Demonetisation Impact Evaluation, now what next?
The demonetisation move was supposed to be a big step towards a cashless economy by the Indian government. This step advocates the idea of cashless economy. Apart from it, there are many good reasons to believe that the cashless payments would be more beneficial in India.
The demonetisation impact evaluation can be seen in a way that how does the government continue to carry on the legacy of economic reforms by bringing more welfare and transparent schemes.
The demonetisation move, which is now considered as one of the biggest economic reform in India was taken to discourage the evils like corruption, black money, money laundering, terrorism, Naxalism etc. Therefore, it is necessary to evaluate the demonetisation move in all its aspects. It also requires the evaluation of future actions of government post demonetisation.
However, some of the recent announcement made by the Indian government does indicate that they are moving into right direction. If all these schemes and ideas would be implemented effectively then the demonetization would eventually turn into a watershed moment in Indian economic history.
We have discussed here some of the points which are related to demonetization in order to make a clear vision and evaluation of this whole process:
1. Minimum Wages: A cashless economy will facilitate the implementation of universal basic income. Indian government is planning a big scheme where the facility of minimum wages or universal basic income will be guaranteed for every citizen in India. Earlier such schemes could not be implemented with full effect. In a cashless economy, the money can be directly transferred into the account of beneficiary. The concept behind universal basic income is simple. It is a regular state payment made to all citizens (one variation specifies adults), irrespective of working status. Economic experts say that it would provide a essential safety net for all citizens and abolish inefficient benefit systems currently in place
2. GST Bill: GST bill is poised to be implemented from April to September this year. Demonetization’s push for cashless economy will smoothen the implementation of this bill. In a cashless economy, most of money transactions would be made online can be easily regulated and traced. And this will help in identifying taxable income and services. In fact without making most of the money transactions digital GST bill would not be much effective.
3. BHIM App: As a direct consequence of demonetization, Indian government launched an apparatus named after the architect of the Indian Constitution, Babasaheb Bhim Rao Ambedkar, the Bharat Interface for Money (BHIM). BHIM is a simplified payment platform designed to make USSD payment and Unified Payment Interface (UPI) payment modes simpler and usable across smart phones and feature phones. It is developed by National Payment Corporation of India (NPCI).
Till date, the overall implementation and effects of the demonetisation have seen a mixed response from experts and people. Here, We have tried to explore the overall impacts of demonetisation over India and Indian Economy. It will also give you the insight about this move and why it is a masterstroke for the idea of cashless economy in India.
1. Money laundering
India ranks fourth in the ranking of cash users in the world. Now let us try to figure out what makes cash-based transactions such an attractive prospect for most Indians? The first reason is that there are no extra transactions costs included when you pay with cash, especially those costs that often make it financially unviable for smaller merchants to shift to electronic payments. A cash transaction is an immediate process, as simple as a banknote moving from one hand to another. While doing the transaction, one does not have to worry about a computer system crashing and losing your transaction.
Second reason is, a thousand rupees loaded into digital wallet allows one to only buy taxi rides; the same thousand rupees as a banknote in one’s pocket can buy one anything under the sun. But one the other hand, it’s also easier to launder money if one is using cash since those transactions are much harder to trace. In the cashless economy, the cases of money laundering can be eliminated permanently.
2. Cost Effective
Cash is a very expensive habit for the nation to maintain. The cost of printing, moving, and managing money around the country is exorbitant. In the period 2010-11, Rs 24 billion were spent by the RBI on printing money, and an additional Rs 455 million were spent on distributing that money nationwide. Cash has other issues too, it can be stolen or lost, and a torn, wet, or otherwise damaged banknote is not accepted by most businesses. On the other hand, electronic payments can significantly reduce friction in the economy, since transactions are easier, simpler, and faster to trace. If the government were to make the shift to electronic payments, the savings cost would be huge.
3. Budget discipline
In an electronic transaction, every detail would be in written form. The written record will be helpful to keep tabs on the spending and this will result in better budgeting. Various tools and apps ill help people analyze their spending patterns and throw up good insights over a couple of years. Controlled spending could also lead towards higher investing. One other benefit of the cashless economy is that there is a lesser chance of budgetary leaks and unaccounted spends sneaking into a person’s budget. If all transactions are on record, it will also help while filing income tax returns.
4. Curb on Black Money
The efforts to reduce black money have been very less effective in the pas .About half the country's output comes from the small and informal sector, where cash transactions are the norm. This leaves big loopholes for the creation of black money. Electronic payments will help spot the leaks in these disbursement systems that drain precious resources away from the intended recipients. Payments can be easily collected and traced. This will automatically put a dent on the creation of black money. The estimated savings from the electronic transactions of these disbursements would boost the country’s welfare spending by 25 per cent, or increase the per capita income for every poor household in India by 15-20 per cent.
5. Financial Inclusion
The Cashless economy will help to spread the services of our current banking system substantially. The access of people to credit and other banking services will increase excessively. And people who did not fall in any banking network will have to put less effort to use all kind of banking services. And financial inclusion will also help in taking government welfare schemes directly to the account of the beneficiary.
6. The Attack on Parallel Economy
When transactions would be made online this will significantly reduce any kind of parallel economy because of one unified payment system. That is one of the most important reasons why a cashless society is needed in India. All those transactions which happen through Hawala would be controlled. This will reduce the size of the Parallel economy in India.
7. Increase in the Tax Net
In India, taxes are cumbersome to pay and easy to avoid. India's government has to rely on indirect levies such as sales and excise taxes, rather than on income tax. And indirect taxes are distortionary and regressive. Direct taxes amount to only 35 percent of the tax net in India, compared to the OECD ideal of two-thirds. And, all these taxes would be paid via digital mode then they can be easily monitored and traced back to a given individual. And, if the officials from tax department smell something suspicious then they can trace the money transaction back to the individual. Hence it will really make tax evasion a difficult task. And as a result, in cashless economy tax collections will be increased which will be beneficiary for any government.
8. Boost in Consumption
In a cashless economy, there would be less incentive for people keeping money in the bank. So as an alternative they would prefer to spend on things that they like or invest it somewhere. It will help to increase consumption that is a good sign for any economy. The Increase in consumption would also lead to increase in the job creation.
The cashless economy will enhance the possibility of convenience. One is neither required to carry a wallet with money in it nor is needed to queue up for ATM withdrawal. One just has to use one’s credit card or mobile phone for the transaction. It is very hassle-free and already popular in urban areas of the country. This ease of doing financial transactions is probably one of the biggest motivators to go digital.
10. More Discounts and Gains
The government launched waiver of service tax on card transactions up to Rs 2,000. This is one of the incentives provided by the government to promote digital transactions. This has been followed by a series of cuts and freebies. It’s helpful to increase savings if this mode of transaction is used. For example, 0.75% discount on a digital purchase of fuel means that the petrol price in Delhi at Rs 63.47 per liter can be reduced to Rs 62.99/l with digital payment. Similarly, saving on highway toll, rail tickets, or purchase of insurance can help cut your costs. Other small advantages are being cashless makes it easy to ward off borrowers and one can pay the exact amount without worrying about not having change or getting it back from shopkeepers.
11. Lower Risk
It is possible to trace stolen credit card or mobile wallet but it’s impossible to get cash back if it is stolen. In that sense, the digital option offers limited security. This is especially sensible while travelling especially abroad, where loss of cash can cause great inconvenience. Apart from it, in future, cards would be evolved to use biometric ID (eye scan, finger prints, etc), it can be extremely difficult to copy them. It would be a very safe option.