Digitally Demonetized
Asoke K. Laha,
President & CEO,
Interra IT
By the time I finish penning this column, demonetization, which is orchestrated as the first serious effort to purge the economy from the pangs of black money, would have completed one month. I am not giving any value judgment about the efficacy or otherwise of the move. I take demonetization as a fait accompli, which, I am sure, the matured political administration should have deliberated upon thoroughly before harping on the measure. I am more concerned about what steps should be taken to get us back into the rail. Undoubtedly, there was pain and there is no clear indication that it can be resolved shortly, going by the long-snaking queues in front of ATMs and banks across the country.
I am an incorrigible optimist and believe that every step or policy measure taken with right intentions will rebound with good results not necessarily immediately but in the long run. That way, no one can deny the tolerance level of the Indian citizens who brave the serpentine lines every day and frustrations when told there is no cash for disbursement, after waiting for long hours together in the queue. If someone loses his/her cool, it is incidental and the general mood of the people seems to be “let us sacrifice today for the sake of a good tomorrow”. If tomorrow also eludes that promised bonanza, let us be realistic. We Indians have a philosophical bent of mind. I sincerely pray the good intentions of the government will prevail and we will be able to breathe free air bereft of black money, corruption and free ourselves from the clutches of wily people who manipulate the system.
Necessity is the mother of invention. The prime necessity now is to come out of the dilemma that we have been caught up with. Many alternative solutions are floating around. Some say that we should move towards a cashless society; another set of people claim that a cashless society should replace all taxes with a minimal tax on all bank transactions. The third set of people opine that direct taxes – income and corporate tax – should be consigned to the sacred fire and the evolving GST could be applicable widely. There is no dearth of suggestions and opinions as to how to tackle the menace of black money differently estimated by different people and organizations. The Prime Minister did what many advocated and not only bitten the bullet, but also swallowed it. It is a different story what might come out of it. Good or bad, he dared where others feared to tread.
Even if I support demonetization in principle, a different view can emerge as to the methodology of implementation. The decision, I believe, now is irreversible since any attempt to roll back will have pernicious effect on the economy.
The limited scope of this column is to engage in an analytics to find out how best the plastic (digital) money can replace the paper money. The government is hopeful of making a dent on the transactional behaviour of the common man. It will plod the vast majority of the people living in rural areas and those who belonged to the disadvantaged class of the society to gradually move to the digital platform for cash transactions. In other words, a cashless society is the rule rather than an exception. Smart or digital money seems to be alright since they convey broadly the paradigms that we are seeking to achieve.
To have a clearer view of things, let us analyze the extent of the cash economy in the country. On a thumb rule, of the 1,300 million people in the country, only 25 million use smart money or transact digitally either through debit or credit cards or instruments like mobile wallets which are increasingly becoming popular in the aftermath of demonetization. More than 22% of our transactions are based on cash. That is true all over the world. The proportion of cash economy may vary from country to country. For instance, in the US it is 8%, China and Japan it is believed to be very high though the exact percentage is unknown. But with 8% cash economy, the US will have higher absolute figures since that economy’s GDP is close-to US$35 trillion, whereas India’s GDP is only US$2 trillion. China also may have a higher quantum of cash economy because its GDP is several times higher than that of India.
What I am trying to drive home is that a cashless society is a utopian concept and it will exist along with the smart or digital money since it caters to certain set of transactions and people. Let us look at a scenario where there is no cash money in circulation. Assuming that the government is insisting on debit cards or any other instrument, how can we ensure a person working in the informal sector as a wage earner can refill his account on a regular basis to enable him to use that card? We should be guided by real-life situations and not imaginary or make believe prototypes. For instance, how can a rickshaw puller or a daily wager in the suburbs of Delhi or Kolkata receive his fare/wage through Paytm or any other modicum. Liquid cash is a major portfolio in the budget of any person, be they rich or poor, since it is needed for transactions of certain nature or meeting unforeseen expenses like hospitalization or any other eventualities of that nature. Let me focus now on black money. To put it simplistically, it is the money that evades the tax and parked not in the confines of banks or institutions. It is also true that black money constitutes only 6% to 9% of the black economy.
What is more important to chart a roadmap to decipher from here where we will go? Can it be done all of a sudden? Gradualism, I believe, is the best step forward. One cannot bring all 1,300 million people into the digital economy at a stroke. We have to have a roadmap for that. First, let us keep all transactions above certain threshold mandatorily through cheque or through digital money. While doing so, we have to introspect whether we have the infrastructure for that. How many bank account holders have opted for cheque or ATM facilities? Even if they exist, how many villages do have the facilities of ATM at the doorstep of the bank account holders?
Happily, the recent drive of the government to motivate the marginalized people to open a bank account has been a success. About 350 million new accounts have opened in the recent months, thanks to the efforts of the government. Available data shows that most of these accounts are dormant for quite some time. Visiting banks or an ATM not only involves time but also some knowledge and literacy to fill the form, write the cheque, basic knowledge of the operation of the ATM machine, etc. There are still a vast number of people who cannot operate these systems. How many persons are capable of doing that? Do we have any arrangements to help them learn these basic things not to speak about withdrawing money from ATMs? In many places, particularly in tea plantations and rubber estates, it is a tradition that the salaries are disbursed weekly or bi-weekly in cash since the bank branches are situated far from the places where the workers stay. How soon such salary cycles can be aligned with regular ones and the workers become savvy to use the credit, debit or another instrument.
We have to introspect whether our digital backbone is capable of coping with the pressure being exerted by banking transactions, once people switch over to the digital domain. The Internet bandwidth as it exists today is hardly adequate. Any disruption or hacking or other types of intrusions would affect their faith in the system as also in technology. I understand that the Niti Ayog is coming out with a scheme to incentivize switching over to the smart money. Payments made digitally for settling the utility payments will attract certain incentives. It is a good step to motivate people to switch over to the smart money. Equally significant is strengthening the infrastructure to help traders, tiny and small enterprises to install machines in their shops and establishments to help the customers, vendors and employees to use the digital money.
Last but not the least, a realistic target should be set for covering the entire nation to empower people to use digital money, including far-flung and tribal areas, and the government and bank officials should be made accountable to teach the customers as to how to use smart cards and transact digitally. Let me conclude by narrating a story. A farmer irked by the croaking of frogs huddled in a well in his farm drained the water from the pond to get rid of the frogs. While draining the water, frogs escaped and flocked into the courtyard since they being amphibious could survive both in water and on land. But the small fish, which lived freely in the pond perished en masse since they could live only in water. Let us be more concerned about that small fish.
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