Cash crunch: Cashless economy is still far away; govt hasn't done enough to push digital transactions

In the angst-ridden days of demonetisation, people started warming up to digital payment mode. However, with the cash crisis blowing over in about three months after demonetisation was announced on the night of 8 November 2016, people are back to their old ways. Cash rules the roost though mobile wallets are catching the fancy of consumers. Nearly 95 percent of payments are done through cash and cheque books, according to an Economic Times report; only 5 percent are done through the digital mode. The report also says, “Low penetration of point of sales (PoS) terminals or card swipe machines and concerns over security make debit cards less attractive. So, if there are 700 million debit cards, there are only 2.5 million PoS machines for these cards, which are concentrated in large metros.”

This view is also buttressed by the Reserve Bank of India (RBI) report of digital transactions from November 2016 to February 2018 (See graph below)

While NEFT and RTGS are by and large showing a rising trend, mobile banking and card payments are but getting a lukewarm response at best. This proves that large corporations are warming upto the idea of electronic payments in the form of NEFT and RTGS which account for the lion’s share of digital payments but households are lukewarm to the idea of jettisoning cash.

Let us face it. The serpentine queues in front of the ATMs at the first hint of trouble points to low confidence in digital payments and debit cards being used more as ATM cards rather than for swiping at points of sale and in online transactions. This is in sharp contrast to western nations where debit cards are largely used for digital payments and very little for cash withdrawals. Which explains why India has such large number of ATMs sometimes five or six in a small single commercial center unlike in the USA where one has to really hunt for the elusive ATM.

The steps thus far taken by the government are few and unsubstantial like 0.75 percent cash back on card payments in petrol bunks, waiver of user charges for online booking of rail tickets, etc. Truth be told, even the petrol bunk incentive is a bunkum inasmuch as banks either are unable to relate the payment to a petrol bunk or are reluctant to bear the subsidy which actually should be borne by the government.

It is also idle to incentivise the traders. For example, small traders under the presumptive taxation scheme have to pay tax only on 6 percent of their turnover if it is less than Rs 2 crore per financial year to the extent their receipts are through the digital mode as against 8 percent otherwise. There is a limit up to which traders can goad the consumers into making digital payments. After all they cannot offer a substantial discount for digital payments as opposed to cash payments. It is for the government to incentivise digital payments by consumers by offering a percentage of the total digital payments made during the year as income tax rebate as hinted by Finance Minister Arun Jaitley in the heady days of demonetisation which apparently he forgot as the nation limped back to normalcy.

Apart from incentives, there can also be disincentives. Let us wrench away half of the ATMs in the metropolitan cities to start with and put them in rural areas and hinterlands where they are needed more in view of digital reluctance, as it were, in these areas. The sheer existence of the ATM machines almost ubiquitously beckons people to withdraw cash. Wrench them away and they would embrace the digital payment habit. This, in turn, will bring a paradigm change in the way we do retail business. If consumers insist on paying digitally, retailers have perforce to accept such payment lest they are left behind by competition.

Banks must also push swiping machines actively both to discourage cash and in their own interest---to discourage traders lining up before bank cash counters to deposit previous day collections from customers. GST has already broken the resistance to digital payments because cash no longer protects a trader from the prying eyes of the taxman. Everyone in the supply chain is on the radar of the tax authorities whether he accepts cash or cheque or digital payments. In short, the government is guilty of not pushing digital payments seizing the opportunities provided by demonetisation and GST.

Data support by Kishor Kadam

(The writer is a senior columnist and tweets @smurlidharan)