The Arguments against the Lowest Hanging fruits
By: Amit Bhushan Date: 29th Dec. 2016
There seems to be flood of arguments against the lowest hanging fruit for the leadership in government viz. promotion of Cash-less transactions. Why is the option perceived as the lowest hanging fruit is simple. Promoting the option or increasing choice to public to pay via cash-less modes would lead to greater tax compliance and thus improve in government revenues probably to the extent that they would easily pay for the expenditure towards incentivization of the same. This would also help push hitherto unorganized players to get organized and support job creation. Improved choices for various payment options with public would allow them to select options that are more beneficial to them. Presently the public is in a situation where they ‘save’ in ‘Cash’ to ‘pay’ in ‘Cash’. What it basically means is an erosion of savings to the extent of inflation which is not even registered with the very same public. However, some of the alternative instrument providers will probably be paying some interest and making population relatively more aware of the benefits.
What is perhaps important for such an economy to flourish is that the money in public hands can swiftly be converted to deposits with anyone of the service providers’ viz. banks, payments bank or wallet/pre-paid cards etc. However if there is no environment for such payment options to be acceptable with a wide variety of goods and service providers, then people would have very little incentives to exercise such a choice. What is also conveniently forgotten is the cost of sustain such economy on institutions such as the central bank, which has to print replacement currency free of charge. This may include spends on paper, ink and other consumables which are often imported and India might be the largest market for some of the vendors besides the cost of transportation of the same. The psychic cost to public such like fear and loot some of which might be avoidable, if cash-less is widely supported and emerges as an acceptable option. The objections being voiced are three fold.
First one is the lack of IT preparedness amongst service providers like the commercial banks and other bodies. This is extended to include issues of the lack of softwares (with some of the institutions) and cyber-security besides being prone to manipulations rather than being entirely hassle free. This however represents an opportunity area for the domestic companies which should rise to the occasion to develop requisite solutions for not only the domestic market but also exports. Even where some of the products/ services are areas where MNCs may be able to score, persuading them to have local development and support units may not be difficult considering the size of the emerging market.
Then we have the argument of the lack of skills amongst larger population. While one can argue for government investments into improving skills of this population and correcting the incentive structure so that people can move to a higher skill area, however some of the netas have been arguing that the existing incentive structure to be retained which is heavily in favour of not giving any other payment option other than cash, to the population. This while the incentive structure to cash transactions by the corporate sector for their payments or for the non-tax paying social sectors like schools remain intact. A suitable tax structure that favours those dealing in non-cash methods, has the potential to improve overall tax collection, although may be inimical to the interests of the netas and parties, probably much more than the ordinary population. While we have the netas and parties for the status quo, we seem to lack netas and parties who would argue for the change and this might include even the newbie parties/netas. In fact we may have netas/parties who would rather stay aloof even if the issue may have touched nearly everyone in some manner and this might be an indicator of their stand towards the issue. What would be the overall improvement in terms of Cost savings (older set up), improvement in tax compliance for government vis-à-vis Cost for maintaining new Cash-less system. The benefits to public in terms of interest payout and curtailment of losses on account fake/mutilated currency.
Lastly, is the area of reach of a dependable IT infrastructure. The challenges here can be segregated into three sub-areas. A cross-section where we have the requisite infra which may not be fully utilized. The payment service providers can easily expand their services in such area. There is other part where the infra may not be groomed to the requisite capacity and here rising demand should make it easier for the telecoms and ISPs to expand their network on the back of rising demand from businesses. Lastly we have areas where even rudimentary infra may not be available and it may not be commercially viable for the private sector to invest as of yet. It is here that the government should step in to expand reach of services. Proper segregation of such areas to expand services might be an urgency.
The estimated benefit in terms making credit available to businesses hitherto not deemed to be credit worthy might be another area where benefits need to be estimated. Presently this has little focus and there is lack of product and support systems amongst banks and service providers to reach out to small businesses for the credit related services. The media brouhaha for demonetization probably fails to capture the areas where the push for cash-less may be failing, while at the same time retains focus on the lack of preparation for re-monetization alone. This is while the political parties continue to give shine to their armory with the government’s failure to capture Kala-Dhan or corrupt officials and practices. The netas in government on its count are busy celebrating ‘no major violence’ or ‘no major impact on economy’ touted as ‘winning’ plank along with ‘ability to sell promises’, remaining intact. Let’s see the ‘game’ evolve further…..
By: Amit Bhushan Date: 29th Dec. 2016
There seems to be flood of arguments against the lowest hanging fruit for the leadership in government viz. promotion of Cash-less transactions. Why is the option perceived as the lowest hanging fruit is simple. Promoting the option or increasing choice to public to pay via cash-less modes would lead to greater tax compliance and thus improve in government revenues probably to the extent that they would easily pay for the expenditure towards incentivization of the same. This would also help push hitherto unorganized players to get organized and support job creation. Improved choices for various payment options with public would allow them to select options that are more beneficial to them. Presently the public is in a situation where they ‘save’ in ‘Cash’ to ‘pay’ in ‘Cash’. What it basically means is an erosion of savings to the extent of inflation which is not even registered with the very same public. However, some of the alternative instrument providers will probably be paying some interest and making population relatively more aware of the benefits.
What is perhaps important for such an economy to flourish is that the money in public hands can swiftly be converted to deposits with anyone of the service providers’ viz. banks, payments bank or wallet/pre-paid cards etc. However if there is no environment for such payment options to be acceptable with a wide variety of goods and service providers, then people would have very little incentives to exercise such a choice. What is also conveniently forgotten is the cost of sustain such economy on institutions such as the central bank, which has to print replacement currency free of charge. This may include spends on paper, ink and other consumables which are often imported and India might be the largest market for some of the vendors besides the cost of transportation of the same. The psychic cost to public such like fear and loot some of which might be avoidable, if cash-less is widely supported and emerges as an acceptable option. The objections being voiced are three fold.
First one is the lack of IT preparedness amongst service providers like the commercial banks and other bodies. This is extended to include issues of the lack of softwares (with some of the institutions) and cyber-security besides being prone to manipulations rather than being entirely hassle free. This however represents an opportunity area for the domestic companies which should rise to the occasion to develop requisite solutions for not only the domestic market but also exports. Even where some of the products/ services are areas where MNCs may be able to score, persuading them to have local development and support units may not be difficult considering the size of the emerging market.
Then we have the argument of the lack of skills amongst larger population. While one can argue for government investments into improving skills of this population and correcting the incentive structure so that people can move to a higher skill area, however some of the netas have been arguing that the existing incentive structure to be retained which is heavily in favour of not giving any other payment option other than cash, to the population. This while the incentive structure to cash transactions by the corporate sector for their payments or for the non-tax paying social sectors like schools remain intact. A suitable tax structure that favours those dealing in non-cash methods, has the potential to improve overall tax collection, although may be inimical to the interests of the netas and parties, probably much more than the ordinary population. While we have the netas and parties for the status quo, we seem to lack netas and parties who would argue for the change and this might include even the newbie parties/netas. In fact we may have netas/parties who would rather stay aloof even if the issue may have touched nearly everyone in some manner and this might be an indicator of their stand towards the issue. What would be the overall improvement in terms of Cost savings (older set up), improvement in tax compliance for government vis-à-vis Cost for maintaining new Cash-less system. The benefits to public in terms of interest payout and curtailment of losses on account fake/mutilated currency.
Lastly, is the area of reach of a dependable IT infrastructure. The challenges here can be segregated into three sub-areas. A cross-section where we have the requisite infra which may not be fully utilized. The payment service providers can easily expand their services in such area. There is other part where the infra may not be groomed to the requisite capacity and here rising demand should make it easier for the telecoms and ISPs to expand their network on the back of rising demand from businesses. Lastly we have areas where even rudimentary infra may not be available and it may not be commercially viable for the private sector to invest as of yet. It is here that the government should step in to expand reach of services. Proper segregation of such areas to expand services might be an urgency.
The estimated benefit in terms making credit available to businesses hitherto not deemed to be credit worthy might be another area where benefits need to be estimated. Presently this has little focus and there is lack of product and support systems amongst banks and service providers to reach out to small businesses for the credit related services. The media brouhaha for demonetization probably fails to capture the areas where the push for cash-less may be failing, while at the same time retains focus on the lack of preparation for re-monetization alone. This is while the political parties continue to give shine to their armory with the government’s failure to capture Kala-Dhan or corrupt officials and practices. The netas in government on its count are busy celebrating ‘no major violence’ or ‘no major impact on economy’ touted as ‘winning’ plank along with ‘ability to sell promises’, remaining intact. Let’s see the ‘game’ evolve further…..