Prime Minister Narendra Modi once again exhorted Indians to ‘lead the change.’ The appeal this time, which comes weeks after demonetisation, was to encourage digital payments, contain corruption, and emerge as a cashless economy. This, however, isn’t an easy task. Nearly half the country’s workforce is in the informal sector and are paid in cash. To bring them into the banking fold, the government rightly opened over 250 million-odd (zero-balance) Jhan Dhan accounts.
This spiked the total number of debit cards to over 660 million as of October, but ironically, 78 per cent of all the transactions continue to be in cash. Lack of infrastructure is a drag on consumers favouring digital transactions. As on 2014, there are just about 18 ATMs for every one lakh in India, far below the global average. Also, of the 15 million-odd merchants, a little over 1.46 million have PoS terminals. The government is aware and efforts are afoot to beef up infrastructure. Digital payments are a boon for banks, whose cost of operations on cash transactions are upwards of Rs 21,000 crore, as per a 2014 Tufts University estimate. It will also reduce costs for RBI, which spends roughly Rs 17,000 crore every year on currency printing and distribution. Digital transactions obviate the need to store cash and provide for proper accounting, but concerns over cyber attacks are growing.
Just last month, leading banks like SBI and ICICI were victims of a cyber breach compromising financial data of thousands of customers. Before stepping up momentum, the government should first enhance security to prevent such attacks. Also, amendments need to made in order to facilitate cash transfers. For instance, the payment of wages Act specifically mentions that wages have to be paid in “rupees and coins”. Only with the permission of workers can wages be paid through banks. The law needs to be amended as all government utilities are enabled to receive payments through ewallets and Apps.