Making India cashless has been the focus of both Modi 1.0 and Modi 2.0, but is a happy ending plausible? Can we become a substantially “Less Cash” society, if not a “Cashless” society? The Prime Minister’s demonitisation move on 8th November 2016 compelled people to shift to digital payment mechanisms such as debit/credit cards, NEFT/RTGS, net banking and mobile wallets due to cash crunch. After demonetisation, debit card transactions at point-of-sale terminals surged with a growth rate of 105% in FY17. Merchants started adopting e-wallets like Paytm or PhonePe for small-value payments. However, this sharp spike in digital transactions following the 2016 note ban has been evened out with about 95% of transactions in India currently being cash-reliant.
After the success of demonetisation in boosting digital payments, the National Payments Corporation of India (NPCI) launched Unified Payments Interface (UPI) which has recorded a total of Rs 600 million worth of monthly transactions as of December 2018. One of the prime focuses of Modi 2.0 has been to digitise India, and becoming cashless is a part of it. To discourage the practice of making business payments in cash, the Finance Minister Nirmala Sitharaman in her budget speech 2019 announced a 2% TDS on annual cash withdrawal of over Rs 1 crore per year per bank account. She also announced that establishments with an annual turnover of Rs 50 crores or more will have to offer low-cost digital mode of payments to customers wherein no Merchant Discount Rates (MDR) shall be imposed on customers as well as merchants.
By the end of 2019, India is estimated to have 374 million smartphone users and 813 million mobile users. These account for merely 28% smartphone users and 63% mobile users out of a total population of over 1.3 billion people. The number of internet users was just over half a billion people i.e. 556 million users as of December 2018. Furthermore, the use of plastic money has been meager in India largely due to informal sector and parallel economy in the country. In December 2018, the number of debit cards in operation was 958.2 million and that of credit cards was as low as 44.2 million. However, this data does not depict the true picture of card users because of two prime reasons: many people hold multiple cards and some families end up using the same card.
India is notorious for regular internet shutdowns and deliberate slowdowns by the government to act as a barometer on freedom of expression of the press and the common masses. There have been more than 100 reported shutdowns by the GOI in 2018 alone, making India the leading country in the world in annual internet shutdowns, even surpassing countries like Syria, Iraq, Pakistan and the Democratic Republic of Congo. How can a person make payment via e-wallet if the internet connection dies midway? Other problems include poor connectivity in rural and remote areas and failure of Point of Sale Card Machines at retail stores.
On the positive side, four-fifths of Indian adults have opened bank accounts by 2017, compared with just 53% in 2014, thanks to Pradhan Mantri Jan Dhan Yojana launched in August 2014 with an aim to provide universal access to banking facilities in the country. A total of 34 crore bank accounts have been opened under the scheme as of December 2018. However, a large number of them, 48% to be precise, have seen no transactions during the one year of their opening, making India the global leader in the number of inactive bank accounts.
Digital transactions are not trusted by people in India due to poor cyber security and data privacy. What if you do all your transactions electronically and one day there is a breach which reveals all your purchases and transfers out in the public? What if someone misuses this data against you? There have been several incidents of such neglect by the Indian banks regarding data security of customers. Take the biggest ever data breach in the history of Indian Banking in 2016, when over 3.2 million debit cards of SBI, HDFC, ICICI, Yes Bank and Axis Bank were compromised and unauthorised use of debit cards was reported in locations in China due to malware injected into the payment gateway network of Hitachi payment system. This resulted in a massive debit card replacement drive or modification of PIN of ATM cards of these banks. Some of the more recent instances of data breach in 2019 in India are SBI forgetting to protect a key server holding sensitive information in one of its Mumbai installations, allowing anyone who knew where to look to access information relating bank balance, account number and transaction history of millions of customers. Similarly, PNB carelessly displayed sensitive information about 10,000 credit and debit card holders on the internet for a period of 3 months.
There is no legislation in India which specifically deals with such issues of cyber crime, fraud and identity theft of personal information. Currently, such cases are solved using laws such as the Information Technology Act, Indian Penal Code, Intellectual Property Laws and Credit Information Companies Regulation Act. This makes the lack of faith in Indian banking system quite obvious! The silver lining in the situation is that a committee under the chairmanship of former Supreme Court judge Justice B.N. Srikrishna has recently submitted its initial assessment and recommendations on data privacy accompanied by a draft of the legislation titled “Personal Data Protection Bill 2018”. The first bill on data privacy is yet to be passed by the Indian parliament.
Coming to workforce, a report by the International Labour Organisation 2018 reads that nearly 81% of India’s employed population works in the informal sector. Various Micro, Small and Medium enterprises in manufacturing, trade and service sectors are a part of the informal economy. These enterprises often find it difficult to arrange acceptance infrastructure for digital transactions due to high expenditure on purchasing smartphones, paying data charges, rentals on PoS devices and MDR. As a result, almost all the transactions in the informal economy take place through cash. The government must provide incentives to these MSMEs so as to compel them to shift from cash-based transactions to cashless transactions.
The education and income level of a country also depict the uptake of non-cash means of payments. A large proportion of the population still has a hard time working with technology. The percentage of illiterate population is as high as 26% in the country. To tackle this issue, the GOI has launched the “Digital India” scheme to develop secure and stable digital infrastructure, deliver government services digitally and achieve universal digital literacy.
Despite several nudges provided by the government to promote digitisation and cashless transactions in the country, the deficits on several counts such as poor physical and financial infrastructure, data privacy and cyber security issues, low income and educational profile of the nation, large size of the informal economy and the inability of unorganised retailers to provide acceptance infrastructure have made “Cashless India” a distant dream. To make India cashless, we require a combined strategy of short-term nudges to inculcate a natural tendency towards non-cash means of payment and long-term strategy of solving the fundamental financial problems plaguing the country.
By Sanjana Chandaliya