There was a time when India was described as “sone ki chidiya”. Then the conquerors came—first from Asia and then from Britain. Post-independence there were the politicians who amassed great wealth through unfair means. But, with this one masterstroke, India can proceed to reclaim its rightful position on the global map.
India’s $2.2 trillion economy ranks as the seventh largest globally. It is growing at a much faster rate than the rest of the world. By 2030, India could become the world’s third largest economy after the United States and China. Yet, most of the transactions are in cash basis and a third of them do not have access to banking services.
It is in this backdrop that PM Narendra Modi, after coming to power in May 2014, launched Jan-Dhan Yojana, one of the biggest financial inclusion initiatives in the world. He also launched Digital India campaign to connect rural areas with high-speed internet networks and improve digital literacy so that every citizen is empowered to access government services with a broadband connection.
And, now comes the biggest and boldest reform step undertaken by the government to tackle black money and fake currency. The decision to withdraw R500 and R1,000 currency notes is a major disruption in India’s cash economy. It will encourage people to move towards digital payments by way of mobile wallets and other forms of non-cash transactions.
The crackdown will serve as a big boost to promote non-cash transactions across the country, an idea that has been pursued by previous governments for long but with slow progress. India today has some six million credit card users and 40 million debit card holders. For a population of 1.3 billion, that is a tiny figure. Ironically, only about 10% of them are actively used for making payments.
Transactions worth $1 trillion are done in the country annually. Of these, barely 10% are on digital platforms. Mobile wallet providers have, thus, clearly a larger role to play. Citizens should be able to step out of home and pay anywhere for anything. There should be no need to carry cash or cards to pay the local grocer, taxi driver and for any other product or service.
There are over 225 million smart phone users today and the number is set to grow phenomenally in coming years with the tumbling prices of handsets. Services like paying bills for food, cabs, hotels, flight booking, shopping, entertainment or phone recharge can be done by using the mobile wallet. Going forward, people should be able to buy a car or an apartment or furniture by using a mobile wallet.
Wallet payments are close to ubiquitous. One can use them both online and offline. The dynamic mobile wallet started with recharges less than a decade ago and has now seen adoption across payments sectors. Innovations such as cash loading in wallets have led to tremendous increase in user base and transactions.
At present, only 2.89% of Indians pay any income tax. This leaves a huge hole in government’s resources for development purposes. PM Modi’s move to tackle widespread corruption and tax evasion will also bring in transparency and nudge a large number of citizens to come under the ambit of formal economy.
As user awareness on digital payments spreads, the entire financial ecosystem will change radically. The decision will bring more transactions under tax net and both direct and indirect taxes will move up. Reduction in parallel economy would increase the size of formal economy.
The author, Bipin Preet Singh is founder, MobiKwik. Views are personal