India sets off on
the long road to a
cashless society

RupeeThe Republic of India hopes to boost digital payments via Aadhaar Enabled Payments and Unified Payments Interface, or UPI. But it faces two problems:

Problem 1. Banks are largely responsible for getting merchants to accept digital payment via Aadhaar and UPI.

Problem 2. India’s government would like banks to show a bit more oomph in that regard.

That’s why India’s government is looking at rewarding banks with up to 10 rupees per Aadhaar and UPI transaction.

Dissatisfied with the National Institution for Transforming India (NIRI)’s progress, last year Prime Minister Narendra Modi transferred responsibility for promoting adoption to the Ministry of Electronics and Information Technology, or MeitY. The latter has made the current proposal.

The Economic Times reports, “Funds will be made available from the India Inclusion Fund of Nabard and the corpus could be as high as Rs 1000 crore, according to an official.” A crore equals 10 million. Depending on exchange rates, Rs 1000 crore works out to somewhere between $150 million and $202 million in U.S. dollars. Not exactly chicken feed, depending, I suppose, on the chicken.

India has already announced consumer incentives as well. For consumers who pay using digital technology, there will be a .75 percent discount on gasoline, a .5 percent discount on rail fare and hospitality services, a full 10 percent discount on insurance premiums, and other incentives.

Not that I’m complaining, but I was curious as to why the Republic of India is gung-ho about digital payments. I learned that the underlying goal is ambitious: India wants to go cashless, period. There are myriad reasons, from frustrating tax evaders, to countering a sudden physical currency shortage, and, as Slate points out

This government is trying to fight corruption and move towards a more digital economy. In India, people have stashed away huge amounts of money—income that has never been declared and is then laundered through extravagant weddings, construction work, luxury vehicles, jewelry. Nobody knows exactly how much “black money” there is, but it’s safe to say that there’s a lot.

All of which may account for GSM Association and Boston Consulting Group’s prediction that digital payments in India may top $500 billion U.S. within three years.

Incentives aside, the road to cashless-ness is a long one. An NPR article by Julie McCarthy cites a Pew survey showing that only 17 percent of Indians own a smartphone and only 20 percent have Internet access. Moreover …

[Senior Associate Dean at the Fletcher School at Tufts University Bhaskar Chakravorti], who co-authored a report titled “The Cost of Cash in India,” found that, “most Indians lack the means to use cashless alternatives irrespective of their desire to do so.”

There’s a proposed solution for that one, too. Chief Minister of Andhra Pradesh N Chandrababu Naidu recently recommended a Rs 1000 subsidy for smartphone purchasers. With sm3artphones in India priced from Rs 6999 to Rs 12,999, it remains to be seen how much the subsidy will help out India’s considerable poor population. Especially, as Chakravorti continues:

“The digital infrastructure in India is so horrendously poor,” Chakravorti says. “The majority of people don’t have access to smartphones. Large numbers of them cannot read or write. Mobile connections are extremely poor. Even the people in the city, for them connections are terrible.”

These are real problems, and they are not necessarily unique to India. It might be a good idea to keep our eye on India as it works through them. Their experiences may streamline the process for those who follow.

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