Two counts of failure

Leave alone uprooting black money, the demonetisation goal of a cashless India too stands blocked by poor infrastructure

kaushal

Kaushal Shroff | December 19, 2016 | New Delhi


#Rs 1000   #Rs 500   #currency   #demonetisation   #Reserve Bank of India   #RBI   #black money   #cashless   #banking  
PoS devices
PoS devices

The Indian government has audaciously put the demonetisation show on the road, though with little consideration of infrastructural, banking and connectivity back-up. After making his own set of political calculations, the prime minister has quite shrewdly tried to steer the public perception on the initiative away from black money to a cashless economy. As things stand, around Rs 11 lakh crore of the Rs 14.18 lakh crore demonetised currency has returned to the system. That is around 80 percent of the money whose status as legal tender has been withdrawn. With about a fortnight to go till the end of December, experts are predicting that over 90 to 95 percent of the money will return to the banks. If it does, the one-time windfall gain that the government was hoping to receive from the RBI will go up in smoke.

Let us, for a moment, sidestep the argument that the actual quantum of black money has escaped via investments in gold and real estate. Let us assume that the real intent of the initiative was not to catch black money hoarders but to fast-track the digital transition of India’s massive rural economy. Even in that case, the PM and his team have fallen short.

The Pradhan Mantri Jan-Dhan Yojana (PMJDY) laid out a wide, albeit weak, banking network 2014 onwards. Instead, a concerted effort to strengthen ancillary banking mechanisms and internet connectivity should have been undertaken. Inoperative ATMs, low usage of PoS machines, dismal broadband connections, poor internet speed and a subpar cyber security structure have all contributed to undermining the demonetisation drive.
Consider the case of RuPay cards, launched in 2012 by the National Payments Corporation of India. Since FY12, these cards have steadily gained usage. According to a JM Financial report, of the 645 million debit cards in India, RuPay cards accounted for an impressive 38 percent in February 2016. Considering debit and credit cards together, RuPay accounted for 35 percent in December 2015.



But so far, these cards have mostly been used for ATM transactions. But their usage on PoS machines hasn’t taken off. The fear and reluctance of Indians to transact outside the cash milieu obviously contributes to this. For instance, in February 2016, of all the transactions done on RuPay cards, only 4.1 percent were done via PoS machines, against 20.4 percent via ATMs.

But then again, blaming the low usage of RuPay cards on PoS machines solely on people’s fear of stepping outside the cash dynamic will be unfair, given that India has one of the lowest penetrations of PoS machines – only 1.2 million machines for over 14 million estimated merchants.
The demonetisation experiment has shown that the need of the hour is to boost the presence of PoS machines. The growth in number of transactions and value of transactions at PoS machines since FY12 shows that Indians are more than willing to transact using their cards.

The other side of India’s growing engagement with PoS machines is a decline in the number of transactions using debit cards via ATMs. In FY12, the average number of transactions at ATMs per debit card was 20.1 times. By March 2016, it had come down to 12.7 times.
Even payments through prepaid instruments like e-wallets have been increasing, along with electronic and card payments. On the other hand, paper payments have fallen dramatically – from 26 percent in FY15 to 16 percent by February 2016.



However, the demonetisation policy is far from being put on the right track as long as teledensity figures in India continue to be, not just in the red, but also heavily skewed towards developed states vis-à-vis developing states.

For instance, teledensity in many states is way below the average of 83.04 percent. Bihar (55%), Assam (60%), Madhya Pradesh (60.85%), Uttar Pradesh (66.41%), Odisha (70.91%) and Haryana (79%) perform poorly when measured against states like Maharashtra (98.5%), Karnataka (101.43%), Kerala (103.49%), Punjab (106.66%) and Delhi (234.77%).

Even in terms of internet subscriber base, Assam, Haryana, Himachal Pradesh and the northeastern region have very low levels of internet penetration. Once again, the distribution of the subscriber base is skewed in favour of the urban areas.

Even if the government manages to overcome these issues, there is the problem of rising cybercrime in India. From 2013 to 2015, there has been a distressing 84 percent rise in the number of cybercrimes in India. This is at a time when the framework for registering cases under the Information Technology Act is still in the works and the law is far from comprehensive and is only evolving.


(The article appears in the December 16-31, 2016 issue of Governance Now)

Comments

 

Other News

Five years after Nirbhaya, have things changed?

Far away in the other world, she must be weeping seeing the flames of fire she lit for justice slowly fading. On December 16, 2012, the 23-year-old Delhi woman, better known as Nirbhaya now, was brutally raped. She eventually succumbed to her injuries, but not before triggering a storm acorss the count

Income inequality has rapidly increased: Report

The rise in income inequality has been gradual in India, said the World Inequality Report which noted that at the global level, inequality has risen sharply since 1980, despite strong growth in China. The report said that inequality within world regions varies greatly. In 2016, the share of

BHEL launches coal-fired power project in Indonesia

 BHEL has successfully commissioned a 54 mega watt coal-fired captive power project in Indonesia. The project located at East Kalimantan in Indonesia has been set up by BHEL for PT Citra Kusuma Perdana (PT CKP) for its coal-mining operations.   For the project, B

Five years after Nirbhaya: A lot needs to be done

Have things changed five years after the Nirbhaya incident? I see Delhi as the capital of protest, not just capital of rape as it is often painted. In terms of legislation, in 2013 one-stop-centres were set up after the landmark report of Justice Verma Committee and Justice Usha Meh

Winter session will be productive: Modi

The winter session of parliament is starting and I am confident that it will be productive session, said prime minister Narendra Modi on Friday. He hoped that there is “constructive debate and we come up with innovative solutions to our nation`s problems”. Speaking

Know more about Project 75

When prime minister Narendra Modi dedicated Kalvari submarine to the nation, it was significant for more than one reason. Not only did the submarine enhance India’s capability as a blue water navy, it also highlighted Project 75 that focused on a major exercise to build six submarines.



Video

Govt. approves draft legislation to ban triple talaq

Current Issue

Opinion

Facebook    Twitter    Google Plus    Linkedin    Subscribe Newsletter

Twitter