Will digital drive work?

Going cashless will be successful only if backed by the small retail customer

Although the demonetisation move initiated by the Modi led-government resonated with many citizens, there were also those who wondered how invalidating ₹1,000 and ₹500 notes will prevent black money accumulation once the new currency comes into circulation.

But the Centre has been trying to allay misgivings by making conscious efforts across the business ecosystem to increase the share of digital payments (through digital wallet, credit and debit card and internet banking).

The recent initiatives launched by the Centre to encourage digital payments across sectors will give a fresh vigour to the fight against black money by improving the transaction trail.

The most significant of the incentives announced is the waiver of service tax on digital transactions valued under ₹2,000. The Centre is probably trying to move all low value transactions to the digital platform through this move.

The Centre has directed public sector undertakings (PSU) in the petroleum sector to offer a 0.75 per cent discount on purchase of petrol and diesel if payment is through digital means.

Fuelling savings

The total estimated petrol and diesel sales across India is ₹1,800 crore per day. With more than 90 per cent of the petrol and diesel supplied through Central PSUs to nearly 4.5 crore customers per day, the discount spells savings of ₹360 crore per month for customers making digital payments. Though the 0.75 per cent discount may seem a paltry sum for individual retail customers who purchase petrol for a few hundred rupees per month, the savings can be of a sizeable amount for commercial transport operators (both buses and trucks) whose gasoline expenses run into thousands on a daily basis.

According to estimates, the number of digital transactions in petrol stations has increased to 40 per cent in November, from 20 per cent earlier. Given this spur to go cashless, the number of digital transactions is expected to increase further.

Also, close to ₹70,000 crore of cash usage can be avoided for every 10 per cent increase in digital transaction in petrol pumps annually.

Transport sector

Another boon, especially for the commercial transportation segment which contributes nearly 70 per cent of toll revenues, is the 10 per cent discount incentive if commuters pay toll charges through radio frequency identification or re-loadable fast tags.

Close to 14 lakh passengers buy tickets every day for inter-city travel. Nearly 80 lakh passengers use suburban transport every year, purchasing tickets worth nearly ₹2,000 crore per annum. Though a 0.5 per cent discount for a seasonal pass in suburban rail system, free accidental insurance cover up to 10 lakh for intercity transportation and a 5 per cent discount on affiliated railway service offerings such as catering and service room facilities, may not be lucrative offers to avail on a digital transaction for an urban consumer, these are good starting points to slowly make digitised payments part of consumers’ everyday life.

Into the villages

But the true test for the Centre lies in how business transactions are digitised in rural areas. Despite a mere 17 per cent ($370 billion) contribution to GDP, close to 60 per cent of India’s labour force is employed in the agricultural sector in more than six lakh villages. With many villages lacking banking facilities, knowledge dissemination and acceptance of digital transaction among the rural community will remain a challenge for a long time. As part of the current agenda rolled out, the Centre will extend financial support by deploying two point-of-sale (POS) machines in eligible banks across one lakh villages where each village has a population of 10,000 or more.

With most of the transactions in villages of relatively low value, many villages having inefficient electricity and communication network connectivity, both vital for a healthy electronic transaction growth, digital transition will be an uphill task.

However, the decision to deploy POS machines and distribute more than 4 crore kisan credit cards to farmers through rural regional and cooperative banks to encourage digital transaction in milk societies and among agricultural input dealers is a good place to start the rural digital experiment.

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