Digital transactions have brought speed and transparency; idea of transaction fee is indeed retrograde
In the last few years, the trend of online payment has increased tremendously and it is increasing unabated. Names like UPI, BHIM, PhonePe, Paytm, etc., are being heard in every household today. It is true that the trend of digital payments has increased all over the world but it has increased the most in India. Digital transactions worth Rs 20,000 crore are being made every day. In March 2022, this amount had reached Rs 10 lakh crore.
According to the data released by the National Payments Corporation of India (NPCI), 628 crore transactions worth Rs 10.62 lakh crores took place in the country in the month of July. The number of these payments has doubled in the past one year, while the total amount of digital payments has increased by a record 75 per cent.
Benefits of digital payments
Today without opening our wallet, we can do transactions from one rupee to thousands and even lakhs in a few seconds with just a click of the mobile phone. By being careful and not making mistakes in the transaction, very quick and secure payment is made and there is no scope for fraud of any kind. Although there is a minor charge for transfer of funds from banks, till now there is no charge for payment through Unified Payments Interface (UPI). In this way the transactions become easy and cost effective.
The transaction being free of cost, means economising the cost of doing business. It is quite true that the cost of business drives up the prices and the goods and services become expensive. In such a situation, if the transaction of money is done in a convenient way without cost, then it becomes economical to provide the goods and services at lower prices, while the profit of the business will increase.
Convenience in business is the most important dimension of reducing transaction costs. The facility of payment also helps to expand the business. Today we see that even the tiny sellers are seen accepting online payments by putting QR Code on their small shops or even on their tracks, say ‘rehris’.
Talk of charge
Recently, the Reserve Bank of India has sought public opinion about the imposition of charges on digital payments from the public. With that, the debate has started as to whether it would be a right move to impose fees on digital payments? Along with this, there is also opposition to even this opinion seeking. To silence this opposition, the Finance Ministry has issued a statement that at present the government has no intention of imposing charges on digital transactions.
Transaction cost is a major part in the production and distribution of goods and services. Significantly, the higher the transaction cost, higher would be the price of the goods or services.
The importance of transaction costs in economics is shown by the fact that in 2009, the winner of the Nobel Prize in Economics, Oliver Williamson, who was known as a transaction cost economist, presented his analysis on various aspects of transaction cost. But if the importance of transaction cost is to be understood, then it is necessary to have an economic analysis and investigation of this subject, that if a fee is imposed on digital payments, then how much will it add to the price of the final goods and services ultimately. We shouldn’t forget that similar indirect taxes on digital transactions may have a cascading effect on prices of goods and services.
The Finance Ministry has also said in its statement that the digital payment system is a public good for which it is necessary to make provision from the Union Budget itself. In economics, we classify goods and services as ‘public goods’ and ‘private goods’. The theory says that though pure public goods, such as defence, law and order, etc., are such that users can’t be excluded in enjoying those services, however, in case of other public goods, where exclusion is possible, but usage of that by intended but excluded consumers are not a rival in the consumption. In case of digital transactions though with imposing charges we can exclude those who don’t pay for the same, however, digital transactions by one in no way hinders the usage of digital transactions by others. Therefore, if a good or service satisfies any one of the two characteristics, namely non excludability and non-rivalry, it’s a public good; and if a public good is provided by the government, it will be more beneficial to the society.
Digital transactions is such a service that if the non-payers are turned away from that service by imposing a fee, then it does not benefit the society in any way. Our digital payment system is already in place, and the marginal cost of providing an additional digital transaction is almost zero, so if we exclude those people from digital payments who are not able or willing to pay the fee, then it will cause harm to the society, by way of increasing cost. It will therefore increase the cost and inconvenience. Therefore, this statement of the Finance Ministry is welcome.
Recently, the Prime Minister said that due to the convenience of digital payments in India and due to the mobile revolution in the country, more than 40 per cent of the digital transactions around the world take place in India. Naturally, due to the convenience of digital payments and the fact that they are free, the cost and price of Indian products and services have definitely come down. As long as digital payments remain free, the competitiveness of Indian exports will be better and India’s exports will increase. Even if the government had to make provision from the Budget to keep digital payments free, it would be a good expenditure. At the same time, no objection can be filed by other countries in the World Trade Organization also, as it’s not discriminatory.
India can become digital hub
Today, India has not only moved ahead in digital transactions, but has also achieved self-reliance. National Payment Corporation of India (NPCI) operates RuPay Card and it handles all digital banking transactions. NPCI also operates the Unified Payments Interface. Thus, NPCI acts as a digital bridge between customers and business with the help of UPI, facilitating personal and business transactions both. UPI coordinates all the service providers in digital payments. Through UPI, we can transfer money without sharing any sensitive information related to bank accounts and that too at zero cost.
In such a situation, when India is leading the world in digital payments, and countries of the world are also getting ready to adopt India’s UPI, it would not be judicious to hinder this trajectory by imposing digital payment fee in India. Not only this, recently Russia and India have joined hands for digital payments, by integrating RuPay of India and Mir of Russia.
(The author teaches at DAV College in Delhi)