Reserve Bank of India might not have officially acknowledged, yet over 95 per cent of the demonetized currency of 500 and 1000 notes has returned into circulation. The Government still hopes to unearth 3-4 lakh crores of unaccounted wealth, deposited in the banks. Income Tax department with help of banks, will now hunt for the ‘unaccounted wealth’.
About Rs 80 thousand crore have been deposited in Jan Dhan accounts. The investigations and recovery might take some time, but the government has already shifted its focus – to cashless economy. Or rather a less-cash and digital economy. This is why the RBI has re-monetised only Rs 9.2 lakh crore as against demonetised amount of Rs 15.44 lakh crore – gap of Rs 6.22 lakh crore. That means only 60 per cent money has been re-monetised.
Government’s target is simple – to move towards an economy where most transactions can be traced and therefore tax avoidance can be minimised. It’s a laudable move no doubt. The Government will collect more taxes and will have more money at hand for infrastructure and business development.
But, Government has to be wary of pitfalls on the way.According to October 2016 figures, there are 3 crore credit cards and 80 crore debit cards. Almost 9 crore credit card transactions and 14 crore debit card transactions were being recorded every month. An average credit card transaction was for Rs 3370 while an average debit card transaction was being done for Rs 1561. Thus, a total amount of Rs 30 thousand crore was transacted through credit cards in October 2016 while Rs 22 thousand crore was transacted through debit cards.
But, RBI figures reveal that total number of digital payments – pre-paid cashless transactions through mobile – during December 2016 was 8.8 crore – almost same as credit card transactions. A number of digital payment companies have suddenly erupted in the market. From market leader Paytm to Freecharge, Mobikwik, Ola money and Airtel Money there are scores of players encouraging people to go for digital transactions.
Even as most of public sector as well as private banks are busy promoting their respective apps, the Government too has launched a Unified Payments Interface (UPI) app called BHIM. It doesn’t use credit card or debit card. You don’t need to even remember your account number or IFSC Code. All you require in the beginning is a functional bank account. In this app launched by National Payments Corporation of India (NPCI), your bank account gets linked to the app on your mobile and you can send and receive money at will by using a digital code called virtual payment address.
But, if this sounds difficult to people who are not geek, the next step will be linking your Adhaar number with your bank account and transact with just a push of thumb.
Now about the pitfalls. What we don’t realize is that we are paying for every digital transactions which was not there earlier. Each use of debit and credit card, sets you back by few rupees. In some cases the merchant bears it but in most cases, the amount is passed on to the user. Earlier, there was no charge for using netbanking facility. You could yourself transfer money from your account to someone else’s account using your bank’s netbanking facility and adding recepient’s account number and IFSC code. The facility was free of cost because it saved banks lot of hassle of dealing with cheques. It made them save on manpower and precious time.
The change was perceptible as with automation the banks drastically slashed their staff strength. Their working hours were also increased.
But, after demonetisation and government’s push towards a cashless economy, banks have started charging for net-banking as well. Every time a merchant transfers money to his creditor or debtor online, his bank charges him online transaction tax. Whenever you transfer money from your bank account to Paytm account, certain amount is charged, Then again when you spend money through apps like Paytm, the app company too is charging certain percentage of money. After that there are various surcharges and chess being charged by the bank.
If the Government wants to make transactions cashless, it needs to make it less expensive, if not absolutely free. Since most businesses especially MSMEs want to follow PM’s path of treading on cashless economy, they would like to see Union Finance Minister Arun Jaitely announcing huge concessions for cashless transactions.
But, more than that, the more important issue is lack of mobile coverage in large number of places. Even in metros, mobile network is often too poor to allow completion of digital payment. The number of people doing digital payment is still less than five per cent of total population. A large number of villages are still in dark so how would mobile network work in absence of power. There are a large number of people not literate enough to do digital transaction even when they have means to do it. There also are trust issues in the system because of large percentage of failed transactions.
There are concerns about BHIM app as this too would work on mobile network. Secondly, identification through retina often doesn’t work with people having cataract. Moreover, farm labourers often have worn off finger prints which is a major impediment in them getting Adhaar card.
The Government therefore, need to remove these roadblocks from the proposed expressway to digital or cashless economy.
First it needs to enhance mobile network throughout the country – which is the basic requirement of digital economy. Secondly, it needs to educate the masses especially micro and small industries about advantage of the new system and how safe it is. Thirdly and most importantly, it needs to remove unnecessary transaction fee, cess and surcharges on cashless payments which are treated by common man as deterrents. Fourthly, to enhance IT infrastructure throughout the country for better digital communication. And fifth, the most important thing is to keep just one payment gateway instead of hundreds. Why can’t we have BHIM app everywhere? Why don’t we see BHIM payments accepted here, like we find Paytm accepted here.
It’s up to the Government and not the SMEs to encourage digital economy. Instead of forcing the people to take up less-cash economy by creating artificial scarcity of liquid cash, the Government should rather incentivize the process. As soon as it provides the required infrastructure, the country will move to cashless economy. Then it would need to push the new system down people’s throat. They will adopt it automatically.
