November 14, 2016
The goodwill generated by deciding to go after black money through demonetisation can quickly turn into public disenchantment.
Here are 10 ways to push money into the economy without damaging the larger goal of flushing black money out of the system.
The winding queues before banks and ATMs should tell the Narendra Modi government one thing: the only way to stem the panic and rising public anger is to push as much cash as possible into people’s hands before things get out of hand. The goodwill generated by deciding to go after black money through demonetisation can quickly turn into public disenchantment. More so when rival political parties are willing to fish in troubled waters.
The key takeout for the government is that the cash crisis is self-fulfilling. If cash is short, people will hoard it. Even if the banks and ATMs are spewing more cash, people will draw more of it for a while till they visibly see queues shortening. The only way to defeat this hoarding instinct is to make money available in plenty.
Here are 10 ways to push money into the economy without damaging the larger goal of flushing black money out of the system.
#1: Salary date in the organised sector is just a fortnight away. The government can make available, say, Rs 4,000-5,000 in cash to public sector and large private companies for payment to employees, which can then be deducted from their salaries. Sending cash to organised sector employees will reduce queues at ATMs and banks and the money will be distributed in an orderly way at the corporate level. To prevent this facility from being misused, companies can be asked to give the PAN, ID and mobile number details of employees receiving this money. This will prevent employers from distributing their own black money to employees.
#2: A large number of private hospitals can be authorised to accept payment with old notes for operations and medicine, as long as they can provide valid IDs and phone numbers of beneficiaries. The government gets negative publicity when the media is full of stories of poor people not being able to admit children in hospitals or chemists unwilling to sell essential medicines to them for want of change. Hospitals can be asked to play the role of business correspondents for three months.
#3: All credit, debit, e-wallet, and ATM usage fees should be scrapped and service taxes given abatement for the next three months to encourage their use.
#4: E-wallet companies like PayTM, PayUMoney and Mobikwik, among others, should be authorised to accept small cash amounts every week (say, Rs 500-1,000) for those with valid IDs or KYCs. This will enable people to pay for cabs and autos electronically. This money can also be allowed to be credited back to bank accounts after, say, January.
#5: All NREGA payments for the next two months should be paid in cash in the new Rs 500 notes and also the old Rs 100. While this is a reversal of the trend of paying money into bank accounts, in the short term this will alleviate the cash shortage in rural areas.
#6: Prepaid cash cards should be available at all bank branches. It should become the vehicle for cash holdings in future.
#7: Pre-paid taxi counters at airports and railway stations must be forced to accept credit cards. While private taxi-hailing services do work on credit and debit cards, the kaali-peeli pre-paid cab services are largely done in cash. At some point, bus fares should also be paid in e-money, cash cards or mobile debits. Time for state governments to start making their bus conductors digitally empowered. It will save them the trouble of giving back change.
Over a slightly longer period, the government should also force all citizens to pay its dues electronically. Cash payments should charge a premium. This will force citizens to start using digital avenues for payment. ATMs themselves should become superfluous at some point.
#8: Payments of traffic fines and other small ticket payments should be done only with cards, mobile money or e-wallets. State governments should be directed to do this.
#9: Payments at registrar offices, crematoriums, RTOs and other places should be digitised to prevent bribery. Too many government offices still insist on cash, encouraging bribery and cash.
#10: All smartphones should be preloaded with the Unified Payments Interface (UPI), and this should be ordered by fiat. UPI – which enables peer-to-peer payments based on unique email, Aadhaar, mobile or bank IDs, can be the killer app to end cash in the economy.
Demonetisation has made Cash King, but over the next 12 months, the government should be plotting his downfall.
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