India’s War on Cash Continues with New Tactics (June 25, 2015)
The Indian government’s efforts to shift the country’s economy away from cash have taken a significant step forward. In a draft proposal issued this week, India’s Ministry of Finance outlined a multipronged plan to encourage the use of electronic payments to bring more people into the formal economy and increase public tax revenue. Among the measures outlined in the proposal are: tax rebates for merchants that accept electronic payments and consumers who pay electronically; a standardized interchange rate for all card payments; elimination of existing card surcharges for certain purchases, such as gasoline; mandatory electronic payments for high-value purchases; and a requirement for banks to install more POS terminals in retail locations. The finance ministry is inviting feedback on the proposal, with comments due June 29.
Federal and state governments in India have been committed to moving the country’s economy toward a cashless model for the past several years, using regulatory measures and alliances with private payment providers, such as MasterCard, to increase electronic payments in what remains one of the world’s most cash-dependent economies. The amount of cash circulating in India comprises 12 percent of the country’s entire GDP, according to MasterCard—four times the ratio of similarly sized economies, such as Brazil and Mexico. Increasing electronic payments would be a boon not just to the Indian government’s tax revenue—but also to payments providers, which would be in position to capitalize on the country’s huge population, observers note.