Demonetisation stick now needs incentives as carrots: Economic Survey

NEW DELHI: The government must continue with incentives for digital payments if it wants to realise its dream of a cash-lite economy, the Economic Survey 2016-17 has recommended. The survey was tabled on Tuesday ahead of the Union Budget, which will be presented on Wednesday. The survey has also asked for a right balance between cash and cashless payment options and has requested the government to be cognizant of "digitally deprived."

“Digitalisation is not a panacea, nor is cash all bad. Public policy must balance benefits and costs of both forms of payments. Second, the transition to digitalisation must be gradual; take full account of the digitally deprived; respect rather than dictate choice; and be inclusive rather than controlled,” the Survey said.

It added that digitalisation must be incentivised and the incentives must be borne by the public sector entities (government/RBI) and not the consumer or financial intermediaries.

Post the decision of demonitisation was announced by the Prime Minister Narendra Modi on November 8, the government announced several incentives and relaxations on cashless payments such as a 0.75 waiver for fuel payments through debit/credit cards. Some of those incentives have been rolled back now.

“Incentivisation should be strictly time-bound because as volumes increase digitalization should become privately profitable,” said the Survey. It also added that to increase trust in digital payments, cybersecurity systems must be strengthened considerably and interoperability of the payment system should be ensured, which will be at the heart of increasing digitalisation going forward, building upon the newly created UPI.

“Above all, ensuring that demonetisation indeed proves a catalyst for long-run changes in behavior will require measures to complement demonetisation with other non-punitive, incentive-compatible measures that reduce the incentives for tax evasion. Demonetisation was a potentially powerful stick which now needs carrots as complements,” the Survey said.