"EDITION 146"

Published: 8/31/2020

Good morning, Vedica with the update today. It's a new week, but we are staring on a sobering note. India’s economy recorded its worst quarterly slump ever, and the Central Board of Direct Taxes is cautioning banks on charging merchants for UPI transactions.

  • https://bit.ly/2QDcpe1: India's GDP declined 19.2% this quarter (year on year)
  • ➡️ India's GDP declined 19.2% in the quarter to June from a year ago, making it the sharpest contraction since the country started publishing quarterly figures in 1999. The figures were reported by Bloomberg and are worse than any of the main Asian economies tracked by the company.

    ➡️ As we all know, India was already in the middle of a slowdown even before Covid-19 hit. A crisis in the shadow bank sector hurt new loans and took a toll on consumption, which accounts for some 60% of India’s GDP. Covid has only made matters worse. Bloomber is predicted a full year contraction of of 5.6%.

    ➡️ According to the Reserve Bank of India, transport services, hospitality, recreation and cultural activities are the most impacted sectors. Some sectors have grown despite the pandemic. These include, agriculture, IT services and central government expenditure.

    ➡️ We have talked previously about whether the start-up ecosystem in India is "frothy". Against this backdrop it definitely seems so. Of course, venture investments take a longer view of things, and economic growth is predicted to increase next year. That said, this crisis is likely to cause some real structural damage in the economic fabric of the country.

    2. https://bit.ly/34T6mdP: CBDT directs banks to refund charges collected for UPI / other digital payments since Jan 1

    ➡️ The Central Board of Direct Taxes (CBDT) has issued a circular that directs all banks to stop applying any charge on payments made via UPI or other electronic modes of transaction. The CBDT has also asked banks to refund the charges collected on payments made via UPI, Rupay debit card, QR Code or as MDR on transactions made on or after January 1, 2020. The Finance Ministry may take action against banks not adhering to the direction

    ➡️ Finance Minister Nirmala Sitharaman announced last year that the merchant discount rate or MDR for payment modes like UPI, Rupay and QR Code would be reduced to zero from January 1, 2020.

    ➡️ However, some banks seem to have been charging a fee on UPI transactions. These vary from Rs 2.5 to Rs 5, on peer-to-peer (P2P) payments via UPI if the number of transactions exceeds 20 in a month. Banks say they have introduced charges to prevent frivolous transactions and reduce unnecessary burden on the system.

    ➡️ The scrapping of the MDR is a great example of a regulatory that was poorly thought through. A recent RBI report has argued that zero MDR had had a negative impact on the payments ecosystem and recommended a lower fee instead of reducing MDR to zero. The NPCI has also stated that MDR should be brought back because it funds the acceptance, servicing and acquiring infrastructure for UPI. That is a view I agree with, but I still think its quite unacceptable for banks to charge for UPI transactions when the government hasn't officially revered its stance on the issue. It's exactly this kind of behaviour that makes the private sector in the country seem untrustworthy.

    Feedback & ❤️ always appreciated BONUS (Tweet of the day): https://twitter.com/MilanV/status/1300251965876822016

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