Take steps to encourage electronic payments
The Government's proposals to incentivise card transactions so as to move towards a cashless economy are welcome. India is one of the most cash-intensive economies of the world — more than 86 per cent of transactions here happen in cash. Those tempted to shrug this off as the unavoidable result of India being a developing economy should factor this: At 12 per cent, India's cash-to-GDP ratio is more than three times that of Brazil (3.93 per cent) and South Africa (3.73 per cent).
Cash transactions allow ample scope for surreptitious payments, tax avoidance and the use of black money. A cash economy is expensive and cumbersome. Individuals carrying wads of cash are at risk, and the Government has to spend precious resources on printing currency notes and undertaking measures to contain the circulation of counterfeit currency. Encouraging card transactions is one of the most effective ways to fight these problems. In a draft report on facilitating electronic transactions, the Government has suggested tax benefits for merchants and consumers who do card transactions, standardising or abolishing handling fees and convenience fees that discourage card usage, and activating a national payment gateway for all utility payments.
It has also recommended that it be made for mandatory for all high-value transactions (say above one lakh rupees) to be carried out electronically. If enforced properly, this could be a game-changer. In the real estate sector, for example, almost all transactions happen partially in black and partially in white money. Those who do not have or take black money, incur losses. In short, the honest are penalised for their honesty.
For India's cash-based economy to move towards a cashless system, incentives alone will not be enough. An infrastructural upgrade is needed across the banking and monetary systems. Millions of citizens, who are outside the banking system, many of them not even on the fringes of the regularised economy, need to be brought in. The Prime Minister's Jan Dhan Yojana is a big step in this regard but it is only one part of a larger process. First-time account holders will have to be consistently encouraged to use their accounts and their cards; some training may also be needed in rural areas. Banks will also have to upgrade their infrastructures, starting with their Automated Teller Machines.
Though these now dot the urban Indian landscape, they often malfunction, which discourages customers from keeping money in the banks. Safety of card transactions, including those conducted over the Internet, is also a big concern. Strong safeguards need to be put in at the institutional level (ensure secure payment gateways, better protection for banking systems from hackers) as well as at the personal level (don't share your PIN number and CVV numbers, report unrecognised charges to the bank immediately). Also, Internet speeds and penetration need to radically improve if cashless transactions are to become a reality.