BUDGET-2023: Pre-Budget Views by Dilip Modi, Founder of Spice Money

Budget 2023 Dilip Modi Spice Money

Tax norms and GST 

The digital payments space has proved its mettle as a stable growth avenue during the pandemic. A positive impact was seen on digital payments due to benign taxation for self-service digital customers. To ensure the same benefits reach less-savvy citizens, our government could waive GST and TDS for financial inclusion services at Business Correspondent (BC) outlets across India.

A waiver in GST and TDS will help reduce the cost of offering seamless financial services and help high-end tech reach the technology-oblivious segment. 

We stand with the Government’s intent of taking digitization to the last mile and passing the GST waiver benefit to ‌ end-users as this will push for greater financial inclusion and a digital economy in the country. 

GST is being charged @18% on customer charges on small value cash remittances (Domestic money transfer) which should be exempt from GST since this product is used by an underserved segment of the population like migrant labor.

ONDC and e-commerce:

Initiatives like ONDC are democratizing e-commerce in India and shaping the future of global e-commerce. To encourage e-commerce in rural India, the government can offer some waivers on GST and TDS to merchants and consumers, especially in Rural India.

Enabling digital payments for Rural India

The Government of India is taking various initiatives for the promotion of digital payments across the country. Over the past years, digital payment transactions have witnessed tremendous growth.

During the Covid-19 crisis, digital payments facilitated the functioning of businesses, including small merchants, and helped in maintaining social distancing.

Focus on Aadhar Pay in Rural Areas (in line with UPI in urban areas):

Small merchants in rural areas generally face challenges in accepting digital payments due to the low penetration of ATM-cum-debit cards and smartphones among customers. While AePS has grown exponentially in rural India due to simplified product offerings (Aadhaar in place of Debit card/Smartphone and Biometric authentication) and the presence of neighborhood BC Agents. 

We Believe BHIM Aadhaar Pay, riding on the AePS railroad, is the right product for small merchants from a customer accessibility standpoint. BHIM Aadhaar Pay adoption is thus key, along with UPI and PoS for equitable growth of digital payments in rural India. 

The government of India recently approved an incentive scheme to promote RuPay Debit Cards, low-value BHIM-UPI transactions. This incentive scheme has a financial outlay of INR 2,600 crores.

A similar provision should be made to Rupay PPI cards/ PPI programs as well for low-value BHIM-UPI Transactions.

Various stakeholders in the digital payments systems and the Reserve Bank of India (RBI) expressed concerns regarding the potential adverse impact of the zero MDR regime on the growth of the digital payments ecosystem. 

Further, the National Payments Corporation of India (NPCI) requested, among other things, for incentivization of BHIM-UPI and RuPay Debit Card transactions to create a cost-effective value proposition for ecosystem stakeholders, increase merchant acceptance footprints and faster migration from cash payments to digital payments. Budgetary support for UPI should be extended to non Banks like PPI Issuers. PPI programs should also be involved, especially ones pushing adoption in rural areas.

DBU units

In 2022, the government’s focus on setting up 75 Digital Banking units in 75 districts should be continued this year as well. The involvement of existing fintech players and especially Corporate banking correspondents who are bank agnostic in driving digital banking units will help in further expanding necessary universal banking services to the last mile over restricting to one bank brand services and enable us to take a step further towards our goal of financial inclusion through rural empowerment.

Leverage Aadhaar Stack to drive financial inclusion in rural

We have witnessed significant growth in transactions in Bank accounts in rural areas enabled by Business Correspondents leveraging the Aadhaar stack. In the last FY, more than 30 cr customers transacted on Aadhaar Enabled Payment System primarily in rural areas. 

The Aadhaar stack should be further leveraged for more use cases. The Business Correspondents in rural areas work on meager incomes to provide basic banking services. The budget should provide economic benefits in the forms of tax exemptions and subsidies to improve the economic viability of such BCs to enable all 6 lakh villages with neighborhood banking services, thereby building a strong foundation for financial inclusion.

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