Committee on Digital Payments, Committee, Recommendations and Significance

Committee on Digital Payments was constituted to suggest measures for expanding digital payments in India and creating a stronger, safer and more efficient payment ecosystem. The initiative became particularly important in 2016 as the government was taking several steps to encourage people and businesses to shift from cash-based transactions to digital modes of payment.

Two important committees were constituted during this period: the Committee on Digital Payments chaired by Ratan P. Watal and the Committee of Chief Ministers on Digital Payments constituted by NITI Aayog.

Committee on Digital Payments

The Department of Economic Affairs (DEA), Ministry of Finance, constituted the Committee on Digital Payments on 23 August 2016 under the chairmanship of Shri Ratan P. Watal, former Finance Secretary and Principal Adviser, NITI Aayog. Its broad purpose was to review the payment system in India and recommend measures to encourage digital payments.

The committee examined the regulatory, technological and institutional issues that could affect the expansion of card and digital payments in the country.

Why was the Watal Committee constituted?

The Watal Committee was constituted to:

• Strengthen the digital payment ecosystem in India.
• Identify regulatory and legal barriers to digital payments.
• Suggest measures to increase the use of cards and other digital payment methods.
• Study global best practices in digital payments.
• Examine ways to make digital transactions more convenient and secure.
• Suggest measures to encourage both consumers and merchants to use digital payment systems.
• Examine the role of identity verification and KYC in digital transactions.
• Identify market failures and suggest suitable government interventions.

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Recommendations of the Watal Committee

The committee submitted its recommendations in December 2016. Government records state that it made 13 recommendations, broadly divided into legislative, executive and regulatory categories.

One of the important areas highlighted by the committee was the need to review the Payment and Settlement Systems Act, 2007.

The committee recommended changes to the payment regulatory framework to support:

• Competition in the payment sector
• Innovation in payment services
• Open access to payment systems
• Interoperability between different payment systems
• Consumer protection
• Management of systemic risks
• Better data protection and security

These recommendations were aimed at creating a payment ecosystem that could support the rapid expansion of digital transactions.

Payment and Settlement Systems Act, 2007

The Payment and Settlement Systems Act, 2007 provides the legal framework for regulating and supervising payment systems in India.

The Watal Committee’s work highlighted the need to update this framework according to the changing digital payment environment.

This was important because digital payments were developing rapidly, with new technologies, fintech companies and payment platforms creating new ways for people to transfer money.

The government subsequently initiated work to review the Payment and Settlement Systems Act, 2007 and consider appropriate amendments.

Committee of Secretaries on Digital Payments

Alongside the Watal Committee, the government also created another institutional mechanism to speed up the adoption of digital payments.

The Cabinet Secretariat constituted a Committee of Secretaries under the chairmanship of the CEO of NITI Aayog in November 2016.

Its broad objective was to identify and operationalise user-friendly digital payment options across different sectors of the economy within the shortest possible time. This committee focused more on implementation and coordination, while the Watal Committee focused on the broader payment ecosystem and regulatory framework.

Committee of Chief Ministers on Digital Payments

The NITI Aayog constituted the Committee of Chief Ministers on Digital Payments in November 2016. It was headed by Shri N. Chandrababu Naidu, then Chief Minister of Andhra Pradesh, as the Convener. The committee was established to suggest measures that could help different sections of the population shift smoothly towards digital payments.

The committee also aimed to help India move towards advanced digital payment systems comparable with global standards. It submitted its interim report to the Prime Minister in January 2017.

Significance of the Committee on Digital Payments

The Committee on Digital Payments was significant in strengthening India’s digital payment ecosystem by suggesting legal, regulatory and structural reforms to make digital transactions more accessible, secure and efficient.

• Strengthened the digital payment ecosystem through structural and regulatory reforms.
• Recommended changes to the Payment and Settlement Systems Act, 2007.
• Promoted competition and innovation in payment services.
• Emphasised interoperability between different payment systems.
• Focused on consumer protection and data security.
• Suggested measures to improve access to digital payment services.
• Supported the wider adoption of cashless and digital transactions.
• Helped create a policy framework for the long-term growth of digital payments.