What does it take to go cashless?
In the past, it passed for a moment of instant fun. In shops, behind the busy payments counter, you saw this advisory on bold display
True, smart cards are all over the place. Shopkeepers do not have to worry any more about default, as they did in earlier times. Yet, some of them still mumble as you take the card out: "Dekhoji, hamara machine kharaab hai (Look, our machine is not working)!" Others cut out niceties and warn you upfront that card payment could cost more.
What, then, is the option you are left with as a purchaser? Cash is no more a problem. ATMs are there at every urban street corner and withdrawal costs you nothing. Next time round, learning by experience, you start carrying enough cash with you. Just in case!
But does the ATM withdrawal indeed cost nothing? Ask the banker. For he knows where the shoe pinches. It costs the bank a good Rs.15 a transaction. Add another Rs.5, given the new requirement to position security guards outside ATM booths after the recent spate of daring robberies. All this does not move the un-pinched customer a wee-bit. For banks are mandated by the Reserve Bank of India (RBI) to subsidise the ATM withdrawals. Yes, free withdrawal passes for a customer right!
But where there is no free service mandated, banks have their own ways. Take cheque payments, for instance. An easy alternative to cash, banks make the customer pay for the cheque book. Again, Internet-based banking comes with its own price tag. If there is one takeaway in all this, it is that the customer should pay for efficiency, while banks subsidise inefficient transaction modes.
So, then, all the talk of curbing cash economy seems just that - plain talk. Any rational observer may be forgiven for concluding that the system as a whole is rather set to promote cash. Massive income tax campaigns are a case in point. They remind the taxman-weary citizen: "Beware as you use your card! We know it all."
Last heard, returns of taxpayers making aggregate credit card purchases of over Rs.200,000 per year were being automatically flagged by tax systems as potential candidates for scrutiny. Why should someone paying his utility bill or making a small purchase through a credit card be prima facie worthy of suspicion? Can a mode of payment backed by "know your customer" and audit trail raise eye brows, given that the very same payment sails through when handed over as cash? There are less intrusive ways to isolate credit card repayments by cash, if that be the concern.
Quite clearly, what we need is coherence in policies -- not a situation where one set of policies promotes cash infusion, directly or indirectly, while another mindset actively tracks cash transactions because these are likely to have originated from unaccounted sources.
What could be an elegant way forward? No one wants a charge on ATM withdrawal as a disincentive to cash-out and pay. But surely, there is a case for some sort of an incentive for those of us willing to go cashless - through a credit card or debit card maybe, through internet or mobile banking, or by just signing away a cheque leaf.
Now what could that incentive be?
It could be a nominal 5 percent set-off on tax payable by those who spend more than 80 percent (or some other threshold) of their income in cashless transactions. This can be quite easily determined. A routine bank statement showing non-cash and cash debits separately would do. No new hassle this. Tax payers do furnish personal banking information showing interest income accrued and tax payable or deducted. So administering such incentive should involve no extra load, either on the banks or on the taxpayer.
Overall, rewarding of non-cash spending through a tax incentive should have a wholesome effect. It will help foster transparency, bring greater efficiencies in financial transactions and boost the economy and revenues. In particular, it would be welcomed by vast numbers of people who spend tax paid money from bank accounts.
For once, the government would have targeted a tax exemption on the honest taxpayer -- a small bonus to demand cashless transaction while shopping. The greater the transaction value, the more the incentive for the customer to go cashless. Also, a shop not accepting card or cheque runs the risk of losing business to the next shop.
Already, banks charge for many a non-ATM transaction and need not worry on this score. Digital infrastructure is in place, and added volumes will only reap greater economies of scale. New innovations are leveraging the spread of mobile technology, and growing numbers of small vendors across the country can now transit to the world of cashless business.
In what's win-win for all, enforcement agencies also will now have reason to smile. More and more transactions would become accountable, covering both the spender and the recipient. In particular, from the indirect tax perspective, all sales transactions will be traceable.
Going forward, cash withdrawal subsidy need not be limited to the middle class and the affluent. Increased cheque and electronic transactions may help release subsidy funds to support low cost banking channels for the urban and rural poor. But then that would be another story.
(Dharmarajan Krishnan is a former civil servant. The views expressed are personal. He can be reached at email@example.com)
(Posted on 25-07-2014)