Revenue Generation & Innovation
By: Amit Bhushan Date: 15th Jul 14
The Government is locked in tussle to raise revenues that can be used to either push development or cut fiscal deficit. It is exploring ways to raise new taxes which has become challenging under a low growth high inflation scenario where public is likely to resist taxation while businesses cite an already low demand and low capacity utilization. The banks are also vary about NPAs and therefore are likely to advise government to tread with care.
The scenario should be taken as challenge to identify new ways which results in efficiency gains in expenditure and gains in avenues to raise revenues without causing much consternation amongst masses. One such avenue is renewed push for newer sectors like Gaming industry which can be done by states. Already Goa and Sikkim have taken efforts while other tourism states may explore this possibility.
Other area could be to identify ways to monetize segments where government has invested heavily for efficiency. For example, the payment system. The government has invested heavily on domestic payment infrastructure via central bodies and has led to launch of a domestic payment debit card while efforts for a credit card are underway. The cards have potential to lower the transaction fee for the merchants. The fee of approx. 1.3% is already proposed to be reduced to half while has the potential to come down to Euro zone level of 0.2-0.3% as the volume of transaction grows. This infra presently has low utility as banks have not shown any interest in adding new payments partner and the foreign players continue to rule the roost and consumers/merchants suffer.
The government which has brought the fee of 1.3% of transaction amount to 0.6% may decide to levy a tax of 0.1% to 0.2% of the transaction amount of all credit card transaction. Considering that card transaction in India are approx. 200,000 Cr. And growing at double digit, this has potential to raise 200-400Cr and continue growing at double digit. This will also lead to a shift to low transaction cost card which means improved utilization of domestic infra rather than foreign players. Also the card penetration is lower and so the move is unlikely to cause a mass protest presently but industry lobbies that have interest in present system may cringe. The continuance of double digit growth in years to come may yield a significant amount is years to come.
There can be many such small efforts like developing of Inland and coastal waterways. The infrastructure can support cheaper logistic systems including tourism and sports facility provider and support in mopping taxes and in a way can be self financing. A bit higher taxes on low energy rating motors, pumps and generators including transportation equipment may propel move on higher energy efficiency devices which can be self financing and set the direction for innovation as well.
In Indian scenario, the payment system & central service providers should also be encouraged to develop ‘reverse swipe’ facility for debit card to penetrate the payments market further. This should be allowed to be used by people for payment i.e. when they want to make payment from their account (any type linked to merchant machine) to debit card holder’s account such ‘reverse swipe’ should come handy. Something similar is being ‘innovated’ by mobile phone industry in conjunction with payment service providers and has caught banking industry as lacking in innovation. Since this has provisions to cost banking industry its fee income by nipping in bud a yet to blossom card industry, therefore time is just right for banks to come up with ideas that can gain them new markets. The reverse swipe can help them potentially enter ‘mundis’ where payments are received and made in cash. If they support making payments in ‘card’ via ‘reverse swipe’ into card holder’s account and also help collect money cheaply via normal swipe, the potential could be humongous (because the machine will generate proof/confirmation for payments with credit account details and amount which recipient require for their satisfaction; normally an electronic payment can be made but as of now it has timing restrictions and lacks proof). The banking industry will need to work with domestic payments agency as well as with government to crack into the markets and penetrate bankable clients and transactions with innovative solutions. Resisting taxes and insistence of older models may not be the right growth model.
By: Amit Bhushan Date: 15th Jul 14
The Government is locked in tussle to raise revenues that can be used to either push development or cut fiscal deficit. It is exploring ways to raise new taxes which has become challenging under a low growth high inflation scenario where public is likely to resist taxation while businesses cite an already low demand and low capacity utilization. The banks are also vary about NPAs and therefore are likely to advise government to tread with care.
The scenario should be taken as challenge to identify new ways which results in efficiency gains in expenditure and gains in avenues to raise revenues without causing much consternation amongst masses. One such avenue is renewed push for newer sectors like Gaming industry which can be done by states. Already Goa and Sikkim have taken efforts while other tourism states may explore this possibility.
Other area could be to identify ways to monetize segments where government has invested heavily for efficiency. For example, the payment system. The government has invested heavily on domestic payment infrastructure via central bodies and has led to launch of a domestic payment debit card while efforts for a credit card are underway. The cards have potential to lower the transaction fee for the merchants. The fee of approx. 1.3% is already proposed to be reduced to half while has the potential to come down to Euro zone level of 0.2-0.3% as the volume of transaction grows. This infra presently has low utility as banks have not shown any interest in adding new payments partner and the foreign players continue to rule the roost and consumers/merchants suffer.
The government which has brought the fee of 1.3% of transaction amount to 0.6% may decide to levy a tax of 0.1% to 0.2% of the transaction amount of all credit card transaction. Considering that card transaction in India are approx. 200,000 Cr. And growing at double digit, this has potential to raise 200-400Cr and continue growing at double digit. This will also lead to a shift to low transaction cost card which means improved utilization of domestic infra rather than foreign players. Also the card penetration is lower and so the move is unlikely to cause a mass protest presently but industry lobbies that have interest in present system may cringe. The continuance of double digit growth in years to come may yield a significant amount is years to come.
There can be many such small efforts like developing of Inland and coastal waterways. The infrastructure can support cheaper logistic systems including tourism and sports facility provider and support in mopping taxes and in a way can be self financing. A bit higher taxes on low energy rating motors, pumps and generators including transportation equipment may propel move on higher energy efficiency devices which can be self financing and set the direction for innovation as well.
In Indian scenario, the payment system & central service providers should also be encouraged to develop ‘reverse swipe’ facility for debit card to penetrate the payments market further. This should be allowed to be used by people for payment i.e. when they want to make payment from their account (any type linked to merchant machine) to debit card holder’s account such ‘reverse swipe’ should come handy. Something similar is being ‘innovated’ by mobile phone industry in conjunction with payment service providers and has caught banking industry as lacking in innovation. Since this has provisions to cost banking industry its fee income by nipping in bud a yet to blossom card industry, therefore time is just right for banks to come up with ideas that can gain them new markets. The reverse swipe can help them potentially enter ‘mundis’ where payments are received and made in cash. If they support making payments in ‘card’ via ‘reverse swipe’ into card holder’s account and also help collect money cheaply via normal swipe, the potential could be humongous (because the machine will generate proof/confirmation for payments with credit account details and amount which recipient require for their satisfaction; normally an electronic payment can be made but as of now it has timing restrictions and lacks proof). The banking industry will need to work with domestic payments agency as well as with government to crack into the markets and penetrate bankable clients and transactions with innovative solutions. Resisting taxes and insistence of older models may not be the right growth model.