Though it is early days in India’s quest to go less-cash, as opposed to cash-less, a report in The Economic Times says Assam is looking at whether it is possible to make it mandatory to have Point of Sale (PoS) machines in all retail outlets so that customers can, if they wish, use their debit and credit cards instead of cash. Various incentives for cashless payments are also to be explored. It is not clear whether the law can in fact be changed to make PoS mandatory, but with the central government looking at constituting a panel of state chief ministers to explore how going less-cash can be expedited, ideas such as this have to be discussed, refined, and converted into firm action plans.
While there is a natural preference to use cash, especially given the benefits this confers when it comes to avoiding taxes including those like VAT, it is equally true that there has been a spurt in digital transactions. In August this year, Indians drew five times as much cash from ATMs using debit/credit cards than they did making payments with these at PoS, but this figure was over 7.7 times three years ago. RBI data show that while total PoS payments in August 2016 totalled R44,119 crore—that’s R530,000 crore on an annualised basis—using both debit and credit cards, this figure has grown around 30% every year for the last three years. In which case, it is very possible that adding to the PoS population will in itself give digital payments a fillip.
While RBI deputy governor R Gandhi had pointed out, last year, that India needed over 2 crore PoS machines to reach even the average of the BRIC nations, India has just 15 lakh PoS machines right now. The government’s decision to lower import duties on PoS will help make them more affordable, but more detailed work needs to be done on finding ways to promote them. One reason why merchants are reluctant to use PoS is the 1%—or even more—charge that they have to pay on transactions using them.
But if, for instance, the government was to bear the costs, this works out to just around R5,300 crore a year based on the current usage, and makes the PoS a lot more attractive. Given the benefits that digital payments gives the government in terms of getting a better trail of consumption, and therefore income, it would appear worthwhile for the government to spend this kind of money. Also, with most banks coming up with mobile wallets that allow the use of virtual debit cards and the need for PoS machines reducing, banks will also be willing to reduce PoS rates, reducing the cost of using digital money.
While the demonetisation will undoubtedly give a fillip to digital payment, and the move towards GST will mean using cash to evade indirect taxes including VAT will become that much more difficult, the government would do well to educate merchants on the other advantages of going digital—consumers, in any case, should be given tax rebates to encourage the move. A big cost for small firms with little credit history is the cost of finance, mostly from informal sources—going digital, however, gives these firms an electronic history of sales and purchases that makes it possible for them to approach formal financial institutions and lower borrowing costs. It is such approaches that the chief minister’s panel needs to focus on.