sulabh swatchh bharat

Monday, 19-February-2018

MOVING TOWARDS A CASHLESS SYSTEM

DEMONETISING high currency bills and introduction of GST are the most radical decisions taken by a Prime Minister after PV Narasimha Rao, who unleashed economic reforms in early ‘90s - fruits of which we are seeing today. People are bound to have similar sentiments for Narendra Modi, not much long later but only a year down the line.

Was demonetisation aimed only at wiping out black money, as is being pointed out by almost all quarters? Even the government initially claimed that only 70-80 per cent of the demonetised currency (approx Rs 14 lakh crore) would be deposited in banks or exchanged. The remaining 20-30 per cent would not return.
That means approximately three to four lakh crore currency notes would go out of circulation. Although as per RBI figures, people deposited more than Rs eight lakh crore within the first 15 days - 65 per cent of the demonetised currency - and the deposits are expected to exceed the government’s expectation of 80 per cent, the real story lies elsewhere.
When the PM took almost entire Rs 14 lakh crore out of circulation at just three and a half hours notice, people were taken aback. With almost no liquid cash in hand for two days - when both ATMs and banks were shut down - people didn’t know who to turn to. That’s when they turned to plastic and digital money.
Yes, demonetisation has longer and well defined goals. First and foremost being making people adopt to digital money. As per available figures, with no money in hand and business transactions having come to near naught, people took to digital money vigourously. In the first 15 days, digital money users grew by 15 times - that is 23 crore digital wallets.
There were 80 crore credit and debit cards in the country at the time of demonetisation, a large number of them lying unused. The government had opened Jan Dhan accounts but they could hardly become operational. But within the first 15 days, 45 crore debit and credit cards started functioning.
Indeed, everyone, especially in rural areas, don’t have access to plastic or digital money. But the currency crunch made people familiar with these things within a week or two - something which the government would not have been able to achieve in years altogether. Now you can find a lot of people, from a rickshaw-puller to road side tea vendor, using digital wallets. The country in all has just bout 25 crore families and they among them have 85 crore credit and debit cards besides 23 crore digital wallets.
So, who wants to go back to using paper currency again? Only those who have circumvented this round of test by hook or by crook. But, the Government is already on the look out of such people. And it won’t be much difficult to catch the defaulters.
The Government has already had a robust investigation system. All bank accounts and IT returns will automatically go through income tax department servers. The system has been programmed to red flag the defaulters and suspects - those which received a slew of high deposits post-November 10. And then the pay will be asked to explain the source of such funds. An unsatisfactory answer will lead to heavy penalty.
In fact, government was bracing itself to turn tovfwards a cashless society for a long time. Reserve Bank of India had already begun the groundwork a few months ago. In June, it had released a vision document titled “Payment and Settlement Systems in India: Vision – 2018” laying the roadmap. The report clearly mentioned that the RBI’s efforts will be to ensure a “continued decrease in the share of paper-based clearing instruments and a consistent growth in individual segments of retail electronic payment systems.” RBI knew well that in order to make people use cashless services it needs to provide the necessary infrastructure for transactions to take place. That was why banks had been pushing customers to using net banking as much a possible. It gave people ease of business as well. They could transfer money though RTGS or NEFT or IMPS instantly from the confines of their homes or office. They need not have to rush to bank branches for every little work. As a result, RTGS and NEFT volumes increased almost threefold between 2013 and 2016.
Despite the increased use of electronic transaction, cash as a percentage of GDP has been hovering around the 12-13 percent mark. 
As per an SBI report the current size of digital commerce is around Rs 1.2 lakh crore. This number needs to increase substantially if government intends to bring down cash in circulation.
Reports say that government intends to bring down cash in circulation by a third to get the cash to GDP ratio at around 8. For this work special institutions could be formulated for speedy implementation.