places. Digital payment modes including the BHIM App will be promoted in petrol pumps, fertilizer depots, municipalities, Block offices, road transport offices, universities, colleges, hospitals etc. 

The Finance Minister observed that increased digital transactions will enable small and micro enterprises to access formal credit. 

The Budget also promises to upgrade digital payment regulatory framework so that it will encourage the industry and banking sector to adopt new payment technologies.

Already a Committee on Digital Payments (Ratan P Watal) constituted by Department of Economic Affairs has recommended structural reforms in the payment eco system. As a follow up, the existing regulatory framework for digital payments- the Payment and Settlement Systems Act, 2007 will be amended this year.

The budget also proposes to create a Payments Regulatory Board in the Reserve Bank of India by replacing the existing Board for Regulation and Supervision of Payment and Settlement Systems. 

2. Connectivity

The second component of the government’s digital economy initiative in the budget is enhancement of connectivity. Without speedy connectivity, people can access digital services and hence broadband connectivity is to be expanded. For this, the an allocation of Rs 10000 crore will be provided during 2017-18to the existing BharatNet project. BharatNet targets to provide digital connectivity to the country’s nearly 250000 panchayats. 

By the end of 2017-18, high speed broadband connectivity on optical fibre will be available in more than 1,50,000 gram panchayats, with wifi hot spots and access to digital services at low tariffs.

3. Digital education/skill formation

Digital economy is going to have profound impact on the education sector. Here, the government’s aim is to make use of the digital technology space to give education and skill to the country’s growing youth population. Already, the MHRD has launched SWAYAM as an indigenous developed IT platform that facilitates hosting of all the courses, taught in classrooms from 9th class till post-graduation to be accessed by anyone, anywhere at any time. The objective of this effort is to take the best teaching learning resources to all, including the most disadvantaged.

SWAYAM seeks to bridge the digital divide for students who have hitherto remained untouched by the digital revolution and have not been able to join the mainstream of the knowledge economy. Nearly 350 courses will be offered through the SWAYAM platform.

A DigiGaon initiative will be launched to provide tele-medicine, education and skills through digital technology.  In the same way, the budget envisages to promote startups for exploiting the opportunities of the digital world.

4. Public service delivery and e governance

Ever since the beginning of the digital India Mission, the government is trying to maximize the gains of digital revolution by providing government transfers like pension, NREGA wages, scholarships etc. through the JAM platform.

In the new budget, the Finance Minister announced the expansion of national online agricultural market or the e-NAM for entire farmers so that they can get better price for their crop.

Acceding to the budget, the coverage of National Agricultural Market (e-NAM) will be expanded to 585 APMCs.  Similarly, e-NAM will be linked to derivative markets.

5. Digital economy for cleaning the system

one of best benefit that digitization offers is transparency i.e , all accounts and transactions are recorded so that there is little scope for tax evasion and black money. In this context, the digital economy will help the government to cleanse the system.

For raising transparency and ensure cleaning of government transactions, the budget banks crash transaction above Rs 3 lkh. This is in accordance with the recommendations of the Special Investigation Team (SIT) for checking black money.Cash donations to political parties are now limited to Rs 2000.

6. Manufacturing of digital devices

Cashless economy is possible with the expansion of devices and infrastructure. For this, the budget brought several steps to promote the manufacturing of PoS machines and Micro ATMs. For the promotion of cashless transaction equipments and their domestic manufacturing, the basic customs duty, countervailing duty and special additional duty of imported components were abolished. Similarly, the excise duty of several POS machine components were eliminated.

The budget 2017 thus launches digital economy drives to realize multiple objectives. A well-designed set of schemes and programmes were launched by the government to restructure the economy, economic activities and institutions to embrace the principles of digital economy. The most important of them are to ensure transparency in the system by checking black money and to facilitate cashless economy.

GST A MAJOR TAX REFORM

India’s biggest tax reform in history is also set to make its small-to-medium businesses more transparent. 

On July 1, as India rolls out its landmark national sales tax, businesses that make less than 100 million rupees -- which the government refers to as micro, small and medium enterprises -- will all have to digitize   .

The firms, often accused of conducting business mostly in cash and evading taxes by under-reporting income, will for the first time have to report every transaction, creating an online trail for the tax office.

Transition is going to be very painful as the new reporting requirements under GST could also mean chaos in a nation where about one-fourth the population can’t read or write and many offices do not have the technology needed to file digital returns. It may take 2-3 years to understand the new law.

"Evasion will be checked," finance minister Arun Jaitley said on May 18 after the government announced new rates for goods and services tax. 

India is on its Journey of becoming One Trillion Digital Economy by 2022 from $270Billion Dollar Economy and to achieve this aim, we must bridge Digital Divide and ensure digital literacy to be aided by the exponential growth witnessed in e-commerce, electronic manufacturing, IT services, financial technologies (FinTech), and telecom among others. Government is also focusing on preparation of Digital India index evaluating various key indices such as ehealth, education, eGovernance, and Digital Infrastructure.SME are backbone of our economy. They have contributed 17 percent to nation’s GDP during FY 2011 and employed 60 Million People, the second largest workforce in the country after agricultural Sector.

GST a Turning point for SMEs

GST will simplify setting up of SMEs and MSMEs asit has been proposed that  procedural fees and costs of compliance with the overall indirect taxation framework are set to shrink significantly. A unified tax system across states will ensure appropriate transfer of tax credits irrespective of the buyer and the seller’s physical locations.

Elimination of entry tax at state borders will lead to increased efficiency of inter-state logistics. Newer supply chain algorithms will emerge to map the new framework and minimise landed cost.

SMEs with annual turnover of less than Rs 50 lakh need to pay only a flat tax rate capped at 2.5% of turnover rather than on the entire value of supplied goods and services.

GST has also done away with the unclear distinction between goods and services. This will go a long way in reducing litigation and tax-evasion opportunities. GST requires every tax-paying entity to self-assess tax and file its returns on a monthly and an annual basis. Returns are to be filed electronically which will reduce errors and lapses.

An evaluation system for tax-paying entities has been proposed, under which every such entity will receive a GST-compliance score. As per the proposal, these scores will be updated periodically and be made available in the public domain. This will allow GST-compliant SMEs to establish credibility with potential clients and other stakeholders.

However, certain hurdles remain for SMEs. Currently, no excise duty is payable by manufacturers with gross turnover under INR 1.5 Cr. But under GST, any entity that supplies goods and services and whose turnover exceeds Rs 20 lakh will have to register in every state where it conducts business.

For special category states, the turnover threshold is Rs 10 lakh. Another concern for SMEs is that under the new regime, buyers of goods and services are totally dependent on sellers for input tax credits.

SMEs have limited resources and influence to follow up with their vendors and suppliers for the purpose of ensuring tax payment and compliance.

Unlike the current excise regime, GST will make ‘stock transfers’ to own branches taxable. With GST being paid on the date of the transfer but credit becoming available only when the stock is liquidated by the receiving branch, cash flows could be impacted. GST heralds a turning point in India’s taxation norms and policies.

Its key objective is to unify India into a single market by eliminating tax-driven geographical fragmentation.

Successful implementation of GST will reduce the complexity resulting from multiple state and central indirect taxes, various levies and exemptions and sub-optimal application of input credits across goods and services. While a change of such magnitude may run into some teething issues, it is undoubtedly an extremely significantly move that is set to alter how business is conducted in the world’s largest democracy.

The Government of India has planned to reorganise the existing central excise and service tax field formation of the Central Board of Excise and Customs (CBEC) and rename it as the Central Board of Indirect Taxes and Customs (CBIC), to supervise goods and service tax (GST) and customs activities, as well as provide the government with policy inputs. The CBIC will be headed by a chairman and will be managed by a six members team. The CBEC also plans to set up two new Directorates - The Directorate General of Analytics and Risk Management (DGARM) and Directorate of International Customs. The DGARM will have two verticals for business intelligence and analytics and risk management centre to provide perspectives for policy formulation, while the Directorate of International Customs would likely help in dealing with WTO related matters, including tariff, as well as the Kyoto Convention, multilateral and bilateral agreements with other countries.

For more details, please contact CS Neha Seth at csnehaseth@gmail.com or call us at 9540074449