Cash is an expensive cost to India’s economy. A recent report concluded that India spends about Rs 21,000 crore annually in currency operation costs. This includes printing, storing and transporting the cash, as well as the expenses incurred by banks in setting up and maintaining ATMs. Then there are concerns over counterfeit currencies and theft.
But despite all of the above, we as a nation are in love with cash. The developments on 8 November 2016 drastically changed the way we used cash. But even demonetization, as recent estimates suggest, has had little effect on cash transactions. As soon as the aftershocks of the government decision lessened, money started changing hands in full earnest.
Educated estimates say, 95% of retail dealings continue to be in cash and only 5% of transactions are conducted digitally through various modes such as cards, online, and e-wallets. For the record, before Prime Minister Narendra Modi announced demonetization, 97% of retail transactions were in cash. Thus, very little has changed on the ground. These statistics must be disappointing for the government, which has been trying to discourage the use of cash and promote digital transactions for quite some time now. Recently, the government also announced cashbacks and awards on digital transactions to incentivize the common man. But is this model of giving cashbacks and discounts sustainable?
Can the government, or the government-owned public sector units, offer such incentives on an indefinite basis? Shouldn’t we, instead, be thinking of ideas that are sustainable and self-funded?
The government and policymakers, in their bid to wean people away from cash, can draw some inspiration from the concept of carbon credits, which was first outlined in the Kyoto Protocol of 1992.
The idea of carbon credit is based on the principle of an eco-friendly company (with low or reduced CO2 emission levels, aka carbon footprint) receiving credits as opposed to another company (with a high carbon footprint) being liable to pay a penalty or compensation.
The credits or penalties can be then be subsequently traded on an exchange and this is what makes the concept sustainable.
So, just as global industries came together to achieve their one common objective of lowering greenhouse emissions post-1992, our government too can implement a similar model, with a slight tweaking of the original stance for its objective of reducing the use of cash.
So, if anyone is doing more digital transactions, can the government put in a system where the person is rewarded with points?
Conversely, if anyone is doing more cash transactions, he or she will therefore be accredited with negative points besides being deprived of the benefits that are otherwise being entitled to people availing the digital mediums.
Much similar to the carbon credit concept, these points (both positive and negative) earned can later be even traded off on a common exchange platform.
The methodology can be slowly implemented in every level of the society. For example, income tax assesses can be divided into different categories depending on income slabs. A ratio can be then formulated in terms of usage of cash and digital for each of the earning slabs.
Anyone spending cash above the defined percentage will be saddled with negative points and a similar process may be initiated for corporates as well.
Taking a leaf from the carbon credit concept, the government can create a mechanism where people and companies can trade off their accumulated positive or negative points on an exchange platform.
Under this, those people or companies that have breached cash transaction limits will have to knock them off on the exchange platform by either buying the credit (positive points) from those who have earned them or alternatively by undertaking digital transactions of a similar worth.
On the other hand, individuals or entities, who have already gained credits by using digital platforms, can sell it to others. Price of the credits will depend on demand and supply on the exchange platform.
How do we identify the quantum of cash or digital payments made by an individual or a corporate? For this, we will have to create a framework that will automatically reflect the usage of cash and digital in the income tax statement.
In the run-up to the Budget session, the government is urged to think of a way that will help in bringing down the cost burden of carrying cash.
Adopting the carbon credit concept can be a self-sustainable model. It will be a challenge to implement it, but once agreed upon conceptually, we can move progressively, step by step.
Exclusive author column by Mr. Naveen Surya – Managing Director, EbixCash, and Chairman, Payments Council of India