The Indian finance ministry recently released a set of proposals that would promote electronic transactions and check the flow of black money in the country. The proposal suggests that policies may be formed to encourage cashless transactions by providing tax benefits to both users and merchants. Measures will also be taken to enhance payment systems and spread banking awareness. As citizens of the country, we must welcome these changes, not just for the ease of banking, but also as a battle against unaccounted money or black money!
While encouraging electronic transactions is being heavily discussed, the government must also devise a strategy to discourage cash transactions. Cash payments have been engrained in our society and our comfort level with plastic money is low. While RBI stats suggest that plastic transactions have increased like never before, more needs to be done to deter the use of cash, and, in fact, curb it completely. Here is what can be done to boost e-transactions:
The Government must decide an upper limit on cash transactions. If the buyer wishes to make a transaction higher than the upper limit, they will have to pay a penalty. Even if such a cash transaction is accepted, the buyer will have to produce his or her PAN card or Aadhaar card to make this payment. This obviously needs to be accompanied by extensive ground work, like linking the Aadhaar card with all bank accounts, and educating people on making cashless transactions.
Bank notes of larger denominations, like Rs. 1,000 and Rs. 500, are intended to facilitate cash transactions. However, this has led to the rise of a parallel economy of black money and counterfeit money. If Rs. 100 is the largest currency note, storing dirty money will become difficult. Once these currency notes are withdrawn from the market, all existing black money hoarded by people will have no value. The government must provide a small bracket of time for people to exchange their legitimate currency before they stop the flow of Rs.1,000 and Rs. 500 notes completely. These exchanges must be validated with income proof documents.
Removing Rs. 1,000 and Rs. 500 notes will also decrease the ease of cash transactions. Imagine making a Rs. 20,000 purchase with Rs. 100 currency notes! Thus, electronic transaction will become the default payment method. This will also reduce the high maintenance of currency notes for RBI and ATMs for banks.
Improved connectivity is a key to encouraging online payments. While there has been growing adoption of smartphones in India, there is a severe need to enhance the infrastructure in the country to attain high speed internet connections. The government plans to invest Rs. 35,000 crore on the National Optical Fibre Network (NOFN) project. This project plans to connect about 2.5 lakh village panchayats with the internet. This will help online bank transactions, as rural India will begin to gain access to the Internet.
Banks now offer a lot of protection when it comes to fraud. But the government needs to educate customers on malicious activities over the internet.
Contactless payment has the potential to sweep away low-value transactions which would previously have been done with cash. NFC (Near Field Communication) cards allow payments to be made by merely waving the card in front of a scanner, instead of requiring them to be swiped into a card reader. NFC cards can be integrated with transportation systems in the country first, to propagate small value transactions.
The real question is whether these measures will be enough to eliminate black money. Perhaps these measures will not be able to curb the flow of black money completely, but they will serve as a stepping stone towards a corruption-free India. All of this has to be accompanied by a cultural change, where reporting of income and tax compliance will be inherent. We have to work towards a society where high morals and honesty will not just be a textbook scenario.
As individuals, we must try and eliminate cash transactions, as much as possible. Electronic payments can be adopted for making small ticket purchases. Politely refusing to make a cash transaction, the next time a shop owner asks you to pay in cash can perhaps be the beginning of this change.