On at least three occasions, Indian governments have tried to cut back on the use of cash in the economy — only to step back in the face of outrage. It remains to be seen how far the latest plan to expand electronic transactions is successful. The problem is simple. India has the world’s largest stash of cash in circulation. Even accounting for the level of its per capita income and the huge size of its population, the cash economy is disproportionately large. Reserve Bank of India data show cash with public at Rs 12,483 billion — about 10 per cent of the 2013-14 GDP. [related-post] The amount of coins in circulation, at Rs 146 billion, is about the same as Rs 50 currency notes around. Cash transactions create two problems — they do not really help the poor since cash per se brings no advantage to them. Rather, as more cash is paid out from, say, government programmes, the risks and costs of keeping it safe at home or on the streets rise. The incentive for petty crime rises — a good example is old age pension. The second problem is that of the generation of black money. Those with black money use the alibi of the first group to demand a rollback of measures to curb the spread of the cash economy. During the first NDA government, there was a proposal to make all payments at petrol pumps card-based. It was a clean plan, since the poor — say, those below the poverty line — would not visit pumps, and those who could afford a vehicle could, logically, be expected to also have cards. There was predictable opposition. Cards would allow the tracking of high-value transactions. Political parties are often funded during elections by use of vehicle fuels, and their sponsors didn’t want trails to lead up to them. The plan was scrapped. Next, UPA-I attempted to track cash transactions through a banking cash transaction tax. The rate of tax proposed by former finance minister P Chidambaram was peanuts, but it still allowed the tax people to track transactions. It was this tax that allowed the direct tax department to figure out that a branch of a public sector bank in Chandni Chowk in Delhi was the preferred destination for huge cash transactions. That it was next to a covert cash runner (angadia) outlet suggested an obvious connection. But the discovery also sealed the fate of the tax — the minister had to roll it back. In between came another plan to make cash held by individuals reportable in income-tax and sales tax returns. It never reached the stage of implementation. Cash is a relic of the last century. It makes little sense to litter tech-driven economies with it. Cash is just a promissory note from the government, printed on pieces of paper that get crumpled, torn, and when burnt in the RBI presses, release harmful lead into the atmosphere. Shredding them has been found to be risky — entrepreneurs have found ways to extract bits to create a trade in fictitious currencies. The latest plan to expand electronic transactions mooted by the Finance Ministry is robust. It seeks to provide access to financial services to every citizen, along with the ability to conduct non-cash transactions — including that of collection of government taxes and receipts — by equipping each collection desk with a method to accept non-cash receipts. The key here is the attempt to migrate payment transactions to non-cash through incentivisation of electronic, and disincentivisation of cash-based transactions. This is also where one suspects the blowback would come. You only have to look at the many attempts at faking PAN numbers, or keeping prices of consumer durables below the threshold level. For the scheme to succeed, the government has to ensure that the cost of accepting credit or debit cards is eliminated at every point of presence — and push to make cash transactions above a smart threshold illegal. subhomoy.bhattacharjee@expressindia.com
