It has been over a month since India demonetised Rs 500 and Rs 1,000 notes. As over 86% of India’s currency went out of the system overnight, hardships for the common man was a given. However, people at large were ready to suffer this initial pain for ‘long term gains’. The entire implementation process of demonetisation has taken many twists and turns so far. What’s perplexing is, contrary to the expectations of the Government, 80% of demonetised currency has already returned to the system. What’s more confusing is the sudden rise of the ‘digital money’ campaign.

Although the Narendra Modi Government has been encouraging people to exercise the option of plastic money for a considerable time now, the attention it has received, particularly over the last fortnight, points at something more. Has demonetisation failed and now the ‘incentivising’ of digital payments is a con man’s move?

A list of unanswered questions about the success of demonetisation probably competes with long queues outside banks. Interestingly, except some top political leaders who went to banks with ‘photo op’ moments in their mind, the entire political clan got door-to-door service from bankers. If not then, maybe they were using digital money. But that’s too ideal to be true.

The income tax department has been raiding across the country, seizing cash. The policemen are taking bankers into custody, who seem to have perpetrated frauds in allowing black money holders channelise their cash.

Recently, the PM, in a political address, appealed to the people whose Jan Dhan accounts have forcefully been used to stash cash, not to return a single penny to its original owners. However, people acquainted with such developments believe this advice is vastly detached from the ground realities. They feel if people were to follow this advice, not only would their lives be in danger, but members of their family would not get a job in their locality.

Is the Apex Court unhappy with the Government’s effort?

Even the Supreme Court has questioned the preparedness of the Government before the demonetisation initiative was launched.

The opposition too has cornered the Government saying, “Banks say they have no cash. How can the Government restrict the legitimate withdrawal of legitimate money? This is plain breach of trust.” The Chief Justice of India TS Thakur, drew the Government’s attention to the problem when he said, “You yourself said withdrawals can be up to Rs 24,000 a week. This is the limit you have prescribed. Once you say people can withdraw Rs 24,000, that promise must be kept,” he said, addressing Attorney-General Mukul Rohatgi, who represented the Government. 

In response, the Attorney-General of India used the same rhetoric that the Government has been using since it launched the demonetisation, “Of course there was a plan. Our expectation was for Rs 10-11 lakh crore to come into the system... We cannot reach our objectives to weed out black money, counterfeit currency, and fight terror without demonetisation. There has to be some inconveniences.”

The counter-reaction of the Chief Justice of India seems to have silenced the Government. “But it is one thing to completely stop something, another to intelligently control it. You have, we believe, very capable officials who can devise a mechanism (to check fake currency). If you could embark on such a large (demonetisation) scheme, you can as well see to these small matters,” the Chief Justice said.

Digital Push…

On this backdrop, the Government’s thrust on digital payments sounds more a last-minute makeshift rather than a part of a well-crafted plan. A con man’s act is simple—divert the attention of the audience from things they are losing and glue their attention on what a con man thinks his audience is likely to gain.

Instead of cornering the Government on the right pertinent issues, the opposition parties are stalling the parliament on petty issues. Leads one to see that a vulture’s act is also at play.

In an attempt of promoting digital payments, the Government is handing out some goodies. It recently announced 8 incentives which are as follows

 

1. Government-owned oil marketing companies will offer a discount of 0.75% on purchase of petrol or diesel, wherein the payment is made through digital means
2. The Government is expected to provide 2 PoS (Point of Sales), card swiping machines per village with a population size of less than 10,000 free. Nearly 1 lakh villages are expected to benefit from this initiative
3. About 4.32 crore farmers who currently hold ‘Kisan Credit Cards’ will get ‘Rupay Kisan Cards.'
4. The digital payments for the services offered by the Railways and its affiliates would now let the payer avail 5.0% discount.
5. Purchase of insurance from the websites of public sector insurance companies will get a discount of 8% in case of life insurance and 10% in general insurance cases.
6. The suburban railway tickets, including season tickets, would earn upto 0.5% discount.
7. Toll plazas would offer a discount of 10% on payments made through Radio-frequency Identification (RFID) cards.
8. Passengers booking online railway tickets will be offered free accidental insurance cover of upto Rs 10 lakh for free.

 

Is India prepared for going digital?

Paying through digital wallets has become a norm nowadays as we have been facing a severe cash crunch. Even local grocery shops, vegetable and fruit sellers, in some places, have started accepting payments through digital wallets. But the question is, are we ready for this digital transformation?

If you notice, while downloading apps of private digital wallets, you ‘accept’ terms and conditions. By doing this, you end up allowing the digital wallet company to have access to super sensitive personal data. What’s more painful is, there are no standard security measures prescribed to the digital wallets, though the RBI regulates digital wallets as ‘prepaid payment instruments.’ In the case of misuse of information of the wallet holder, the digital wallet may wash its hands saying the wallet company itself was a victim of a cyber-attack. Using UPI app might be safer than using digital wallets offered by private companies.

State of I.T. infrastructure…

It requires no brainer to know the quality of I.T. infrastructure we have in the country to run a massive campaign of using digital wallets. Despite purchasing 4G packs, at certain places even get 3G services aren't accessible. What if somebody lands up in a situation where he/she isn’t carrying cash, and while making apayment to the cabbie, the mobile network drops?

Lack of financial literacy and legal reforms

One also needs to gauge whether India is really prepared for the digital revolution with the current state of financial literacy? Legal reforms have failed to keep pace with the advances of technology.

As we are aware, toll plazas are cash machines, and without any surprise, many politicians partner with toll operators. Have you seen any politician paying tolls at a toll plaza? The Government has announced 10% discount for RFID cardholders, but why there isn’t any effort made to make all toll plazas across the country cash-free? This would be too high an expectation. It might cost them the elections. How many toll plazas actually can support RFID payments is another question.

Speaking about insurance sector, 10% discount offered for the online purchase of general insurance policies from the state-owned companies; lack of product features and substandard policy servicing make them an ordinary choice for those who can afford policies offered by private players. Even after factoring in 8% discount that all new policies issued by LIC might offer, the premium of LIC policies on term insurance policies is way too high as compared to  quote by the private insurers. Of course, the claim settlement ratio of LIC is the highest in the industry, but even some other private life insurance companies have a good track record too.

Supporters of the digital drive often point at one interesting aspect, and rightly so, if an illiterate person can download movies on his/her smartphone, why he/she can’t use the same phone to make/receive payments. Well, the difference between these two actions is payment gateways, and digital wallets are susceptible to cyber-attacks and vulnerable to frauds. Under such a scenario, there is no one to protect a poor and illiterate person. The grievance redressal system in India is in a sorry state.

As per the Government estimates, a discount of 0.75% at fuel stations can reduce the need for cash by a mindboggling 2 lakh crore as it will attract as many as 30% new customers to digital payment modes. This seems to be the only bright spot.

Would babus go digital?

What’s really missing is the thrust on Government departments for going digital. If the Government is serious about weeding out corruption, then it must muzzle its corrupt officials. For this to happen, frictions and interactions between the Government departments and the public must go down significantly. How then will the Government justify the recent introduction of Rule 12E that confers powers to even the junior-most income tax officer to carry out tax scrutiny operations.

This might result in massive conflicts between the department and the public, defeating the principal of lowering interaction between the Government agencies and the public—--one of the major causes of corruption. In the past, the NDA Government took some practical steps to reduce the harassment by the tax officials, but with the introduction of 12E, it is reversing its own good work.

Claiming to having good intent and taking bold steps is fine, but standing on the runway hoping to stop the aircraft is nothing short of an attempt to suicide. India has just tried something similar, to dig out black money. You never know, black money might be sitting somewhere quietly laughing at the long queues of people standing in bank and the helpless Government watching,  trapped in its own cocoon.

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rkj951@yahoo.com Dec 13, 2016 You mention in your article: "Purchase of insurance from the websites of public sector insurance companies will get a discount of 8% in case of life insurance and 10% in general insurance cases". But my insurance company (from public sector bank) says that provision of rebate is not there in policy. Moreover, it does not allow online payment to person who is 60 years or more. Has Govt. not informed all Insurance Companies about the rebate on online payments & to allow everybody to pay online?

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