Tuesday, November 22, 2016

Coercion to Go Cashless

Coercion to Go Cashless

The 9/11 moment of Modi Government banning Rs. 500 and Rs. 1000 notes from 9th November (mid night of 8th 00:00 hrs) not only paralysed the economy but also ensured social functions like marriages stopped due to lack of cash.

Since marriage is one of the most important social functions and Shri Narendra Modi was seen proudly claiming in Japan that even marriages have been stopped due to demonetisation, there was lot of brickbats and the Government then announced that any one person from a family having a marriage can withdraw Rs. 2.5 lakhs. However, that was not operational because banks had not got guidelines from the RBI to release funds for marriage. Currently people are only allowed 2000 rupees to draw from their savings accounts via ATM.

Now the RBI has sent its operational guidelines for dispensing RS. 2.5lakhs in cash and that has some shocking clauses.

being one an emotional The Modi Government with much fanfare announced that they are going to allow Rs. 2.5 lakhs withdrawal from your own bank accounts for marriage.

The person has to apply to the bank manager with proofs of advance payments already made towards the marriage for example booking of marriage hall along with the printed marriage invitation card etc. The marriage has to be on or before December 30th.

However, the most shocking clause is that the person has to mention whom the money will be paid and have to establish that those persons don't have bank accounts. So this cash expense can only be done to people who are out of the formal banking system.

If a person has a savings bank account, current account or Jan Dhan Yojana account, then money has to be paid by cheque or online transfer.

For example, if you are going to pay money for flower decoration, then you have to ask if the vendor has a bank account and then transfer money if he has. It is another matter that the vendor will have to pay cash for buying flowers from the women selling flowers on the street. Since the vendor have to pay cash to procure, he most likely won't accept the cheque from the person. Similarly there are many people who prefer to employ cooks to do the cooking themselves for the guests instead of giving the contract to caterers. So now visualise you buying paneer or cheese from the sweets stall who won't accept cheque. In some big cities, people the sweets stall owner may accept cheque but that is only in very few cases. You can create your own list and decide how difficult it will be for the person to do a marriage without cash.

The most important point here is that RBI is now clearly telling us that we are forced to use the banking system ie cheques, credit card, online transfer to make our payments and Cash is now pariah in this economy.

That is a very dangerous thing at this moment. US economy had credit cards since 1971. So people there use credit as second nature. In India, credit is seen as sin by many people and prefer to pay by cash. A minuscule portion of Indian economy is digital. Rest all is in cash. Insisting that we have to pay in cash is asking people to change their behaviour.

It would be easy for the educated people to do that. However, it would not be easy for others to do that.

Ethically it is not right to deny use of your own money. Government is the custodian of our money. So when you refuse to allow us to withdraw money from the banks, you are impinging on the rights of people. I can decide how to use my cash. The Government cannot just dictate that cash is bad. Unfortunately, that is precisely what the Government is doing.

Democracy doesn't run on coercion. Sanjay Gandhi realised it when he forcibly took people for vasectomy and tubectomy operations. That raised lot of hue and cry and India's family planning programme after that never made any progress. The Government should have understood that even good medicine cannot be forced down the throats of people, else they will rebel.

So what can Government do to increase use of e-wallet, online transactions?

1) The Government has to incentivise people to use online bank transfers, credit cards and cheques. When others see that there is an incentive in online transfers or cheque payments then they will prefer it.

2) Government has to do an e-wallet. Instead of allowing every bank to do one, it would be better if the Government comes out with an app. Instead of #PayTM which belongs to private companies with some 40% owned by Chinese (Alibaba is a chinese company), the Government has to encourage people to use a Government of India owned e-money app which can be named eRs . It would have all the security features and will also get the trust of people as it is Government owned. The Government can then tell people that they can get back say 1% as cash refunds if they use this app to buy and sell.

3) Ensure that first all property transactions have to be done through the above mentioned Government owned e-wallet say eRs. All highway toll booths to be only through the Government owned e-wallet. So the Government can immediately know the total income of each Toll vendor and hence the Toll vendor can't keep on charging forever. All railway travel bookings in AC classes to be started with e-wallets as well as all payments to Government to be done in the cashless mode. This will along with incentives for cashless mode will ensure adoption faster and help in smoothly moving to a cashless economy.

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