Demonetisation & The Big Digital Divide

India is a huge country with a massive 1.3 billion people. This massive population is not homogeneous. There is a big division among this people. Apart from language, castes, religions Indians are also divided by the wealth they possess ie. whether they are rich or poor, literate and illiterate etc. Now, there is another stark division between Indians, that of digital literacy.

Since November 8th 2016, it has been a difficult time for people in India as the Government of India in a sudden move banned the Rupees 500 and Rupees 1000 notes. Now the Government is pushing for digital payments as it believes blackmoney generation is mostly through cash. This push for payments through online or digital wallet mode has now has focused on the digital literacy or awareness about online and digital payments.

Despite smartphone penetration, there are many Indians who despite being well-to-do don't own smartphones. They are not comfortable with internet and mobile technology. They still do their banking via cheques, bank drafts etc and prefer to make payments in cash. They still struggle to draw their money through ATMs. There are many who forget their ATM pin numbers and write it down behind the ATM cards. This massive population, despite being literate in the conventional sense is not aware about e-banking and mobile technologies. It would be difficult for these people to learn to start using cashless mode for their payments.

These days this educated mass of retired, senior citizens and others are feeling as if they are illiterate. "I don't know this PayTM thing" is the general refrain. At the fag end of their careers, a sense of inadequacy is haunting many such individuals. India Today is changing too fast for such citizens. Ridiculed by the 20 somethings and other people as oldies and other choicest abuses, the older generation is slowly bowing their heads for something which they don't need but is thrust upon them. The respect for the older generation is all but vanished. Is this the price to pay?

If people hurtle into depressions, then no one will know as in India the society is not mature to handle depressions and mental health issues.

Demonetisation will also lead to more and more Government departments completely shifting to e-tender modes. Today, many small time businesses find the e-tenders cumbersome and a big technological challenge. The way e-tenders have been implemented till date is very cumbersome. It is not user friendly. So unless people master the various technologies, it will be difficult to compete as they are already disadvantaged.

If the Government can come out with well thoughtout applications and deploys a huge number of people to increase the awareness then slowly people may start understanding the intricacies. However, there are many big ifs involved here and the Government seems to be pushing through things without much of prior thought. Hope there is some light at the end of the tunnel, so that the common man and woman can learn and pick up the threads in their lives.

Demonetisation: Human behaviour is like War

Prime Minister Narendra Modi has equated demonetisation as war, a war against blackmoney. Recent events prove that people believe Mr. Modi that this is war and are behaving as such.

The ban on Rupees 500 and 1000 notes has indeed created a warlike situation. The huge inflation during the UPA days, when food inflation was around 18%, had resulted in greater requirement of 500 and 1000 rupee notes. So when the Government announced that all the 500 and 1000 rupee notes had to be deposited in the banks, people were forced to deposit those. And since new notes were not printed, the Government only allowed people to withdraw 2000 rupees per day from an ATM, if you were able to beat the queue.

The situation is very tough as people don't have cash in hand. Most of the economy runs in cash. People often stand in queue in front of the ATMs for hours and return empty handed when the ATMs run out of cash. So there are frequent fights, fisticuffs, hurling of abuses at each other and at bank staff that goes on. A recent report also brought out the further ugly side of people. One person in West Bengal while standing in a queue fainted and the people didn't care to pick him up. The person lay there for 20 minutes before police found and shifted him to a hospital where he was declared brought dead.

In a war zone people don't grieve over dead bodies as they don't have time to retreat in view of the approaching army. They just move on to save their lives. Their survival instincts take over and ensure that they can do anything to survive. In one instance of a airline crash, the survivors were known to have turned cannibals and ate the dead people.

Our present situation has become similarly bad. Scarcity has induced a warlike situation and now people don't care to help someone who is exhausted and falls down resulting in deaths that could have been avoided.

Life and death has no value for people today. Concern for life has vanished. The cash scarcity will continue for many more months as some reports say that the total capacity to print notes is only 300 crores a month whereas the total number of notes to be replaced is 2300 crores. Since this situation will remain for atleast six months, there may be longterm implications as people will henceforth get used to only thinking about themselves and not concerned about others. A community succeeds if it stays united. When people lift each other up, then society moves up. When people only mind their narrow selfish interests, it causes great harm to society as the society is torn apart. In such times, it is easy to sow seeds of conflict. Government should be worried that terrorists can take advantage of such conflicts.

Suggestions for Moving towards Cashless Economy

According to RBI, 60% of the Rupees 500 and 1000 notes have already been deposited in the banks. So the Government's calculation of blackmoney holders being caught is not going to be fruitful. Realising this, Modi Government has called for people to move into a cashless or e-payment mode. However, there is precious little that the Government has done till date to move more people into the e-payment/e-wallet mode.

So what should the Government do now?

PayTM has already launched massive advertisements featuring the Prime Minister. This is the second company after Reliance Jio to feature the PM in its advertisement. No company can do it without the permission of the Prime Minister. So I am sure the PM has given his blessings. Now the question is why the Prime Minister who always talks about swadeshi is promoting a company where the Chinese hold 40% shares? Unfortunately, that is likely to remain mystery.

Nevertheless, apart from PayTM ie promoting a private company the Prime Minister or his Government hasn't done much.

UPI:
The pilot for UPI or Unified Payments Interface was launched in April 2016 by the then Governor of RBI Dr. Raghuram Rajan, which powers multiple bank accounts into a single mobile app. Since August 2016 it is available for use. However, not much publicity has been done for popularising UPI. Details about UPI can be found here: http://www.npci.org.in/UPI_Background.aspx

The Modi Government should immediately recruit atleast 1 crore people for atleast one year to move from door to door and popularise UPI app among people. This will also result in sudden spurt in job creation as well as adoption of the UPI app among people. The amount of money required for recruitment as well as conducting this year long promotion can be budgeted.

Politically it will help the Government as the youth will be very happy to get a job as well as act as a change agent.

Bank Accounts for all:
The other important thing that the Government can do is that Government should make it mandatory for people to open a bank account for each child. The moment a child is born, a bank account should be opened and this process should be linked with the birth certificate registration and make it seamless. With Birth certificate and bank account an Aadhar number should be also created. So this will lead to complete documentation of all citizens and any benefits transfer can happen through the bank accounts. This will go a long way towards making our economy cashless and transparent.

Hope someone can whisper these suggestions in Mr. Narendra Modi's ears.

BlackMoney Penalty: Official method to recapitalise banks

Govt. has proposed to hold on to some of the money deposited in the banks if people can't satisfactorily explain the source of those money.

In the latest twist to the unfolding #Demonetisation drama, the Modi Government has proposed that people holding blackmoney can declare their blackmoney and pay 49.9 percent as tax and penalty. The breakup is as follows. Govt. will charge 30% as tax on the undisclosed income, plus there will be a 33% surcharge on it. And a 10% of the declared amount will be charged as penalty.

Apart from this, 25% of the declared income will have to be mandatorily locked-up in an interest free bonds for four years. Though the Modi Government doesn't officially say so, it expects this 25% to help in recapitalising the banks which have seen massive NPAs. For the record the Gross Non Performing Assets (NPAs) of Banks in March 2016 was 7.6%. And this figure was expected to increase to 8.5% by March 2017 and if the macro-economic situation deteriorated then it could increase to 9.3%. (Source: RBI Projections) http://arjunaubacha.blogspot.in/2016/11/compensating-citizens-for.html

For example, if it can get say 1 lakh crore voluntarily disclosed as previously undeclared and hence untaxed amount which we refer to as blackmoney, then 25% of it would be 25000 crores. So this 25000 crores would be locked up for 4 years and help in recapitalising the public sector banks.

The Government was expected to inject some 40,000 crores of rupees into the banks which would have been too little. So the Government is trying to get the funds from public to recapitalise the banks.

The Government has also said that if people don't declare their undisclosed income and then get caught, then they will face penalty of 85%.

Since 9th November, a lot of people have been illegally helping change unaccounted for cash of people by taking commissions of 30 to 35%. Some people who have more than 5 or 10 crores of rupees have also given some 50% as commission to some bank employees and Income Tax people to get new notes. So the Government's proposed 49.9% combined tax, surcharge and penalty may find some takers.

Since a lot of people out of fear of persecution by Income Tax department won't declare their previously undisclosed income, the Government is trying to threaten with the higher figure of 85% if they get caught. It is a common knowledge, that the Income TAx department is grossly unprepared to handle such massive volume of cases. So it would be a big help for the Government if more people come forward and declare their previous undeclared incomes.

Till date some 8 lakh crores of rupees have been deposited in the banks. The Government was expecting that this number will be much lower. If this rate of deposits go on, then most of the 1570 crore 500 rupee notes and 630 crore 1000 rupee notes will get deposited in the banks. That would be a nightmare scenario for the Government. They had thought that if some of the notes don't come back, then RBI will knock off that amount from their books as liability and then give back the same amount to Government as dividend. The creative ways many people have adopted to deposit their blackmoney in the banks has raised the tension of the Government. If the Government can't get back money in dividend from the RBI, then it can't have a lower fiscal deficit and also it won't be able to recapitalise the banks.

So the Government now has come out with this idea of a voluntary disclosure. However, the Government is not using the word voluntary disclosure because its Voluntary disclosure scheme has just ended on 30th September.

There are some people who have 8-10 crores of cash. Some of them who were previously despondent, may go and declare it to the Government. Since they were anyway giving 35% as commission to agents, so giving a bit more and buying peace of mind may be preferable to some. However, knowing the fear of the income tax department, not everybody will agree to declare. So the Income Tax team may need to do a lot of work. Recapitalising banks won't be such an easy job.

Nevertheless, already the banks are flush with cash deposited by people. All these money is locked up in banks, as people can't draw more than 2000 rupees per day. This is expected to last for six months. So the banks have got some respite for six months from the NPA problem. The last word on this is not yet heard. However, the cover of the Modi Government that this is a people centric move is slowly getting blown and the main aim to recapitalise the banks and give a positive spin to the PM's image is now becoming clear to many people.

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.

Compensating citizens for Demonetisation hardship

Govt. should give Fixed Deposit rates and a 100% extra for all money in banks to individual account holders

The Government's unprecedented action of declaring the Rs. 500 and Rs. 1000 as illegal and the resulting chaos continues unabated. Everyday, the National Media - which is mostly Delhi centric - comes to know a little bit more about the hardship of people in farflung areas and tells us how devastating this has been for many people.

The Government is however happy. The banks are also happy. Why won't the banks be happy?

For too long the banks had hidden their NPAs (Non Performing Assets) from their accounts. Industrialists have been taking loan after loan, often refinancing the old loans with even bigger new loans. The previous RBI Governor Shri Raghuram Rajan, who had famously predicted the 2008 economic collapse, had forced the banks to come clean on their bad loans or NPAs.

The Gross NPAs of banks in March 2016 was 7.6%. In rupee terms the Gross NPAs stood at 5,94,929 crores at the end of March 2016. RBI Projection says this is expected to rise to 8.5% by March 2017. And it had also said that if the "macro situation deteriorates in the future, the gross NPA ration may increase further to 9.3% by March 2017".

The public sector banks, atleast a majority of those, are like personal fiefdoms of the Chairman of the bank along with a coterie of politicians. Not many can question them. For too long this nexus between bankers, industrialists and politicians had continued till Shri Raghuram Rajan as RBI Governor decided to bring this issue to public. Shri Raghuram Rajan forced the banks to make 15% provisions for restructured loans. Now that the NPAs have been made public and are reflected in the balance sheets of the banks, they required massive recapitalisation. So there were some demands of recapitalisation of banks to the tune of 70,000 crores. However, given the scale of NPAs, that was too less.

The withdrawal of Rs. 500 and Rs. 1000 notes and people being forced to deposit their own money, banks are now flush with funds with several lakh crores of money already deposited. So a few banks have even announced reduction in their deposit rates by .15 to .25%.

Unfortunately, it is a double whammy for the common man. His/her money is forcibly deposited in the banks and only partial withdrawal of upto Rs. 2000 is possible per day. So even legitimate cash kept by people is now tied up in banks. It is like a forced fixed deposit without any extra interest rate.

If the cash deposited by the public is unaccounted for then the public have to pay income tax, as well as some 200% penalty. Though under what section that penalty percentage will be applied is not known.

Government is expected to be for the people and Government has to be seen as "just" and "fair". Unfortunately, in this entire #Demonetisation episode the public has been brutally hit. So it would be fair for the Government to announce that all deposits in the banks will earn an interest rate equal to annual fixed deposit rates and a special 100% extra on amount of hardship to the common man. That would be too low and too less because this demonetisation exercise has taken more than 50 lives and have resulted in massive loss of legitimate business.

Unfortunately, this Government only demands sacrifice from people and doesn't appear to be concerned for the "sacrifices" and doing even a small bit to alleviate their stress.

Read BlackMoney Politics & Way Forward: http://arjunaubacha.blogspot.in/2016/11/blackmoney-politics-way-forward.html