Moving India towards a cashless economy—Don’t force the pace

‘Cashless Economy’ and ‘digital money’ are the buzzwords today. More than 50% Indians do not have access to the banking facility and many within this 50%, largely Jan Dhan account holders, have never conducted a bank transaction in their life. They continue to deal only in cash. Can India leapfrog from a largely unbanked economy to one where electronic payment will be the key instrument of transaction for an overwhelming majority of Indians? Can Indians in the remote village bypass the banking process and receive and make payments to all and sundry through their mobile phones?

If you believe the government and its cheerleaders, that is going to happen. Nandan Nilekani, who pioneered the biometric indentification (Aadhar) process in India, believes that India was bound to go largely digital in six to seven years, but Prime Minister Narendra Modi’s demonetisation move has hastened the process; the digital economy would set in in about six to seven months, he says.

Is Nilekani an over-enthusiastic votary of a cashless economy, who wants to wink at the problems that are likely to frustrate attempts to go digital whole hog in the short run?

Can India—where almost 30% people are illiterate and where barely 27% have access to Internet—go digital? Or, is it that when they talk about going digital, the government and its protagonists mean just the rich and the middle class?

CHALLENGE OF UNBANKED VILLAGES

But then the rich and the middle class have always taken the lead in using technology to make financial transactions. When the bank Automated Teller Machines (ATMs) were set up and all bank account holders were issued ATM cards, after an initial period of hesitation, the relatively better-off sections mostly stopped going to bank branches to withdraw money; they used ATMs in the neighbourhood to draw cash, to get a bank transaction statement, to order a new cheque book. That is an established practice today at least in urban India.

But there is still no banking facility in thousands of villages; the question of ATMs there does not arise. A system of business correspondents offering semi-banking services to the villagers on behalf of the established banks have come to be established; some local youths familiar with the banking apps are designated as business correspondents to do business with the villagers. Is it possible that the intermediary role of the business correspondents would be done away with and the villagers would be enabled to do transactions on their own in the near future?

Even if that is feasible over a period of time, what is the need to force the pace of it? As and when the familiarity with the usage of smart phones and various apps increase, the villagers would be motivated to sidestep the dependence on the business correspondents and begin doing things on their own. The question is: where does the need to expedite the process arise?

GOING CASHLESS NOT ENOUGH TO TACKLE CORRUPTION

The government’s insistence on digital economy as a means to curb corruption makes sense. But corruption is a menace that involves those with large income and conspicuous consumption. That is more an urban phenomenon, not a rural one. Even in a largely digitised economy, those who wish to indulge in corruption would not receive or pay money electronically. They would find a way to deal with cash. That illegally gotten money would then be spent in cash to build property, buy gold, to do hawala operations to send money abroad. Can the government prevent it? Can the government make a law that no gold or land can be purchased by paying cash? The government can encourage cashless mode of payment; can it altogether prohibit the use of cash?

But the more important question is: will the government succeed in preventing the breach of privacy due to data leakage and, more significantly, loss of money of genuine account holders due to cyber fraud? This is a looming threat. The Hindu reported on December 5: the headline said it all: “Your digital wallet can be a ‘pickpocket’”: “If you have installed a wallet app on your smartphone, be careful. Many such apps can access data, even sensitive personal information, and have features that do more than just make payments”, it said.

The Times of India, on December 3, carried a report that said: “It may take as little as six seconds for hackers to guess your credit or debit card number, expiry date and security code, say scientists who were able to circumvent the security features meant to protect online payments from fraud”. It went on to say: “Exposing the flaws in the VISA payment system, researchers from Newcastle University in the UK found that neither the network nor the banks were able to detect attackers making multiple invalid attempts to get card data.”

The march towards cashless economy must not be forced on both grounds of technology as well as consumer behavior. The absence of fool-proof technology will hit the poor and the illiterate the hardest, as their life-time savings may disappear in one fraudulent transaction. Unlike the rich and the educated, the poor and the illiterate would not know how to hedge their bets.

There is a need to take into consideration the consumer behavior as well. Jack Ringquist, Global leader, consumer products, Deloitte, said in an interview in India last week: “It took a lot of time for the US in terms of penetration and comfort to accept other modes of payment than cash. This switchover takes time. To be honest, I generally pay cash towards everyday purchases. I pay credit card and debit card typically when I have to. But my children pay through credit card or through Paypal. So it is a generational issue mostly …in the US, it was a 20-25 year journey.”

Prof Bhaskar Chakravorty writes in the Harvard Business Review (May 31, 2016): “The US, for example, incurs a cost of $200 billion annually to keep cash in circulation; nearly a third of all store sales are still cash-based, despite its long history with plastic money.”

Why then are we in such a tearing hurry to accomplish the mission in six months, as Narendra Modi, Nandan Nilekani and many other protagonists of the current cashless drive would have it? Is it going to be another case of ‘act in haste and repent at leisure?’

NR Mohanty is former President of the Jawaharlal Nehru University Students Union and currently Director, Jagran Institute of Management and Mass Communication