Critically comment on the government's plans to create a subsidy package to encourage consumers to switch from cash payments to digital.
Published: August 30, 2017
India is a cash dominated economy. In an attempt to incentivize people to switch from cash payments to digital transactions government is planning to start subsidy package.
One of the major issue associated with such subsidy package is that there may be a diversion of resources from other priority sectors like health, education.
The reason behind the slow transition towards digital payments is the scale and speed of change in digital infrastructure. So instead of subsidies, the emphasis should be better infrastructure.
Also, government intervention like subsidies, price caps, and government sponsored payments products create uncertainty for commercial service providers, this may distort fair competition.
Initiatives like quick response (QR) code allow stakeholders to bypass high-cost point of sale devices. So such initiatives will provide a boost to digital payments. Such initiatives should be promoted.
If digital payments are convenient and secure people will switch to digital so steps should be taken to ensure data security, simplicity & financial viability of transactions.
The best way to encourage digital payments is a strong legal and regulatory architecture to ensure fair competition& integrity of digital transactions. Along with this, the focus should be on behavioral change.
Model Questions Category: 058 - Indian Economy Issues Relating to Planning