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Deepening digital payments: How Nandan Nilekani committee recommendations came about

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Aruna Sharma

The Reserve Bank of India has taken a major step to boost digital transactions by scrapping the charges on fund transfers through RTGS and NEFT. The removal of transaction fee on digital payments was one of the recommendations of the high-level committee constituted by the RBI for deepening of digital payment. The five-member committee chaired by Nandan Nilikani was set up in January to study the level digitization of payments in the country, identify problems in the payments ecosystem and recommend ways to resolve them. The Modi government’s focus on Digital India was not just about digitizing the system of governance, but also for developing technologies and efficiencies in the payment system. The committee deliberated on the existing reports on the issue and discussed with all stakeholders to understand the hurdles faced in digital payment modes.

The committee was tasked with segregating payment modes — government to merchant, government to people and vice versa from people to people and people to merchant interfaces. As far as the transactions involving the government are concerned, the system is in place to an extent after the spread of Jan Dhan accounts, RuPay cards and direct benefit transfers. However, the last mile connectivity needs some fine-tuning. Thus, payments to and from the government can be fully digitized in a two year timeline.

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In the case of other categories of payments — people to people and people to merchant — the supply side is ready, but there are some impediments to digital payments — interchange charges, taxes, connectivity issues, time bands for digital windows and amount restrictions. By scrapping fees on few modes of digital transactions, the RBI has flagged to remove major irritants. It will be easier to popularize PoS and UPI platforms if these issues are addressed effectively.

The committee also flagged the need for an improvement in financial literacy by making user understand that how digital payment history enhances their credit worthiness. The role of state-level banking committees and district- and block-level committees was also deliberated in detail. The SLBCs are the right forum to plan and monitor deepening of digital payment structures.

The Nilakeni Commitee of which I was a member also had Harun Khan, former director at the RBI, Kishore Sansi, former CMD of Vijaya Bank and Sanjay Jain, . The committee made recommendations in the areas of increasing digital payments, easing KYC norms, providing solutions to feature phone users, grievance redresses and connectivity. The card and phone payment modes were deliberated separately. The report has not only recommended solutions, but also has explained the modalities and even suggested some medium-term strategies for achieving the goals.

(Aruna Sharma is former secretary, ministry of steel and also MietY, Government of India.Member of RBI xcommittee)