Santosh Kumar Mohapatra
The “war on cash” declared by Prime Minister Narendra Modi through demonetisation has pummelled India’s currency-reliant poor and the middle class. While people scramble to exchange old banknotes, the use of plastic money is being touted as the way forward. Cash, which was always considered the king, is now portrayed as a villain.
The Centre November 30 announced the setting up of a 13-member committee, which includes six chief ministers, to come up with an action plan to rapidly expand the use of digital payment platforms across the country.
The committee would be headed by Andhra Pradesh Chief Minister Chandrababu Naidu and would include top names from the industry and academia as special invitees. Besides Naidu who will be its convener, the committee would include Orissa CM Naveen Patnaik, Madhya Pradesh CM Shivraj Singh Chouhan, Sikkim CM Pawan Kumar Chamling, Pondicherry CM V Narayanasamy and Maharashtra CM Devendra Fadnavis.
But the vision of a cashless economy appears unrealistic when India is inundated by abysmal financial literacy and is home to 21 per cent of the world’s unbanked adults. According to the World Bank paper, “The Global Findex Database 2014”, India has 47 per cent unbanked adults as against 21 per cent in China.
The country is not ready for an instantaneous shakeup as digital payments currently constitute only around 5 per cent of all consumer transactions. India has one of lowest uses of digital payments in the world, though it is increasing.
RBI figures for July 2016 show that banks had issued 697.22 million debit cards and 25.94 million credit cards to customers (The figure does not include withdrawn or cancelled cards). The number appears massive but that is because urban people have multiple cards. Also 20 per cent of cards are inactive.
Cards are supposed to be used for three primary purposes: Withdrawals from ATMs, making online payments and payments at point of sale (POS) terminals. More than 90 per cent cardholders use cards only to withdraw cash from ATMs. Only 10 per cent use them to make purchases. Millions still do not have a bank account, pay through PoS machines, or understand and use online payment methods.
Electronic transactions are also not free from fraud. According to an ACI Worldwide study of consumers in 20 countries, India stands second with 23 per cent cardholders experiencing fraud just below China (30 per cent).
A huge breach of data of debit cards issued by various Indian banks was reported in October. The lack of laws pertaining to digital payments in India puts the burden on consumers who use such services. Further there is apprehension that by forcing people to adopt electronic means of payment, the government will gain power to monitor and manipulate every aspect of one’s finances and can selectively take action against those who oppose or criticse the party in power.
Even in case of negative real interest rate on savings deposits, those with savings in banks are losers compared with those keeping cash.
All cash is not black. Only 5 to 6 per cent of black money is held in cash. So cash is not the villain. It is easy to handle and ensures quick, faithful transaction; it commands trust, which is not noticeable in digital transaction.
India’s vast informal economy employs more than 90 per cent of the country’s workforce, and digital payment is unthinkable and even unsuitable there. Hence, instead of aiming at cashless economy, the government should aim at “less cash” society. All higher transaction say above Rs50,000, including transactions of political parties should be in electronic mode or at least by cheque.
The author is an Orissa-based financial columnist.
