Cash is set to be the king, again
Push towards digital transactions is not happening as envisioned post demonetisation
The government’s reaction to the spurt in digital payment represents, if anything, irrational exuberance. In general, the Indian economy is going to remain cash dependent for many years to come, or, at least, until the government spends enough to improve education and living standards of the people
The massive push for digital transactions and less-cash society ostensibly to fight black money menace may soon have few takers as digital payments have started dropping after their initial rise in November and December, following selective demonetisation of high-value currencies. If the latest representative Reserve Bank data is any indication, the government’s campaign for digital transfers is not cutting much ice with the general public. The easing cash supply situation is slowing down digital transactions. The RBI data showed digital payments, last month, were 10.2 per cent lower in volume and seven per cent lower in value compared to December. The number of digital transactions reportedly dropped from 102.8. crore in December to 99.3 crore in January. In terms of value, the number declined from Rs. 105.4 lakh crore in December to Rs. 98 lakh crore, last month. The data included transactions on debit and credit cards, electronic fund transfers, digital wallets, and mobile banking transactions. The RBI data is representative of payment systems on a daily basis since December 2, capturing card transactions of four large banks, prepaid instruments from eight non-banking firms and mobile banking figures from five banks to represent a trend.
With cash supply slowing easing, the general public is returning to the favoured cash transaction. Notably, within digital transactions, debit and credit card transactions at point-ofsale (POS) terminals dropped sharply in January by as much as 18.6 per cent. Though there has been some increase in transactions in other modes such as immediate payment service (IMPS) and united payment interface (UPI), the amount involved was insignificant compared to transactions under the regular digital payment systems. The value and volume changes in prepaid instruments, which largely comprise mobile wallets, were utterly flat. The latest trends contradict the government claim of highly encouraging public response to digital transaction that is meant to curb black money accumulation.
Even the Prime Minister in his speech in both the Houses of Parliament, last week, cited how growing public interest in digital transactions and mobile wallets is fast changing the economy and making payment transfers more transparent. The government’s reaction to the digital payment growth represents, if anything, irrational exuberance. In general, the Indian economy is going to remain cash dependent for many years to come, or, at least, until the government spends enough to improve education and living standards of the people. BHIM (Bharat Interface for Money) is unlikely to be of much use for the common man. Over 90 per cent of 105 crore mobile connections are in the pre-paid category. Most of them are with such people who use Rs.10 coupons or spend Rs. 50 for each time recharge. They use cellphones mostly for talking. They prefer to receive calls to buttoning numbers. BHIM is of little interest to them.
Unfortunately, the government is doing little to improve the quality of life of the common man, providing them education, skilling for employment, ensuring proper roof above their heads, drinking water supply and sanitation, supporting their healthcare needs, etc. Millions of India’s retired or retrenched industrial workers are still made to survive on a minimum pension of Rs. 1,000 per month. Does the government expect them to use BHIM, digital wal- lets and mobile banking? The despicable living conditions of industrial workers, daily wage earners, domestic servants, contract labours in the services sector, which contributes nearly 60 per cent of the country’s GDP, and others make a mockery of the government’s present pattern of development programmes, big MGNREGA spends and digital economy. The contribution of national and state governments, irrespective of the political parties they represented or are affiliated to, towards the plight of the vast and growing population of the poor and socially neglected, has been too little and insignificant.
However, it will be unfair to ignore the meteoric growth of India’s middle class, well-earning professionals and the wealthy, who constitute a little over 20 per cent of the country’s total population and a major patron of smartphones and the digital transaction system. The women and younger generation belonging to this privileged class are increasingly taking part in digital commerce, including e-commerce, more to keep pace with the time and the trend than for anything else. Ironically, this generation was the least impacted by the note ban. Yet, the digital economy is unlikely to be popular even among the middle class, the wannabes and the wealthy beyond a point. The emergence of fake e-wallet apps to dupe users and rise of cyber criminals since demonetisation have been a cause of serious concern. With improving currency supply, cash is going to be the king again. The black money accumulation and hawala transaction will be most likely to grow at a faster pace to more-than-cover the impact of lost times. Professional practitioners have not only raised their fees, which they mostly collect in cash, since the beginning of this year. The note ban is yet to unearth any sizeable black money or contribute to the growth of the government’s direct tax revenue for 2016-17.
As various market reports from across the country suggest, the note ban has mostly hit the poor, small farmers and farm labour, small-time traders, and manufacturers hard. The reported suicides in the first two months of severe cash shortage in the economy took lives of some of those poor people whose livelihood was severely hit by cash shortage. They are waiting for increased cash supply in the market that will help them to get back to the job and earn cash for their livelihood. Digital transaction, BHIM, IMPS, UPI and their apps are unlikely to make much difference to them for now. (The views expressed are strictly personal.)