Cashless transactions need more confidence to grow

Cashless transactions need more confidence to grow

As the anniversary of BJP-led NDA government’s big decision of demonetisation passed, politics over it tipped and the opposition drew out its daggers to attack the government. A huge debate emerged about what impact was achieved and whether the targets were met. As former Governor of RBI Raghuram Rajan chose to attack the decision of demonetisation, saying that this decision resulted in the economy slowing down, the debate even sparked further.

The BJP was seen defending the decision claiming that it was the beginning of an effort to enlarge the footprint of formalising the economy, however numbers show that the growth in cashless transactions ended as soon as cash was available in the market and in the last one year, cash transactions have increased by about 18 per cent.

There was also no big impact on the black money front, as the government was not able to clearly say how much black money was actually destroyed, considering the fact the close to 99 per cent of the demonetised amount returned to the bank according to RBI data.

So what did the exercise of demonetisation actually achieve is the big question that Modi Sarkar now faces.

Former minister in the Atal Bihari Vajpayee-led NDA government Arun Shourie hit the nail on its head when he described the impact of demonetisation on the Indian economy. Shourie described the decision as an act, which sent shock waves of fear and rattled the confidence of the investors. This sent a shock wave of fear. It is known and established fact that investors (domestic or foreign) always ask for consistency in policy. They don’t object to any business rules or policy set by the government as long as it is consistent so that they can tune their investments in such a way and design the projects in such a manner so as to benefit most out of that policy. However, what they dislike is sudden or frequent changes in that policy. What demonetisation did was exactly this. It sent a message across the world that this government can suddenly change anything. If they can even discard the currency, they can change any other policy too and this made investors wary of taking firm decisions about future investments and it has directly impacted the employment scene.

“Demonetisation sent the message among investors that this government can do absolutely anything, change the rules suddenly, change the goalposts all of a sudden and this is what the investors are scared of,” said a Pune-based industrialist at a convention a few days ago.

The benefits of demonetisation, as the government would claim, were supposed to be of the economy getting formalised and cashless transactions growing. But with poor internet connectivity in rural areas, the fear of debit and credit card misuse and non-availability of POS machines in many parts of the country, cashless transactions too are not really growing the way they should have. Cash is now back in the system and even in online sales or e-commerce sector, people are seen preferring to use “cash on delivery” system.

India is going to need much better infrastructure and consumer confidence in the systems before we can become a cashless market.

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