India promotes digital transactions to encourage cashless economy

People stand in queues at cash counters to deposit and withdraw money inside a bank in Chandigarh, India, November 10, 2016. REUTERS/Ajay Verma

NEW DELHI (Reuters) - Indian Finance Minister Arun Jaitley on Thursday announced incentives ranging from 0.75 percent to 10 percent on retail purchase of products like petrol, diesel and insurance products from state-run companies to encourage digital, cashless transactions.

Prime Minister Narendra Modi scrapped 500-rupee and 1,000-rupee banknotes on Nov. 8 in a bid to flush out cash earned through illegal activities, or earned legally but never disclosed. Citizens could redeem their money only by depositing it with banks, to be paid out over a period of time.

Since coming to power in 2014, Modi has pledged to crack down on so-called black money with new measures including 10-year jail terms for evaders.

“The incentive scheme has the potential of shifting at least 30 percent more customers to digital means which will further reduce the cash requirement of nearly 2 trillion rupees ($29.69 billion) a year at the petrol pumps,” Jaitley told reporters.

He said state-run insurance companies would offer discount of up to 10 percent on payment of insurance premium through digital means.

Government officials are worried 90 percent of the discontinued notes could yet come back into the financial system, deposited in banks to be converted into valid lower or new higher-denomination notes. This would put a question mark on meeting Modi’s aim of flushing out untaxed money.

Indian banks have so far received nearly 12 trillion rupees in discounted currency since the government decided to abolish high value bank notes.

Opposition parties stalled the parliament for the 14th day on Thursday seeking a probe into the mismanagement of supply of new currency to the public.

Modi has called for patience until Dec.30 by when he has promised the cash situation would stabilize, and urged the people to shift to electronic transactions.

Reporting by Manoj Kumar; Editing by Malini Menon and Ralph Boulton