Budget 2017 and Digital Economy

Governments and global institutions recognize that digital technologies and activities are now creating profound effects on the economy. Several initiatives were already made by the government to achieve benefits out the digital economy march. In India, the National e-governance Plan, Broadband expansion under BharatNet, DBT etc. are some of them. The budget 2017-18 makes remarkable efforts to promote digital economy. 

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 transfer 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

Perhaps digitalization’s best benefit is that 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.

Finance Minister in his budget observes that digitalization minimizes tax evasion. “From all these figures (large scale old currency savings by the rich), it seems that India is largely a non-compliant society from tax payment angle.  The predominance of cash in the economy makes it possible for the people to evade their taxes.  When too many people evade taxes, the burden of their share falls on those who are honest and compliant.”

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. Miniaturized card reader for POS, Micro ATM, finger print reader, scanner, iris scanner etc. will get benefit. The excise duty of these items also were eliminated.

For the manufacturing sector, the allocation for incentive schemes M-SIPS (Modified Special Incentive Package) and EDF (Electronics Development Fund) enhanced to an all-time high of Rs 745 crores in 2017-18. 

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.

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