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Misaligned incentives threaten to upset India's digital infra apple cart | Current Affairs | Vision IAS

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Misaligned incentives threaten to upset India's digital infra apple cart

2 min read

India's Digital Transformation and Challenges

India's digital evolution has been revolutionary, establishing Digital Public Infrastructures (DPI) like Aadhaar for identity, Unified Payments Interface (UPI) for payments, and the Jan Dhan-Aadhaar-Mobile trinity for financial inclusion. These frameworks have enhanced efficiency across sectors and empowered citizens across various socio-economic groups.

Emergence of Domain-Specific DPIs

  • Open Network for Digital Commerce
  • Ayushman Bharat Digital Mission in healthcare
  • Digital agriculture initiatives

These infrastructures aim to innovate and scale markets and services inclusively.

Challenges with Incentives in Digital Payments

Despite the robust infrastructure, misaligned incentives undermine the potential benefits of digital platforms. For instance, digital payments often cost more than cash transactions, discouraging a cashless economy.

UPI's Impact

  • In May, UPI recorded 19 billion transactions worth over ₹25 trillion.
  • It reduces the systemic cost of currency management significantly.
  • Yet, users face penalties for opting for digital payments over cash.

Convenience Fee Issues

  • Digital transactions often incur a "convenience fee", such as:
  • Railway ticket bookings via UPI attract a fee, while cash payments do not.
  • Similar fees apply to electricity, property tax payments, exam fees, and airline bookings.
  • This pricing structure discourages digital adoption, particularly for price-sensitive consumers.

GST Misalignment

The GST policy impacts digital-first business models:

  • Aggregators like Uber and Ola are subject to GST on full fares.
  • Platform-as-a-service (PaaS) models face GST on entire transaction values, complicating tax liabilities.

Such misalignments may hamper innovation in expanding digital platforms.

Proposed Solutions

  • Mandate zero convenience fees for public digital transactions.
  • Reform the zero-MDR framework with a tiered model, exempting micro-merchants but charging larger businesses.
  • Enforce payment mode parity to ensure digital transactions are not costlier than cash.
  • Correct GST treatment for SAAS & PAAS to distinguish transaction-based entities from facilitators.

Conclusion

The transition to a fully inclusive digital economy in India requires more than just infrastructure. Aligning incentives, building consumer trust, and enforcing coherent policies are crucial. The shift is not a technology issue but an economic design challenge. If successfully implemented, digital will become the default choice without external prodding, ensuring that the full potential of India's DPI is realized.

  • Tags :
  • India's Digital Transformation
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