In July 2015, the finance ministry circulated a draft proposal for facilitating electronic payments. Not surprisingly, many of the points suggested were the same as what the payment industry wanted, i.e. implementing the draft proposals for facilitating electronic payment transactions.
Last year, we had made a plea to introduce tax incentives to merchants accepting electronic payments and also penalise large cash transactions. It was based on a study that our bank notes in circulation to GDP ratio stood at 13%, which is way higher than the global range of 2.5% to 8%, implying that we are very much a cash-based economy.
This year during the Budget, we would like to reiterate the demand using a slightly different tack. The traditional argument against penalising cash transactions has been that many people don’t have bank accounts and hence we are actually hindering their right to receive funds in legal tender. However, the Jan-Dhan Yojana has, in a single fell swoop, put all those issues to rest. India had one of the largest financial inclusion programmes in the world, with 207 million new bank accounts in a single year with a mandatory debit card issued.
Which means that, in a single year, we have taken a giant leap forward in terms of coverage of people who can make electronic transactions. Also, for the first time, in FY16, we saw electronic payment transactions of Rs 6,32,587 crore overtaking traditional paper payments of Rs 6,17,845 crore.
As per RBI statistics (November 15), there are 620-million-plus debit cards and 20-million-plus credit cards. A little over 1 million merchants have POS terminals (which can accept card payments). However, the maximum usage of debit cards is done for ATM cash withdrawals—from April to November 2015, debit cards were used at ATMs as many as 5.2 billion times.
A staggering Rs 2 lakh crore is withdrawn every month from ATMs, which means every year at least R24 lakh crore cash is going out of the banking system into the cash ecosystem.
Is it any wonder that we see long queues at ATMs in the first few days of the month, immediately after the pay day? People withdraw cash as they have no other option; to pay the milkman, newspaper delivery boy, maids, drivers, grocers, tuition fees, auto-wallah, bus rides, etc. Why can’t these be paid electronically? Sceptics will point to the low penetration of 1 million point-of-sale terminals for a nation of at least 50 million entrepreneurs. In this era of smartphones, this is a caveman argument. Many solutions and apps are available to send and receive money for businesses and person-to-person. Banks are promoting these platforms built by payment solution companies. So the actual unused POS terminals are the 220 million smartphones in use.
So, how do we make the horse drink at the well? The government must devise a short-term and a long-term plan. In the short-term, one must use a carrot-and-stick approach. Provide a straight tax rebate on the amounts collected electronically (not cash or cheques) to all businesses, especially SMEs. Impose a tax on cash withdrawals more than Rs 50,000 a month. This will automatically ensure that consumers force businesses to accept electronic payments, and the whole ecosystem falls in line.
The benefits to the entire economy of a less-cash society cannot be quantified adequately. In addition to widening the tax net, it can ensure fiscal independence to each Indian, reducing the cost of cash, counterfeiting by hostile countries, and can help combat financial crime.
The author is CFO, TechProcess Payment Services Ltd