For A Former Finance Minister, Chidambaram Seems To Know Little About Going Cashless

Former Finance Minister P Chidambaram today (13 December) asked in an interview, “Which country has a cashless economy? Does US? Does Singapore have it? Where is electricity in the country? Where are the machines?”

Now, while the questions posed do have their merits, it is important to note that there are several points that need to be countered here.

If we needed a role model for a cashless economy, the right one is Sweden. It has been the global frontrunner in cashless payments. Buses there do not accept cash, the Stockholm Metro doesn’t accept cash and, more importantly, retailers are entitled to refuse cash, something that is provided to them under the Freedom of Contract.

As reported in the Guardian, cash transactions made up barely 2 per cent of the country’s transactions over the last year while more than half of the country’s banks don’t deal with cash anymore. In fact, many of them don’t even have ATMs. The Swedish krona has seen its circulation drop from 106 billion in 2009 to 80 billion in 2015.

Cashless transactions in Sweden saw a big boost in the 1960s with banks promoting them for salaries while cards became a preferred mode in the 1990s after the usage of cheques became chargeable. The country’s most popular banking and payments app, Swish, developed jointly by leading banks, now witnesses an average of nine million transactions per month. Even street-side vendors accept payments via phones and card readers plugged into phones.

Singapore, meanwhile, is on a similar track. The Monetary Authority of Singapore (MAS) in August this year asked banks to pass on the cost of using paper-based transaction systems such as cash and cheques, hoping to get customers to switch to cashless methods. The country spends an average of $2 billion (Singapore dollars) per year on storage and processing of cheques and cash. Cash in circulation in Singapore forms 8.8 per cent of the GDP, as compared to 2 per cent in Sweden. The United States, too, is not too far behind. Roughly 53 per cent of all transactions have been made using plastic.

Now, the former finance minister raised three questions: Which country has a cashless economy? The answer is none. No country has a completely cashless economy, even though Sweden is expected to go cashless by 2020. India, too, is not going to be completely cashless at any time in the near future, but is already well on its way to becoming a less-cash economy.

The remaining two questions, of electricity and machines, is pertinent to our country. For a cashless economy in India to take off, there are three major components that need to be in place: electricity, telephony and access to bank accounts. Of these, electricity is the most difficult to tackle. Under various schemes like the Ujjwal Discom Assistance Yojana (UDAY) and the Deen Dayal Upadhyay Grameen Vidyutikaran Yojna, the central government has been attempting to electrify as many villages as possible. However, this is problematic when states like Uttar Pradesh squander away funds meant for rural electrification and then go to the centre claiming that the village is electrified when it is not, as it happened in the town of Nagla Fatela. In such cases, the centre has no other option but to strictly monitor the situation.

Telephony remains the second-largest hurdle, but with the advent of Jio, everyone is scrambling to offer either free connections or cheaper plans to people. In January 2016, India crossed a billion mobile subscribers. With state governments offering free smartphones, as is the case in Uttar Pradesh with its Samajwadi Smartphone scheme as a poll freebie, or Chandrababu Naidu giving out basic phones for people to perform transactions using the National Unified USSD Platform (NUUP).

Financial inclusion, and access to banking, is by far the most important part of a less-cash economy. Having electricity and mobile connectivity is fine, but there is no point if the user has no bank account. A report by PricewaterhouseCoopers (PWC) India said that in 2011, 557 million people in the country did not have a bank account, a number that fell steeply to 233 million by 2015. Put simply, the unbanked population fell by half in a period of four years; 187 million accounts were opened in 2014-15 under the Pradhan Mantri Jan Dhan Yojana (PMJDY) itself.

Now, the most important question that our former finance minister has asked. Where are the machines? The answer is simpler than it seems.

Point-of-Sale (PoS) devices rose to 1.4 million in 2016, double of what it was in 2010. The government has plans to introduce an additional one million devices. With the advent of mobile PoS devices that can be attached to a mobile phone, more and more vendors are now getting these devices. Even Aadhaar-based PoS terminals are making an appearance where the customer only has to use a finger.

Public transport, too, has begun accepting prepaid cards. The city of Mumbai alone is home to 7,500 electronic ticketing machines and 10 lakh prepaid cards for buses. However, are these the only machines? Certainly not.

The most important, and certainly the most dominant among all these ‘machines’, however, is the mobile phone. Anyone with a smartphone can access e-wallets such as Paytm and MobiKwik to pay for purchases. Even Toll Plazas across the country are accepting e-wallets. Smartphone users can easily transact using the Unified Payment Interface (UPI). Those without smartphones can still transact using the NUUP, as explained in an earlier article. Wallets like MobiKwik allow payments through SMS using a ‘Lite’ version of the app.

While we are nowhere close to being a cashless economy, we are making progress in becoming a less-cash economy. Chidambaram, as a former finance minister, should therefore be the last one to make unfounded statements.