Ahead of the Union budget 2024-25, stakeholders in the digital payment ecosystem eagerly await measures supporting digital public infrastructure, bank mitras and robust subsidy disbursal to boost financial inclusion.
To encourage financial inclusion other key proposals for the Union budget 2024-25 include expanding high-speed internet to rural areas and robust cybersecurity framework. Further the government's focus on Digital India and Make in India initiatives is likely to continue driving advancements in technology that will support the digital payments ecosystem. The government aims to extend optical fibre connectivity to all villages by 2025, which may require more funding than Rs 1.39 lakh crore allocated in Union Budget 2022–23.
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Union Budget 2022–23 saw a digital currency called the ‘digital rupee’ being proposed and RBI recently said it will launch offline e-rupee transactions soon. Centre had set aside Rs 1,500 crore in the previous budget for a scheme promoting digital payments and the cybersecurity spending was nearly doubled from Rs 400 crore to Rs 759 crore in the recently tabled interim Budget.
Stakeholders Share Budget Expectations
Rahul Jain - CFO, of NTT DATA Payment Services India said, “In the upcoming Union Budget, the government should provide a subsidy on merchant discount rate (MDR) for Unified Payments Interface (UPI) and Rupay Debit card transactions to make the business model more viable for industry players."
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The merchant discount rate (MDR) is a fee charged (1 to 3 per cent of the transaction amount) to businesses by banks or PSPs for processing debit and credit card transactions from customers.
Merchants often prefer UPI payments over card-based payments because they don't have to pay MDR and instead government said it will provide support to reimburse losses to banks because of zero MDR on UPI payments. However, the industry stakeholders have not received subsidy amounts since April 2023, according to an ET report. Jain said a robust subsidy mechanism will support the expansion of digital payments, especially in rural areas.
"Also, simplifying and fast-tracking the licensing process, creating a proper mechanism to ensure the safety of digital payments will provide a further boost to digital transactions’ scale and volumes,” Jain said.
Seema Prem, co-founder & CEO, FIA Global expects measures in the Budget to support Bank Mitras or Business Correspondents, who serve as essential frontline workers in delivering financial services. A Bank Mitra serves as an agent facilitating bank and banking-related services, particularly in unbanked rural regions of the country. Prem said the government should lend support to enhancing their business infrastructure and financial sustainability. She proposes an Infrastructure Grant Fund and India Business Correspondent Equity Fund for this purpose.
"Given the perpetual necessity to upgrade hardware, an infrastructure grant fund would ensure access to the latest equipment to help them operate more effectively. Like the India Microfinance Equity Fund, the India Business Correspondent Equity Fund (IBCEF) may be created as a consortium between the Central Government and the Development Finance Institutions, that provide equity to Bank Mitras to help them achieve scale and efficiency in operations," Prem said.
