TEAM NAME: HOGAN
WRITTEN BY RAHIL HAFEEZ
November 8th, 2016: While America was facing the wrath of their senseless voters, the people of India faced the untimely wrath of the government’s decision to demonetize the Rs 500 and the Rs 1000 notes. The government claimed that the bizarre decision to demonetize the respective currency notes, was done mainly to do away with evils like black money. What shocked us even more were the changing stances of the government with respect to such a disastrous move. The various reasons listed from time to time were concerned with elimination of terrorism, elimination of black money, problem of counterfeit notes and making India a cashless economy. We have to realize that this step is a gradual process and a developing country like India, where more than 85% of the transactions are made in cash and where a huge portion of the countries citizens are digital illiterates, it is not easy to turn it into a cashless economy overnight.
For an economy like India to go cashless, one needs to have a very strong infrastructure to support such a drastic move. Even the most developed countries in the world are not 100% cashless at the moment. The lack of proper arrangements to back up this move was also another reason for its failure. It did not only leave the people high and dry looking for atm’s that were dispensing cash, but also resulted in the death of more than 100 people who had queued up for hours at end over a prolonged period of two months or even more. On one hand, majority of the banks are not ready to handle such bulky e-transactions and on the other hand, majority of the people in India are still not accustomed to the usage of a smartphone as a mode of payment. The lack of digital literacy has made this a very risky proposition for small vendors or individuals who are not aware of the cyber threats associated with this proposal.
Firstly, not all citizens in India have mobile phones. As per the TRAI reports the tele-density of India is somewhere close to 83%. The rural areas have a tele-density of 50.72% whereas the urban areas have a tele-density of 148%. We need to understand that, even though the number of connections may be huge in number, the actual number of users is low, since an individual may have dual sim. Secondly, not everyone has a bank account and not everyone is willing to use one because of lack of accessibility. Thirdly, it involves a cost on the part of both, the customer as well as the merchant. Merchants have to pay a fee of 1.7% to 2.5% on credit cards and somewhere around 0.75% for transactions under Rs 2000 via debit cards and around 1% for transactions above Rs 2000. Customers on the other hand have to bear the cost of a smart phone, internet connection and USSD charges and data charges whenever applicable. Let us not forget the charges one is subjected to whenever money is withdrawn from an atm. fourthly, the lack of language options serves as an impediment to people using digital systems and hence widens the gap in the already existing digital divide. More than a quarter of the population is illiterate. They cannot read nor write or even fill up a form in the bank. In fact going cashless will just make life more difficult for them since they will be vulnerable to fraud. Fifth, we need to take into account the times when payments have to be made online but due to network issues or over capacity, the payment does not go through. We have experienced such issues with payment apps like Paytm recently, when their system experienced a slowdown, owing to the sudden flow of massive traffic. Sixth, the poor security systems in the current online payment networks have become a huge concern. Last year there was a theft of more than 3.2 million card details that belonged to customers from banks like SBI, ICICI, HDFC, AXIS, etc.
There are around 1.45mn PoS terminals that have been installed across the country and there are around 2 lakh atm’s but the retail locations for PoS transactions are no match for the over the counter cash transactions. At the moment India has around 700 million debit cards and 25 million credit cards, whereas about 950mn people or 78% of the population do not have access to the internet.
The informal sector on the other hand which account for close to 25% of India’s GDP, was badly hit since more than 482 million people earn cash income on a daily-wage basis. It is next to impossible to impose a cashless mode of payment for people working in these sectors. This sector employs more than 80% of India’s workforce which includes grocers, barbers, maids, daily wage laborers, etc.
Having said that, the government has still not given up on promoting cashless payments. Various positive steps have been taken to encourage people to go digital. The cashless-society move has given rise to various e-wallet companies that have entered the foray to help achieve this plan. Companies like Paytm, PayU, Mobikwik, etc are being promoted by the government to make online payments, obtain utility services, pay bills, etc. The NITI Aayog has also launched weekly-draw schemes like Lucky Grahak Yojana and Dighi Dhan Vyapar Yojana which promises a chance to get cashback if one wins. Post demonetization the government also planned to do away with the surcharge that was applicable on card usage. To conclude, India is still far from achieving the “cashless-economy” goal, but the step taken has paved a path and a route to achieve a long term plan.
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