Reality check on cashless India

Priyadarshi Dutta
Imagine a situation where the Government suddenly declares that at the stroke of midnight, the supply of petrol, diesel and coal (for thermal power stations) would be curtailed to half for a few days. Reason being, these fossil fuels are ‘black’ (carbon-emitting) and contribute towards global warming. However, after a few days, the Government says that they it is unsure when the supply of fossil fuel could be restored.
The impact of the withdrawal of fossil fuels will have to be made good with new and renewable sources of energy like solar, wind and tidal power. The Government’s intentions may be noble, since it will promote cleaner and greener environment, but doubts on its pragmatism remain.
The new and renewable energies do not constitute even one per cent energy basket. Moreover, power produced by them is not even linked to electricity grids. In this case, can the new and renewable energy sources support the system?
Something similar seems to have happened with demonetisation. The narrative has been changing over the past one month. Originally proclaimed as a measure against inflation, black money, counterfeit currency and terror funding, demonetisation is now being presented as an opportunity to adopt a cashless economy.
The sole hint that Prime Minister Narendra Modi dropped during his November 8 address to the nation was that excess of cash in circulation leads to inflation and corruption. However, this view has not been formalised through any policy document on cash circulation. Rather, a pamphlet on cashless economy, which seems to be the handiwork of some mediocre ad agency copywriter, is in circulation.
Apparently, it did not take long for the Government to realise the magnitude of cash crisis. The demonetisation decision left 22 billion pieces of currency notes in the denominations of Rs500 and Rs1,000 cancelled. This is equivalent to the number of notes (in all denominations) that security printing presses in the country printed during the financial year 2015-2016.
Provided that the printing of new notes began on September 6, the day when Urjit Patel took charge as the new Reserve Bank of India (RBI) Governor, it would still be four months before the Prime Minister’s deadline on December 31 expired. Therefore, the mantra on cashless economy.
On December 8, one month after demonetisation, several sops for cashless transactions were announced by the Government. But in the last two years, the Government did precious little to promote a cashless economy. By comparison, it did much more to promote new and renewable energy.
It is another thing that the printing presses missed the note printing targets. The number of ATMs (which are antithetical to cashless economy) also sharply increased in the last two years. In June, 2014 (when the NDA came to power), there were 1,66,894 ATMs in India; the number increased to 2,02,801 in August this year. This meant that on an average, every month, 1,381 ATMs were put up by the scheduled commercial banks across the country.
Which means that every bank put around 25 ATMs per month during the last two years. In August alone, people withdrew a total of Rs2,19,657 crore from the ATMs. In comparison, during the same month, they transacted only Rs18,370 crore worth business over Point of Sale (PoS), using the same ATM/debit cards.
But here lies the silver lining amongst dark clouds. Between August 2015 and August 2016, the number of debit-cum-ATM cards in India increased by 19 per cent (from 5,98,508,555 to 7,12,465,787).
Money drawn per month from ATMs, in the corresponding period went up by 5.88 per cent (from Rs2,07,441 crore in August 2015 to Rs2,19,657 crore in August this year). But transaction over PoS increased by whopping 35 per cent (from Rs13,556 crore in August 2015 to Rs18,370 crore in August 2016).
During financial year 2015-2016, mobile banking services grew by 126 per cent in volume terms and 290 per cent in value terms, handling 389 million transactions valued at four trillion rupees. Still, this is less than three per cent of India’s gross domestic product.
However, how much can the Government take credit for this, is doubtful. The Government did not actively propagate or incentivise cashless transactions before November. It was actually the RBI that has been quietly developing the electronic payment systems over the past three decades.
India’s employment is unorganised, retail market is fragmented, population profile is dominantly rural, financial literacy is low, and Internet connectivity is not up to the mark. India’s cyber laws do not have enough teeth to punish online financial fraudsters.
Therefore, to force the nation to move towards a cashless economy, may not be a prudent decision. Even in advanced economies like Germany, the US and the UK, cash is the king.

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