Govt's New Digital Payment Initiative To Roll Out By March 2012

The Indian government has announced the commissioning of Government Electronic Payment Gateway (GePG), a new digital payment system that will eliminate the use of cheques in the government sector.

The electronic payment system was announced by finance minister Pranab Mukherjee. The new system is expected to eliminate almost two crore cheques and facilitate cash less transactions between the government and citizens. The government has set a target for rolling out the GePG in all pay and accounts offices of civil ministries by end of March 2012.

The system will be used to transfer funds to citizens for a certain government welfare schemes such as support to voluntary agencies for adult education and skill development, incentive schemes for setting up a business for individuals or a loan taken by a community, pension schemes, and subsidies by the Ministry of New & Renewable Energy for Remote Village Electrification or Small Wind Energy & Hybrid Systems.

GePG System

The GePG was co-developed by banks and National Informatics Centre (NIC), the government's IT department. It is security compliant and uses digital signatures, in keeping with the provisions of the Information Technology Act.

The GePG is a credit-push system, where money is sent to bank accounts. While popular options such as Electronic Clearing Service (ECS), National Electronic Fund Transfer (NEFT) and Real Time Gross Settlements (RTGS) are already offered by banks in India, the GePG will be a layer on top of them.

It will be introduced in all central government departments and ministries, including the civil ministries, defence and railways departments. When complete, it will cover a total payment of over Rs 600,000 crore, the government has said.

Challenges

There are various challenges facing the government's modernisation efforts – legacy IT systems and out-dated processes as well as insufficient staff are making the transition to IT-driven systems difficult. GePG will be a step towards modernisation for the government and will enable secure and efficient payments to vendors, employees, financial beneficiaries and agencies involved with the government.

Industry experts agree that the GePG will help reduce delays and manual errors as well as eliminate misuse of funds allocated to government-run schemes. The GePG was set up to tackle three elements pertaining to government payments - transaction costs, administrative costs and leakages.

Digital Trails

Today, the beneficiaries have to approach government officials for the cheques, present it to the banks and get the final credit only after the cheques are cleared. Corruption and delays hound the system. But with payments entering directly into the accounts of citizens through the GePG, a digital trail will be established; and this can be tracked. Delays will be monitored online, said Mukherjee.

A specific instance of how the GePG is expected to reduce delays is the new scheme for directly transferring subsidies and payments to beneficiaries, users and consumers of fertiliser, kerosene and cooking gas. A task force has been set up to ensure this scheme is underway and the GePG is integrated into the process. Nandan Nilekani, the ex-CEO of Infosys Ltd, and currently the Chairperson of Aadhaar project (Unique Identification Authority of India) will head this task force.

Level Playing Field

The GePG will have to link to the banks to transfer funds. So why is the government running its own payment solution, instead of allotting the responsibility to a bank? The logical choice being the government owned State Bank of India. Industry experts say this choice may have been taken to ensure a level playing field amongst banks.

The new payment solution is expected to help in improving planning and management of the government's finances and budget. It is also expected to reduce costs of transactions, manual labour and aid in financial inclusion projects. Training programmes will be set up for administrative departments, payment staff and the banking staff.