Government Payments Can Soon Be Made via Mobile Wallets

The Indian government is working towards creating a framework for all financial payments—inter-ministerial, vendor transactions or small payments by citizens for government services—to be made through electronic modes. This is a part of a larger initiative by the Modi government for a cashless, or less-cash, economy.

India has unveiled plans to cut transaction costs for electronic payments to spur retailers and consumers to use less cash as part of Prime Minister Narendra Modi's drive to pull more people into the formal economy and boost public revenue.

The Department of Electronics and IT (DeitY) is leading the project as part of the Digital India initiative. A senior official aware of the project called e-payment said that currently, most government payments and receipts are made by cash or check. "Our endeavor through this project is to ensure that at least 90%, if not more, of all government payments happen through some or the other electronic mode, be it through credit card, RTGS, DBT or mobile," said the official.

India has the RTGS (real-time gross settlement) for large amounts and IMPS (Immediate Payment Service) payment services for low amounts available to the public at no cost. The government is aiming for every department to give out some kind of an e-receipt by December 2016. "Even mobile wallets can be considered for small payments," the person added. A report of a task force on Aadhaar-Enabled Unified Payment Infrastructure released in 2012 said that studies have estimated that the cost of cash transactions is equivalent to 5-7% of GDP and this figure can be decreased by one-third if people start using retail electronic payments.

"Initially, a less-cash approach needs to be followed rather than going for a cashless approach," the report said. While the government's overall subsidy burden exceeds Rs. 3 lakh crore each year, remittances are estimated to be an additional Rs. 1 lakh crore, the report said. Though there are no estimates of the extent of cash circulating within the government machinery, the figure is expected to be a high percentage of the GDP.

The report recommended that all payments above Rs. 1,000 by the government and government institutions should be made electronically. It said that the savings due to reduced cash management would balance out the cost of processing electronic transactions. The official added that while several public utilities such as state-owned telephone and power utilities accept e-payments by citizens, most departments don't have the basic application or technology to accept payments through the Internet. In order to save effort and expenditure by each ministry, DeitY is developing a common application with basic payments features that can be adopted initially.

Things have been changing rapidly in India in the financial services sector in the last few years. India is definitely taking serious steps to achieve its goal of making India a cashless society.