Prof. M. K. Bhat
Demonetisation will go in history as one of the biggest contribution of Prime Minister Narender Modi for controlling corruption in the country. In the initial stage for one or two quarters the impact may be adverse but the long turn results will be positive for the economy. Majority should not be punished for a handful of law breakers who hoard money and make market to manipulate as per their will. However there is no guarantee that it may not accumulate once again over the period of time. In order to control its recurrence the government is rightly propagating less cash economy. Demonetisation controls the stock of money and the flow of money can be best controlled by e-commerce. Unless the flow is regulated the stock will be formulated again and again. Demonitisation will lead to better results only with a reduction in the cash flow in the economy. The various steps undertaken to encourage more utilization of plastic and electronic modes of money transfer are quite laudable. It will not only control the germination of black money but can curb black wealth too. The government shall not get cowed down by those with vested interest rather it shall go for curbing Benami property for restoring the health of the economy. It may not be wrong to say that Modi government is trying to take various steps to transform its election manifesto of curbing black money within and outside country into a reality.
It is true, that the black money within country is much more than stationed outside India and it has become a part of our day today life. It is quite difficult to assess the total black money in the country as maximum transactions take place in cash. Cash strengthens informal economy as it is easy to hold back and leads to black wealth in the country. It is a fact that we cannot have cashless economy overnight because of big unorganized sector, low banking infrastructure and less internet facility but definitely we can attain a less cash economy.
The less cash economy will choke the grey economy, money laundering, counterfeit currency and may increase tax revenue for the country. This will help government to spend more on social development and can decrease tax rate. The experience of western countries has been quite contrary to ours as they grew on the ladder of economic development. India’s cash flow ratio to GDP stands at 12 to 13 percent much higher when compared to USA or UK. If we get success in reducing this cash ratio to 6 or 7 percent of the GDP, it will definitely make 2016 annus mirabilis for India.
Developing less cash economy has psychological ramification as cash can easily be converted anywhere anytime because of it being a legal tender. The initial hindrances for making digital payment a success can be overcome by developing user friendly instruments of exchange to make people realize that there is no utility of keeping extra cash at home. This attempt is getting thumbs up at present partially due to less cash availability with banks and also due to the awareness being created about the use and safety of such instruments. General public only needs security of their deposits and those who fear using electronic mode of transaction due to taxes must realize that there are many other modes through which the source of funds can be easily tracked down.
India is one of the most cash dependent economies, 98 percent of transactions are held in cash. The acceptance of cards is low, only 11percent of consumers used debit cards in 2015. The availability of internet facility is still quite low and just 22 percent of Indians use internet occasionally and 17 percent have smart phones. It may however be worthwhile to mention here that ordinary mobile phones too can be used for money exchange and nearly 90 percent of people have mobiles. The biggest problem for resorting to less cash is the lack of banking infrastructure in the economy. There are only 18 ATMs per 100,000 citizens in India according to the World Bank while as it is 129 in Brazil. India at present has 342 million internet users, majority of them live in urban areas and a very low number in villages have access to internet.
The government in order to develop digital transactions as an alternative to cash transactions has come out with various discounts in different fields ranging from 0.5 percent to 10 percent. These discounts are mainly for services provided by central public service undertakings, insurance companies (10 percent of the premium of insurance policies will get discount), railways on booking of tickets and oil companies will extend it to diesel and petrol, as 4.5 crore people buy petrol/diesel daily .The discount is expected to shift more than 30 percent of people to the digital mode. Niti Aayog has started incentives for district administration to make it possible besides; huge advertisements and tax benefits for using various cashless tools are being implemented. The business of electronic service providers for exchange has increased by 300 percent in the post demonitisation era in the country.
The government’s attempt to have less cash economy should not be too stringent rather a voluntary environment should be created. Too much stress can slow the growth rate further and the apprehension of recession cannot be ruled out. There is a drastic need to increase the circulation of money very fast so that the slowdown of the economy can be recovered at the earliest. The RBI has already predicted reduction in growth rate but if money circulation is excelled, it will be confined to only one quarter. The confidence of people shall increase for more spending through electronic mode.
There are various difficulties faced by people in resorting to digital mode at present, a mobile wallet takes you away from the banking system and makes you to transfer money only within the wallets of the same service provider. This means that the recipient too must be having wallet of the same service provider. The availability of internet facility needs to be increased in the rural areas, digital tools need to be simplified and should be made user friendly. The cyber security while transacting through electronic media is very important, the cyber laws/ policing may have to be strengthened. There is a need of developing awareness about the new modes of transaction among people.
The tax reduction in the coming budget can go a long way in restoring the confidence of people in the system. Further incentives to make plastic and electronic modes of transaction a day today affair need to be undertaken.
The general public has more or less accepted alternative modes of transaction despite less facility available to them at present. Those opposing demonitisation or less cash flow need to be reminded that loss of jobs in a few unregulated factories can be no license for one who does not abide by the tax rules of the country. The opposition shall not fish in the guise of sympathy for general public for its own interests.
(The author is Director (M.A.I.M.S) Guru Gobind Singh Indraprastha University, New Delhi)
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