Is India entering a new era where crony capitalism of the rich is being replaced by casino capitalism of the poor? That seems like it after the NITI Aayog in its latest gambit — or should that be gamble ? — to promote cashless transactions, on Thursday introduced a lottery system for digital transactions, a week after rolling out other concessions to sweeten digital transactions.
The bounty of Rs 340 crore available in the sweepstakes seems too small in a nation that has 23 crore Jan Dhan Yojana accounts. This is like putting Rs 15 into each account but in a nation that loves one-day cricket matches and the adrenaline of victory, the small amount by national standards may appear like a big bounty up for grabs among the millions.
But seriously, such artificial props are needed because some fundamental issues are not yet resolved in Prime MinisterNarendra Modi‘s quest to build a “less-cash” society in order to combat black money.
First, bank deposit rates have almost always been well behind the retail price inflation for decades. This means that apart from exposing your money to the taxman’s snoop, your rate of return on deposits are below traditional investments such as real estate. It is true that real estate has been in a slump in India over the past three years or so and returns slipped below fixed deposit rates in recent months. But can long-term trends be reversed in a short span? The jury is still out on that.
Secondly, there is an understandable debate on whether mobile wallet companies such as Freecharge, PayTM and Mobikwik and credit/debit card issuers such as Visa and Mastercard will make money on transactions that do not necessarily benefit users except when they are under a compulsion to do so. It is important to remember that all the waiver of merchant discount charges by public sector companies and sops offered by financial service providers are temporary in.
E-wallet sops on now are aimed at building up market share for competing brands. Where is the underlying sustainable value addition? PayTM’s losses quadrupled to Rs 1,549 crore in the last fiscal year, and this year’s number is bound to be a multiple. They do have an e-commerce spin behind the payment game, but “It’s complicated!”
In fact, the CEO of the National Payments Corporation of India (NPCI), AP Hota, was moaning on national TV last weekend that he has all the things that mobile wallet companies have, except the marketing budget. He has a point. NPCI is championing the Aadhar-linked Universal Payments Interface (UPI) for confidential transfer of money through mobile numbers without the fuss. We need a real economic logic to understand how so many players will thrive in digital transactions.
Trying to promote middle entities through artificial incentives is a bit like paying people to use a courier service to hand over a packet of milk to a neighbour.
A joke on WhatsApp says you now need a smartphone, a data pack, a net banking ID and an app to pay for a packet of bread. This is an exaggeration but not without substance in a nation where cash transactions ensure economy, liquidity, ease and confidentiality — and this does not necessarily mean tax evasion. Certainly not for poor workers whose life is easier with cash.
Last but not the least, issues linger on adaptability and cybersecurity. In a world where even highly educated desktop computer users need technology support and guidance on virus and phishing issues, forcing the pace of cashless transactions involves a high risk. And I am not even talking about bandwidth issues. Cyclone Vadrah in Chennai this week proved even electricity is vulnerable to shutdowns. Can wireless links be good enough?
Both basic technology and economic barriers stand in the way of India becoming a “less-cash” society. There is no doubt that people will keep up digital options in mind to avert the kind of uncertainties they have faced after the 8 November demonetisation. Also, a growth in digital transactions may bring down the charges per transaction through technology-based platforms.
However, we might have to wait till the next budget to see some real tax incentives that might make digital deals worth it — and this should be accompanied by an inflation management and interest rate policy that adds economic logic to doing more deals through electronic means.