Hurdles in the way of digital transactions
With demonetisation,the government has sown the seeds of a cashless economy.In February 2016,the Government of India approved the guidelines for promoting payments through cards and digital means.There has been a massive uptick in digital financial transactions in recent months.
A cashless economy runs on credit or debit cards,electronic funds transfer,or online shopping, instead of cash.All transactions are made with cards or through digital means, for example pay bills,buy vegetables,or refuel cars. Unlike traditional pocketwallets,e-wallets do not require cash in its physical form, but are linked to bank account from which payments are directly deducted.
There are three factors that are indispensable for ensuring the sustainability of the cashless economy: cost,convenience, and confidence.
Our country is a “cost-caring” market.If Indians can save a rupee by using cash as compared to digital Transactions, they would definitely preferto do so. Numerous retail banks from 1st March, 2017, have started levying a minimum charge of Rs. 150 per transaction for cash deposits and withdrawals beyond four free transactions per month.According to somebanks,the charges will apply to saving as well as salary accounts.
Responsibility of Financial Institutions
Financial institutions should incentivise digital transactions rather charging them.However, currently there are many charges on digital transactions.Credit cards and more recently Rupaycharge for a transaction.For the sustainability of digital transactions, it is quite disheartening that banks will charge them for transactions and withdrawals.If the banks did so,then ultimately the results would be negative.The dream of a less-cash economy can only be obtained when we strike down these charges.It is the need of the hour that financial institutions remove such obstacles and generalise the culture of digital transactions.Ultimately, digital transactions will curb the menace of black money, which has badly dentedthe tax base and tax collections. Also it is duty of the banks to encourage the mobile payment systems and to enable the customer to conduct basic banking operations.After all, mobile transactions makethe lives of banks much easier!
Responsibility of Government
Apart from cost,convenience and confidence,digital transactions require internet accessibility and penetration which is lacking in India.Second,while banking penetration has increased in recent times,especially after the launch of the Jan Dhan Yojana scheme,the worrisome fact is that the most of the accounts created through this scheme are dormant.People still deal in cash and use newly opened accounts to take advantage of government direct benefit schemes.Third, the infrastructure to create a digital economy is sub-optimal, which is a major hindrance as far as implementation and convenience are concerned.Fourth,literate and middle class people avoid digital payments because of cyber fraud and online identity theft. We need to strengthen cyber security infrastructure to negate such threats.Moreover, people lose confidence in government policies once they realise that the government can change it overnight,as happened in case of demonetisation.Amartya Sen has called it a despotic act.Fifth,in India everyone does not buys items from malls in which they have digital transaction accessibility.What about the local kiranastore? They don’t even have a billing machine and the reason for this is the high bank charges.Government and banks jointly need to take some steps which will reduce the costs of such machines. Any tax on cash withdrawal beyond a certain limit or frequency can and should be applied only once the digital setup has been put in place, is fully operational and the majority ofthe population has accessibility and the financial literacy required to understand it.
Achieving a 100%cashless society will never be possible in India,but the countries that have largely cashless societies today initially moved toward a less-cash society and then transitioned towarda cashless economy.The government and banks jointly need to focus on promoting financial awareness in remote areas, where cash still plays a very important role.However,moves towards the less-cash economy dependupon how effectively we deal with issues such as cyber security,online fraud and the redressal mechanisms for these concerns.
(The author is a student of Law School at Jammu University)