Post demonetisation of high-value currency notes, the Modi government has taken a number of initiatives to give a push to the digital economy such as discouraging cash transactions, making NEFT, RTGS and IMPS transactions cheaper, giving a push to mobile apps, among others. Now, industry sources say that the government may even withdraw the bank cheque book facility in the “near future” to encourage digital transactions.
Confederation of All India Traders (CAIT) Secretary General Praveen Khandelwal recently said that the Centre may withdraw the bank cheque book facility in the near future to encourage digital transactions. Now the question arises, is withdrawing this facility in the near future possible for the government and what will happen if that happens?
Financial experts rule out the possibility of the phasing out of cheque books. However, they admit that it will be beneficial for people, in case it happens. “The phasing out of cheque books, in my view, is imminently possible. From a personal finance perspective, especially for investments, it would be beneficial as it would prevent delays in the transaction and help protect both parties better,” says Dhirendra Kumar, CEO, Value Research, adding that “the way digital transactions are moving forward, in the days to come, the use of cheques would reduce further. So, yes, it is possible in the near future, but to make it mandatory and withdraw cheque books as of now is a bit premature. Maybe a year down the line, the system would be better placed to take this step.”
Digital transactions, in fact, have seen a significant rise post demonitisation and GST. This trend will continue as the Internet penetration increases and use of cash in business transactions keeps getting diminished. Digital transactions encourage both transparency and compliance and are also convenient to use.
Moreover, “the government has continuously been encouraging use of digital mode for various payments. Currently it is mulling giving a 2 per cent rebate on the applicable GST rate for digital payments. If this step does go through, it will certainly be a very positive one. In the same context, the President of CAIT has suggested that cheque books may be done away with to further facilitate the shift towards digitalisation. While this step would certainly result in a Great Leap forward for digitalisation as well as compliance, it would have to be preceded by a number of steps to prevent disruption of business and economy,” says Ashish Kapur, CEO, Invest Shoppe India Ltd.
For example, lnternet penetration would have to reach the remotest village and a large majority of the population would have to get comfortable using the digital mode to make payments. Also, the online payment portals would have to increase their bandwidth significantly. POS machines would have to proliferate in a big way.
Pinky Khanna, Personal Tax expert at EY India, says, “Cybersecurity risks, protection against frauds and removing transaction charges from digital transactions are some of the most important steps that need to be taken before cheque books can be phased out. Investments in PPF, post offices etc, all these things need to go digital in every aspect if such a move has to be taken. Plus, educating the older generation and people in smaller cities remains key to make this a success.”
Even after all the above infrastructural changes have been made, use of cheques cannot be completely stopped as certain transactions like issuing of post-dated cheques as security would continue. However, “digital payments can be incentivised by tax and some other incentives as well as removal of all charges from debit and credit cards. Also, use of cheques can be simultaneously discouraged by levying some charges or taxes on their use. However, imposing a complete ban on cheques is not feasible in the near future, in my opinion. At the same time, digital payments should be certainly encouraged by the above-mentioned as well as any other pragmatic ideas,” says Kapur.
Kuldip Kumar, Partner and Leader for Personal Tax at PwC, says that phasing out cheque books would require a massive overhaul in terms of mindsets and processes. Even now, people in Tier-I and Tier-II cities are wary of performing digital transactions. Small traders and businesses will need to be educated better before such a step can be taken. Also, “many processes require the use of cancelled cheques and post-dated cheques. These will need to be changed to introduce other methods of verifications and post-dated digital transactions respectively. More importantly, the transaction charges on debit and credit cards need to be removed. An incentive system needs to be brought in place to get people to make the switch. In a country as big as India, it will be a mammoth task,” he says.
Thus, to facilitate movement towards a cashless and paperless financial market, all ideas for encouraging digital mode should be accompanied by requisite infrastructure backing. Once digital transactions have a robust infrastructure support and favourable incentives backing them, cheques payments will slowly and steadily keep ebbing on their own. In that way we will achieve our goal of Digital India in a gradual and painless way.