Panel plays safe on digital pay watchdog

New Delhi: India finally has a clearly defined goal to slash the use of cash in its economy - an objective that underpinned Prime Minister Narendra Modi's demonetisation drive. An 11-member committee headed by former finance secretary Ratan Watal - which was formed in September and asked to come up with a set of recommendations to strengthen the country's digital payments ecosystem – on Tuesday suggested that India's cash-to-GDP ratio be brought down from 12 per cent, one of the highest in the world, to 6 per cent within the next three years. If the government accepts this recommendation, India will be shooting for a cash-to-GDP ratio that is lower than the 7.4 per cent currently prevailing in the US. The report, which was submitted to the finance ministry on December 9, was placed in the public domain - just three days before banks slam the windows shut on the acceptance of the demonetised Rs 1,000 and Rs 500 notes from the public. One of the most important recommendations of the committee was to set up a new payments regulatory board that will function "within the overall structure of the Reserve Bank of India". There has been a growing demand to create an independent regulator for digital payments outside the ambit of the central bank - a suggestion that the RBI has vehemently opposed. The committee chose to play safe and suggested that the current board for regulation and supervision of payment and settlement systems (BPSS) within the RBI should be given an independent status "which it today lacks by being a sub-committee of the central board of the RBI". But it will remain within the RBI structure. "India continues to have one of the lowest use of digital payments globally," the committee said in its report that advocated the need to create a payments platform that would allow consumers to pay taxes through cards and e-wallets. It urged the government to incentivise consumers to pay fines and penalties to the government by giving them discounts and cash-backs. "Technology has led to payments emerging as a distinct industry... payments is a business of transferring money. In contrast, banking is the business of giving assured returns on deposits and lending," the committee said. The report said newbie payment service providers - like Paytm, FreeCharge and MobiKwik - "require to connect with banking systems to serve their customers (but) tend to face restrictive practices". "This anti-competitive setting is not conducive for innovation and consumer interest," the report added. "Payments now need to be regulated independently. The approach of the RBI has already been to regulate non-banks in payments lightly. This has enabled them to emerge as significant players in a relatively short time frame. This growth now needs to be nurtured so that banks have competitive pressure to innovate and non-banks have an equal opportunity to compete," the committee said. "The anonymity of cash transaction is a non-trivial barrier to digital payments and is a constant battle between government and those who steal taxes," the report said even as it claimed that its set of 13 recommendations could be put into implementation over the next 30 to 90 days. These would involve placing proposed legislative changes before Parliament, regulatory changes by the RBI within the current legislative framework, and implementing policy measures and executive steps by the finance ministry and other nodal ministries. The committee also said that within two weeks of the release of the report, the RBI should develop a comprehensive metric to quantitatively measure and monitor the enhancement of digital payment services in India.