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In a country where the penetration of mobile phones is better than toilets and job creation is pathetic, right along with the employability of products of a crippled education system and a government perpetually short on funds for crucial development, one would imagine that encouraging people to do business so that it goes through banks would be a high priority.

Not in India.

If you decide to make and sell handmade toys online in any other country, you'd just make them, upload photos and put a Paypal button next to them. In India, you can't take payments from Indians using Paypal.

Reason?

The government is paranoid about black money.

This has to be a joke, because there is far more black money thriving under the government's nose everywhere. Besides, there are PAN numbers attached to accounts and it should be a simple matter to force Paypal statements to be submitted with accounts. Even the hyper paranoid measures taken, that currently prevent Indians to do anything with their Paypal balance than withdraw it (and incur higher fees if amount is less than 7,500) would still force money to pass through the banks. It makes no sense for transactions between Indians to STILL be disallowed.

Perhaps it could be argued that Paypal is a foreign company that will mint money from transactions within the country. But then the government should be looking at enabling more alternatives.

To accept payment online, other than putting your bank account number on the page and asking people to email you transaction details when done, most options you have are expensive.

If you make a Rs.50 trinket to sell, whether anyone buys it or not in the future, you'd end up spending at least Rs,50 to courier your documents to the payment gateway provider. Many of them require you to make phenomenal payments upfront and are clearly designed to suit businesses dealing with large sums online.

Why is this so? Why cannot a LEGAL, netbanking account be the verification of itself? It exists, does it not? Why cannot the ability to pay from it and withdraw to it be all the verification needed?

Some say that this is to prevent fake accounts. But why is this the headache of payment gateways or users? Why cannot banks be expected to be responsible for verifying who makes accounts with them?

There is tremendous economic potential and a shift from black money to white possible, if anyone with a netbanking account could use it to sell any (legal) service or product online. Selling a 50 rupee book? Go ahead. Got your vegetabe vendor's phone number? Pay him for groceries with a bank transaction. Purchasing organic millets from a farmer? Go to his blog page on some free blogging service and buy online and pay into his bank account directly.

Why is there such a handicap about online economic activity in a country pretending that it wants to be a superpower? It almost seems as if the government is doing all it can to prevent economic productivity and then grudgingly allowing it only to those who are already thriving without it.

I have spent two days trying to figure out a payment gateway to sell really cheap subscriptions for a children's newsletter. There isn't a single option available that will not charge phenomenal amounts for the privilege of using their service or need documents I don't have because another arm of our government seems to have forgotten to send me my corrected PAN card. The only possibility appears to be instamojo which is a sort of workaround that charges your buyers on your behalf and transfers money to your account twice a month.

Forget what I want to do. It can be managed offline too.

But really, in a country with so many people in poverty and unemployment but rich and commercially viable resources of traditional crafts and labour, rapidly selling small products or services on whim shouldn't be so difficult if you are interested in them earning their way to a better life.

It is almost as if the government doesn't want India to earn unless it is the elites.

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Quite irritated with this new Paypal thing. Had to make a payment online. Had the balance in my account. Had to use my credit card instead and unnecessarily incur a transaction charge AND currency conversion comissions for both this payment, and eventually for the dollars in my account when I withdraw them. I think it ends up almost 5% of the amount, possibly more.

Paypal was big news when payments and withdrawals to all Indian accounts were suspended last year. A lot of people had online payments stuck, money in their Paypal balance stuck and there was a lot of noise. Within a week, things were in order with one notable exception. Indian users had to enter their PAN number to be able to use their accounts.

Good! I thought. It is a big incentive integrating online income with regular accounting. Made sense. Great move.

Now, since this financial year, there are new restrictions, which are quite damaging for Indian users. Indian users are to withdraw all the payments they receive into their bank accounts. They cannot use this money to make purchases, which means they use their credit cards. The notice on my Paypal account says this is because the Indian government wants it like that.

Hmm.... this is either utter stupidity or some hidden agenda.

Let's see. You are some small time website owner or designer earning a few dollars per month. What happens to your income?

  • It is deposited into your Paypal account at which point, there is a small transaction fee Paypal applies.
  • EVERY month, you must withdraw your balance to your bank account according to these new rules, so your dollars get converted into rupees (at which point Paypal earns another commission)
  • Then, these rupees are deposited into your "real" bank account. If the amount deposited is less than Rs.7,000/-, Paypal charges you Rs.50/- as processing fee.
  • Oh wait, but you have to pay for your webhosting, so you use your credit card, incur another transaction charge.
  • Wait more. Your card is charged in rupees, so Paypal does another conversion, you are charged another commission.
  • All this so that you can withdraw the money into your account so that it can be taxed? Hmm.

And what is achieved? Many people earning those piddly dollars are not even in the tax bracket. Those who earn the big bucks are already businesses and their accounts include their Paypal statements.

Think of it as someone who earned $10 and spent $10. This person would end up losing approximately Rs.200 - Rs.300 or so including Paypal transaction fees, conversion fees and withdrawal fees and the credit card transaction charges. I'm talking off the top of my head, so if someone can do the math and comment, much obliged.

It made sense to the point of PAN card numbers. It would have made even more sense to loudly advertise that Paypal (and Moneybooker, etc) statements should be included in the annual accounts. Instead, we have added commissions for Paypal and credit card companies. Where did THAT come from?

How does it help either India or its people?

Many people used to save money in their Paypal accounts and use it directly to make purchases, or save it till it grew enough to not incur that Rs.50/- transaction charge. Now, they don't have that option, it seems.

So, what exactly was the purpose?

Update: Paypal now auto-withdraws funds to your account daily! Apparently because this is what the RBI wants!!!