In the market place, the mode of settlement of daily transactions is returning to the pre-demonetization preferred pattern of cash settlement.
In next few months, with implementation of GST, expected from July 2017, drive towards digitalization would be strengthened.
However, some challenges are becoming apparent, which need to be understood and addressed for seamless transition to digital India.
What are the issues?
The problems for digitalization are similar to those for expanding financial inclusion, i.e., thelast mile access.
The problems are mostly supply sideissues. The costs incurred by the banks have received much attention while the problems of the merchants have received scant attention.
Merchants in urban areas indicate that the major obstacle to the growth of digital payments is the increasing costs for merchants.
Merchants in urban areas complained that the recurring monthly cost of maintaining the technology infrastructure is growing rapidly and the increase in business volumes is not sufficient to support it.
A major component of the recurring costs is telephone bills which have more than trebled.
A cause for these rising phone bills is because merchants are often charged an STD rate to the city where the banks’ servers are located.
In the case of rural areas, the actual card usage has been low due to the lack of digital payments infrastructure, fears related to cyber security and lack of knowledge about electronic payments.
PoS machine availability in the villages continues to be low, let alone most business establishments in the villages possessing them.
The government departments and agencies in many small towns and rural areas are not equipped to handle card payments or receive NEFT, RTGS or IMPS transactions.
The penetration of smart phones is also limited.
What could be done?
To begin with, on a pilot basis, the government can identify a few cities which have the potential for complete digitalization.
Initially the experiment can be conducted in a phased manner in different but small and homogeneous areas within the city.
Illustratively, a pilot experiment can be initiated in a campus of an educational institution and once fully digitalized can then be expanded to areas outside but around the campus.
Having gained the experience on how digitalization would work, the government could then extend digitalization to other parts in the select city, and later expand to other cities.
