A digital red herring

A‘cashless’ economy, i.e. one that predominantly uses electronic transactions over cash, has well-acknowledged benefits, among them transparency and lower cost of running the cash infrastructure. The timing of the current push in that direction — in the form of a slew of incentives for making digital payments — however, raises doubts over the government’s intention. The demonetisation exercise was sold out as a “surgical strike” on black money, and a replacement of the old currency was promised. A month on, it is dawning upon all executioners of the scheme that neither is happening as expected. Enter the promise of a cashless economy. It is obviously being pushed to tide over the ‘cashless’ period. But then are we to assume that the promised new currency is never going to come? In case it does, in adequate quantities, the urgency for a cashless economy will again be gone.

The current volume of electronic transactions — in numbers — is negligible. By some estimates, an investment of Rs 60,000 crore over the next five years will give us a semblance of a cashless economy, and save 0.25 per cent of the GDP in expenditure on cash maintenance. The challenges are well known: lack of digital literacy; inadequate payment interface; poor internet connectivity, et al. Cyber security, of course, remains the biggest concern, especially when a large ill-prepared population is co-opted. A real concern is what an overnight push may do to an otherwise desirable objective. Once bitten, a major section of the unprepared society may be shy of all things digital for a long while. The still underway demonetisation should be a lesson in what happens when a government undertakes a massive exercise without the required preparation.

It is clear, getting rid of cash to any meaningful extent cannot happen before a few years. And all incentives or coercion being resorted to for it currently could well have been done without the demonetisation. Relating one to the other, thus, seems more an exercise in distracting an increasingly impatient populace. The Modi government must realise theatrical pronouncements may not be the best path to nation-building.