January 15, 2017

Visualizing a New India 2017- Episode 3: Moving Towards A Cashless Economy

It has been a few weeks in 2017; Every New year we make certain resolutions and keep some of them. We start with new aspirations and realign our goals. Therefore, it is time that we visualize a new India, without corruption, efficient technologically, where everyone is delivered timely justice and every individual has access to school and education. FasciNative presents to you a series, titled Visualizing a New India, brainstorming new ideas and innovations for tackling long drawn problems. Here’s the third edition, consisting ideas to make the economy cashless.

‘Cashless Economy’ has become an everyday term, thanks to the Modi government’s demonetisation shock. No doubt, demonetisation is a remarkable move but a number of reforms could have been taken before reverting to such a mega move. This post consists of a number of suggestions from my side in order to move towards a cashless economy.

Setting the Incentives Right- Differential Pricing

If you go to a gas station in the US, you will see two different prices are being applied to different people- one, if you a pay in cash and second, if you pay with your credit card. If you travel by the public bus in Singapore, you will have two payment options, one, pay by their linked public transport card (EZ-Link cards), which will only cost you for your part of the journey of the bus (the cost from your boarding point to your destination) and second, pay cash in which case you will have to pay for the entire bus journey (the cost from the bus’s initial point to the bus’s destination).

Developed economies have a system of differential pricing for credit and cash. India must also adopt such a system where if you are paying by your credit card or debit card, then lower rates are applied than cash rates. Apart from introducing such a concept in public sector units, the government must reward private enterprises for introducing a differential pricing concept, by giving tax exemptions or cash-back to the company worth the difference between cash and credit price multiplied by number of credit transactions.

Setting the Incentives Right

The ease of doing a cashless transaction reduces as we move from tier I cities like Mumbai and Delhi to small villages and towns. While every shop might have a card swiping machine in metros, these machines can rarely be seen in the rural areas. It is important that the government develops such infrastructure which allows flawless payment by credit and debit card and educates the villagers about using credit and debit cards. Developing better infrastructure must be foremost to any effort made by the government.

Additionally, the cost of using plastic money that is the processing fee disincentivizes people from using plastic money. No doubt, the bank has to pay a cost to facilitate the transaction, however, it would be an amazing idea if this cost is paid from a certain fee applied on cash transactions rather than cashless ones. Let there be a processing fee applied on cash transactions which satisfies the cost of a cashless transactions. This would turn out to be a practicable solution to both the problems: the people's resistance to pay more for the same payment and the bank's cost. 

Thirdly, for a few months, till when the government has suspended processing fee on credit and debit card payments at petrol pumps, the cost is being reduced from the money paid to the petrol pumps. This is a poor plan because petrol pumps work on too less a margin to accept the loss. Therefore, even though the government has removed processing cost, at the ground level, the petrol pump owners are giving all kind of excuses to not allow the customer to pay by card. However stringent a law the government makes, its success would only depend to the conviction of the people at the ground level. Thus, it is time that we revisit the incentives.  

Finding Local Solutions

Even after developing the required infrastructure for cashless transactions, making the rural people confident about such cashless transactions would be a greater challenge. In order to tackle this problem, it would be an amazing idea to introduce legally valid local solutions in such rural areas.

New local coins with a sense of 'localism' can be introduced in place of the demonetised notes in villages or new software can be put into place at each shop and trader’s office which will have its own localised name, bound to be used in a particular village or region. Such software or coins can be used as a locally accepted currency which must be deemed valid by the RBI. The so-called local currency can be exchanged for rupee in rural banks.This would facilitate cashless transactions while sustaining people’s confidence and developing a culture of banking and using virtual money.

Why is a Cashless Economy Important?

Taking all these measures would help India move towards a cashless economy. Such a cashless economy would prove to be a great help for reducing corruption, which must be seen in context with other measures as suggested here. Moreover, this would reduce the chances of theft and help in tackling the problem of fake currency. Apart from these benefits, cashless transactions deem to be more convenient and encourage transaction as you don’t have to worry about change. Lastly, a cashless economy also inculcates a habit of saving. 

Thank You!
Abhimanyu (abhimanyusethia12@gmail.com )

Also Read- 
Visualizing a New India 2017- Episode 1: Speeding Up Indian Judicary
Visualizing a New India 2017- Episode 2: Minimizing Corruption

January 6, 2017

Visualizing a New India 2017- Episode 2: Minimizing Corruption

2017 is here; Every New year we make certain resolutions and keep some of them. We start with new aspirations and realign our goals. Therefore, it is time that we visualize a new India, without corruption, efficient technologically, where everyone is delivered timely justice and every individual has access to school and education. This is the second blog of my New Year series "Visualizing a New India" where I explore scope of Information Technology, to overcome India's greatest problem- Corruption. 

Interlinking Identity and Transactions- Key to Reduce Corruption  

It is undeniable that corruption would cease to exist once every transaction of ours and every interaction of ours with the Government of India gets recorded and then interlinked with our singular identity. With this objective Dr. Manmohan Singh introduced the Aadhar scheme.

We require a universal interlinked Government of India software which serves each and every governmental institution from police to the judiciary, from PSUs to Income Tax. This single software must have a base which is common for all departments and PSUs using it, supplemented by multiple branches and add-ons for each department and PSU, meeting its specific requirement.

Now, this software will work on the basis of your Aadhar card. The first stage will be to link all bank accounts with Aadhar cards only, and no other identity proofs. All new bank accounts being opened and existing accounts must have an Aadhar card linked with it which must be verified by fingerprints or retina scan. This verification process must be made mandatory at all banks.

The second stage will be to make Aadhar card the basis of your transaction. For example, subsidies on LPG cylinders and electricity must not be reduced from their direct price but be transferred into the buyer’s account. One will have to pay the unsubsidised bill for electricity and LPG cylinder at the corporation’s office. But only if the individual brings along his/her Aadhar card and this transaction is recorded in the Govt. of India software, will the subsidy be transferred in their bank accounts.

The third stage would be further incentivizing Aadhar cards’ linkage to bank accounts. The government must start subsidizing medicines and healthcare at the government hospitals, which must also be using the Govt. of India software. Enter your Aadhar card number on the software’s transaction and get the subsidies transferred in your bank account. Or else pay the unsubsidised prices. The same can be done at ration shops where the grains are sold at rationed price.

Once the culture develops, the fourth stage can be ‘no identity means no transaction.’ The Aadhar card must be made mandatory for any transaction with governmental institutions and PSUs.

How to get caught?

This would help in not only digitalising all transactions and moving towards the much talked about, cashless economy but also catch untaxed money. The general practice followed in Indian households is that the untaxed money is used for everyday transactions and international tours which aren’t shown in Income Tax returns. However, when these everyday transactions are being recorded on the Government of India software and being linked with your Aadhar card, the next time you go to your Income Tax office, the clerk opens your Aadhar card page on the unified Government of India software and he/she can see the total money you have spent. Voila! You are caught and you get to pay a penalty much larger than the subsidies.  And mind you, your Aadhar card is anyway linked to your bank account. So the Income Tax department has the legal right to extract money from your very own bank account.

Remember, this is not a shock therapy but a process which must be carried out in a time period of a decade or so. Secondly, once mobilized, such a unified Govt. of India application, as mentioned above, can be used for many other purposes apart from reducing corruption. Thirdly, a lot of people argue that making a law doesn't help in reducing corruption in itself as it would queue up many cases in our already lagging judiciary only. However, I think that just because our justice delivery system is slow, does not make introducing the law a bad idea, though, I agree that speeding up the judiciary might make this law more effective and hence, must be looked at in context with my suggestions to improving the justice delivery system here.
All feedback is welcome at abhimanyusethia12@gmail.com !

Also Read- FasciNative: Visualizing a New India 2017- Episode 1:Speeding Up the Indian Judiciary
FasciNative: Visualizing a New India 2017- Episode 3: Moving Towards a Cashless Economy