Demonetisation deed is done – now look ahead

By Salim David
Money is a medium that lubricates the economic system. Without it the wheels creak, and turn slowly.

Make no mistake: the current cash crunch will last.

Let’s face it — we have just removed 86 per cent of our money. The mints weren’t built to replace so much in one go. It will take many months of suffering, scrimping and standing with outstretched hands in bank queues — unless we do something.

The only way out is to promote the use of digital money. More transactions with digital money will reduce the need and dependence on cash.

The good news is that most of the salaried class in urban India have converted — stores and e-commerce sites report a higher percentage of card usage vis-a-vis cash.

The bad news is that most others have not. Among the lower middle- and lower-classes, which form the bulk of our population, digital money hasn’t made much headway. Rural India as a whole is also bereft of card penetration, banks are always miles away, and few ATMs function. Only if we convert these people to the use of digital money can we emerge from this cash crisis which threatens to stall our economic growth engine.

The lower middle and lower-classes normally don’t have smart phones and internet. Now, with technology, they can use their normal phones to make and receive payments. Some are already doing this, but if we can quickly get the majority to adopt mobile money we can ease the requirement for cash and bolster spending. This is the challenge: to get everyone to use digital money for every purchase.

Here are some suggestions.

In order to induce the masses to get Paytm, freecharge, m-pesa, airtel money, or any other mobile money on their normal phones, let the Centre give a one-time incentive of Rs 100 as a bonus for those who install it. Everybody loves a freebie, and Rs 100 is a lot of money for most Indians (wages for half a day’s work).

If the communication and ease of installation is right, one can expect at least 50 per cent penetration across India — perhaps 20 crore connections (out of a population of 125 crore). With 20 crore Indians keen to use their bonus money, shops and establishments will surely install the mobile money apps and ensure suppliers and customers can seamlessly be serviced with mobile money.

Once they use mobile money they will see the ease of it and be happy to accept mobile money payments, decreasing the need for cash. The rest will follow.

The penetration of mobile phones in India is 82 per cent and growing. It is not unreasonable to envisage that the penetration of mobile money will be over 50 per cent to start with, if the campaign is carried out right.

Farmers or farm labour who get paid by cheque will be able to easily transfer money from their account to their mobile with just a four-digit pin. A variety of goods and services can be mandated to be paid by mobile money/digital transfer, further taking away the need for cash.

Let’s take a look at what it will cost.

If 20 crore people start using this it will cost the Centre Rs 2,000 crore as a one-time payment. This, however, goes directly to the people and will boost spending and the digital habit. This amount is about 0.02 per cent of our GDP — not a big deal if it is to save us from a cash crunch. (And the government could likely sell the data and recover some money there.)

There are other benefits as well: completely transparent transactions, 100 per cent accountability for supplier and buyer.

If phone numbers are linked to aadhar cards, then a useful data base can be generated as to which category of customer spends how much, and on what items.

If retail outlet bills are linked to customers, then brand-wise customer purchase data is possible and will be of great help to corporates who want to identify their customer profile, and get their customers mobile numbers in the bargain.

Are we saying — let’s try and make the best of a bad deal?

Maybe. But who doesn’t make mistakes? Let’s use the opportunity to achieve what we couldn’t in normal circumstances — try and get to a new normal. In the process we must mitigate the pain and loss or the larger objective will be forsaken.

So let’s try and get as many people to embrace mobile money, especially among those who don’t have smartphones. The key will be the ensuring of adequate call centre points to address the growing demand for clarifications in vernacular languages.

As mentioned earlier, let’s try and add mobile money to 20 crore connections across India and hope we get digital money to cater to 67 per cent of transactions in value terms (India is currently at 32 per cent, the US is at 80 per cent and the UK at 89 per cent). Cash requirement would halve from the current level, and the wheels of the economy would turn easier.