The not-so-recent demonetisation of bank notes worth ₹500 and ₹1000 has been accompanied by a constant push by the government to switch to a cashless economy.
Recently, the Prime Minister said that even beggars today have machines to swipe cards. In the same speech, he claimed that cashless economy is the way to go and this is how Digital India will grow. Given the present cash crunch, it is understandable that there is no other way for businesses to thrive, but a lot of entrepreneurs and economists alike have expressed their reservations against this step.
While the digitisation of records and availability of services online is one thing, online finances are an entirely different ball game, and there is more than one reason why cashless payments are not a good fit for the India we live in today:
Let us acknowledge the fact that not everyone who contributes to or is a part of the economy has a bank account. Even if they do have one, it is not easily accessible. I belong to a significantly privileged section of the society, and yet most homemakers in my family do not have a bank account.
Many people cannot access the bank because the nearest branch is too far, or because the building does not allow their wheelchair to enter, or because they do not have a permanent address proof, have no incentive to keep money in bank accounts, and thus cannot switch to cashless transactions. For a lot of homemakers, savings are only secure if they are hidden from their husbands and in-laws and thus going cashless is not an option they have.
We are presently in a country where more than a quarter of the population cannot read and write. It is hard enough for people who are barely literate to fill forms in banks to exchange their old notes, still harder to participate in cashless transactions. They might have found a way to deal with cash by learning the numbers, but going cashless needs more than that level of skill. A forceful shift to cashless payments only makes them more vulnerable to fraud.
Using the method of transacting without cash for smaller amounts is only feasible when you use mobile applications like Paytm, which requires you to have a smartphone and an internet connection, which has extremely low penetration. I was at the Times Lit Fest last month, where the swipe machine was not working because of no network. If this is the situation in the elite areas of the capital, one can easily imagine how things are in remote villages. While Paytm now has introduced an offline payment feature, this is yet to be used and tested.
Cashless transactions are definitely more convenient, but this convenience comes at a cost. There is an annual fee you pay to use a debit card, per-transaction fee for a credit card and convenience charges for using web portals like irctc.co.in for using their services. The reason why you have so many salesmen selling credit cards is because credit cards are very profitable for banks. Also, if a merchant uses Paytm to collect payments, there is a 1% cut while transferring that amount to their bank accounts.
The chances of fraud in online transactions is what has kept my father from using net banking or credit cards. Given the state of cyber security in our country, this is quite a valid concern. In fact, not too long before the announcement of demonetisation of notes, Indian banks had experienced a major setback related to the security of debit card PINs.
Even if everyone in the country was prepared to go cashless, would it be fair to push them into transacting without cash when they do not want to? If my father is not comfortable using a debit card, even though if his concerns are not ‘valid’, does anyone have the right to mandate him in doing so? It is one thing to incentivise and another to make it the only choice.
Whatever have been the intentions behind this massive change, a country as large as ours, was not prepared to handle any of this. As we curse and criticise the implementation of the move, let us keep in mind that it was not supposed to be a smooth move. Any major change on such a large scale is met with obstacles, especially when the stakeholders of the change are absolutely not in a state to handle it.