"Cashless economy" and "digital money" are the buzzwords today, but can India really leapfrog from a not only cash-driven but largely unbanked economy (almost 50% Indians do not have access to banking) to one where electronic payments are the key instruments of transactions? Can Indians in remote village bypass the banking process and receive and make payments to all and sundry through their mobile phones?
Is it that when votaries of a cashless economy talk about going digital, they are only referring to the rich and the middle class?
If you believe the government and its cheerleaders, that is going to happen. Nandan Nilekani, who pioneered the biometric identification (Aadhaar) process in India, believes that India was bound to go largely digital in six to seven years, but Narendra Modi's demonetisation move has hastened the process; according him we'll have a digitised economy in a matter of months!
When he says this, is Nilekani even thinking of the almost 300 million adults who are illiterate? When he talks about a digital economy in a country where only about 34% of people have access to internet? Or, is it that when votaries of a cashless economy talk about going digital, they are only referring to the rich and the middle class?
But then the rich and the middle class have always taken the lead in using technology to make financial transactions. When the bank ATMs (Automated Teller Machines) 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 bigger banks have come to be established; some local youths familiar with banking apps are designated as business correspondents to do business with the villagers. Is it possible that the intermediary role of the business intermediaries 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 of forcing the pace of it? As and when the familiarity with the usage of smartphones and various apps increase, villagers will be motivated to sidestep their dependence on intermediaries and begin doing things on their own. The question is: where does the need to expedite the process arise?
The absence of a fool-proof technology will hit the poor and the illiterate the hardest, as their life-time savings may disappear in one fraudulent transaction.
The government's insistence on a digital economy as a means to curb corruption makes sense. But corruption is a menace that involves those with large incomes 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 will not receive or pay money electronically. They will find a way to deal with cash. That illegally gotten money would then be spent 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 modes 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. A headline that recently appeared in the Hindu said it all: "Your digital wallet can be a pickpocket." The article went on to say, "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."
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 absence of a 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.
Why are we in such a tearing hurry to accomplish the mission in six months...? Are there vested interests at work behind this move?
There is a need to take into consideration consumer behaviour as well. Jack Ringquist, global leader, consumer products, Deloitte, said in an interview in India: "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 20-25 year journey."
Prof Bhaskar Chakravorti makes a similar point in the Harvard Business Review: "The US... 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 proponents of the current cashless drive would have it? Are there vested interests at work behind this move?