The new e-RUPI solution, launched by Prime Minister Narendra Modi today, is a QR code or SMS-based e-voucher that directly arrives in a person’s mobile phone with the beneficiary’s information embedded within.
A platform for accepting payments via the internet and without the need for an internet connection has been developed by the NPCI, the retail payment nodal agency, together with other government departments on the UPI platform.
Under the current programme, government subsidies to the direct benefit transfers (DBT) are disbursed to people through Jan Dhan accounts. Once the DBT funds are added to the beneficiaries’ accounts, the beneficiaries withdraw the money. The government made a massive DBT transfer of Rs 2.96 lakh crore in 2020-21, which experts say is one of the reasons for the economy’s high cash levels.
As far as the end-user beneficiaries are concerned, there is no need to withdraw cash to get vouchers, as the e-RUPI vouchers are available to them. If DBT is successful, we could see e-RUPI adoption for many other services and payments like DBT in rural and semi-urban areas.
Stronger controls may be required to monitor any potential fraud, according to Bharat Panchal, chief risk officer of financial technology company FIS. Once such pre-paid instruments start moving from one hand to another, it would be extremely difficult to trace.
“It would be effective to match the beneficiary’s details at the time of redemption to ensure that the true beneficiary is only utilising it and not someone else,” he recommends.
In 2020-21, despite digitization initiatives in the payment space, the GDP will have already passed the 14 per cent mark in terms of cash flow. In contrast to the pre-demonetisation level of 12%, the cash to GDP ratio today is at 14.6%, which is substantially higher.
Cash in the system as a percentage of GDP is an important indicator to look at when measuring the circulation currency.
The weakest link in the digital payments chain is smaller towns and cities. Bank branches are located in remote locations in smaller cities, and the ATM network is also very limited. This forces individuals to withdraw cash in one transaction to cover their monthly expenses.
Additionally, there are tax implications associated with the banking correspondent model, which serves as a link between bank branches and account holders. For example, a bank clerk who withdraws money from accounts exceeding Rs 20 lakh during the course of a financial year has to pay TDS at the rate of 2% on cash. Withdrawals of more than Rs 1 crore in a financial year will increase your TDS rate to 5%.
As small-time traders and kirana store wallas, banking correspondents rarely file tax returns. This has caused the vast majority of banking representatives to restrict their business to amounts below Rs 20 lakh to avoid questions from bank employees.