Although, there are varying estimates of India’s economic growth slowing down to as low as 6 per cent owing to demonetisation, there are others, which are pegging it at 8 per cent over next few years. For sure, from naysayers to yea-sayers, the demonetisation is going through a full circle. It is also estimated that low oil prices and continued progress in resolving supply-side bottlenecks, robust consumer confidence and a favourable monsoon, will support near-term growth.
According to market research firm, Nielson, the consumer confidence index for the fourth quarter of the calendar 2016 was 136, three points ahead of the score it achieved in the third quarter of 2016. One of the greatest benefits of the demonetisation has been the fillip it has provided to digital transactions. Before 8 November 2016, cash to cards/net-banking ration was 60:40. Postdemonetisation, this has moved to 15:85 with a sharp increase in the use of mobile wallets and net-banking (cash dropping to 15 per cent). This, coupled with the reach of mobile wallets and increase of mobile payments of 6 per cent during the week of announcement, peaking at highest ever at 70 per cent.
Demonetisation as it is termed today, is in fact, increased use of digital cash or cashless transactions. The mode could be a trinity of Cloud, Aadhaar, Mobiles (CAM) or biometric enabled authentication led transactions. Truly speaking, while many have repeatedly argued about how demonetisation will help curb terror financing, weed out black money and check counterfeit currency in circulation. Nobody has argued its impact on defeating poverty and how it will help plug the leaky bucket and spur digital money—call it eMonetisation—reach its intended benefits to beneficiaries without intermediaries. It will have direct impact on poverty as the bottom of the pyramid that generally experiences dry end of the pipe due to money evaporation on the way. Digital cash delivered electronically will not only be speedy but also evaporation and leak-proof.
Under Direct Benefit Transfer (DBT) there are around 84 schemes in17 ministries. Within UPA, the discussion was only about numerous lakh crore rupees of reduces and frauds. Now, there are no scams, instead, the government is able to save almost Rs.50,000 crore by acclaiming the subsidy sum straightforwardly in the bank accounts of the appropriate beneficiaries and eradicating ghost beneficiaries. Out of this, an estimated Rs.27,000 crore is being attributed to demonetisation. This ‘savings’ amount is anticipated to considerably increase further because the government is planning to roll out almost 533 central payout schemes by March 2018 in 64 ministries within DBT. Virtually, 33 crore people obtain different subsidies unswervingly via the DBT in their bank accounts.
The major new plans on DBT interface during the next one year will consist of PM Crop Insurance Scheme & PM Gramin Awas Yojana, Atal Pension Yojana, PM Suraksha Bima Yojana & PM Jeevan Jyoti Bima Yojana, Pradhan Mantri Ujjwala Yojana. Ujjwala scheme seeks to provide subsidised cooking gas connections to below poverty line families and move towards becoming kerosene free.
SKOCH has been arguing for electronic tagging and tracking of funds and digital direct transfers of such similar social benefits, for years now, not necessarily by way of demonetisation, which has alternatively paved the way for such goals to be achieved at the stroke of midnight. Way back, P Chidambaram, Finance Minister during UPA-I, had said in an interview to Sameer Kochhar, Chairman, SKOCH Group during 2006:
“What is needed is technology plus design; technology plus the willingness to associate different intermediaries and different players.” This became the cornerstone of Kochhar’s book, Financial Inclusion, published in 2009 and perhaps also the foundation of cashless economy.
During November 2006 itself, SKOCH organised the North East@Work involving all the seven sisters from North Eastern Region (NER), Department of Posts (DoP), Reserve Bank of India (RBI), Department of Information Technology, Ministry of Communications and IT and banks. Amongst other things, it had recommended the following:
Disbursal for central and state funded schemes should be done through the banking system.
Post Office system and the Common Services Centres (CSCs) to be used to offer life and general insurance services.
CSCs to be used as Banking Correspondents.
Subsequently, in its 2008 publication Infrastructure and Governance by Sameer Kochhar, Gursharan Dhanjal, et el, argued for electronic tagging and tracking of funds. It had said:
“Two changes have determined our understanding of the growth process itself. First is the greater financial intermediation of the economy as a whole or deepening of the economy and second is the advent of technology that drives distribution.”
Next, Speeding Financial Inclusion, 2009, Kochhar once again recommended the following:
Allow CSCs to allow as facilitation centres for remittances.
Use mobile telephony for last-mile connectivity for financial services and financial inclusion.
Move towards electronic cash that would also overcome the cash management issue and help deepen both financial inclusion as well as digital inclusion.
Decentralisation does not mean Panchayats alone. Most states have not met the governance requirements of the 74th Amendment and have not set up District Planning Committees (DPCs) and Metropolitan Planning Committees (MPCs). Functions and autonomy have not been delegated to municipal and other elected bodies, thus constraining their revenue sources and also constraining them from increasing revenue sources through revamping property taxes or levying appropriate user charges (Kochhar, Building from the Bottom, 2010).
Sustainable urban development is the urban planning and development that provides for needs of the present, environmentally, economically and socially, without diminishing the capacity for future generations to achieve their quality of life needs.
It had said to provide investment opportunity in municipal bonds to individual/retail investors, CBDT to include municipal bonds in the list of eligible investments/ subscriptions for the purpose of claiming deduction under section 80C of the IT Act, 1961.
The way ahead clearly requires an instrument that is interoperable, has wide usage, acts as cash storage as well as a medium of spending, saving and remittances and which can be enchased. This will have the ability to scale up to reach the millions who still awaits banking facilities. These interoperable systems will also facilitate the transfer of domestic transactions.
Greater financial inclusion is possible with fiscal discipline as well as fiscal federalism and decentralisation. Devolution of revenues to local bodies and the stringency built into the system to ensure state compliance marks a landmark shift in federal relations. (Kochhar, India on the Growth Turnpike, 2010). It further recommended:
The banking technology initiatives meant for financial inclusion should be collaborative and innovative with the objective to reduce the transaction costs.
Allow all types of systems, based on cards or other cashless means and remove single purpose cards from the ambit of regulation.
The regulatory framework needs to be technology neutral.
A level playing field between banks and non-banks needs to be established and explicitly recognised.
Urgently recognise e-money as a substitute for cash.
It has increasingly been argued, over and over again that the basic problem is not the willingness or cost, but the absence of business model based on ICT-based delivery system. Technology coupled with appropriate delivery model was recognised to be the lone delivery model to bring about inclusion. (Kochhar, An Agenda for India’s Growth, 2013).
Keeping the above objectives in mind, SKOCH launched its inclusive growth initiative through financial and digital literacy intervention called Samavesh during the year 2011. Samavesh was started with the objective to create one digitally and financially literate resource person per Gram Panchayat. It put high degree of functional digital and financial literacy with the objective of reaching direct financial services to the beneficiaries. More than 6,000 women across India have been made digitally literate, preparing themselves to use and transact in digital money as times moved on.
Applying good economic principles, a good understanding of determinants of growth and executing it and alertness and responsiveness are at the heart of good governance and inclusive economics. This was called and published as ModiNomics (Kochhar, 2014). This is the cornerstone of Sabka Saath, Sabka Vikas that has been exemplified in various successes including Jan Dhan, Digital India and MUDRA. A case for reducing the number of laws concerning MSMEs was also made. (Kochhar, Growth and Governance, 2014).
It was further recommended that for transaction processing, the customer can simply be authenticated based on biometrics and Aadhaar, thus eliminating the need to issue smart cards.
In Defeating Poverty: Jan Dhan and Beyond, Kochhar, 2015, had made the following suggestions:
DoP needs to be converted into a full-fledged bank that can offer all banking products including credit.
Jan Dhan has to offer consolidated financial product and not a mere a bank account. It has to weave life insurance, health insurance, pension and investment.
Mobile banking and mobile money on Jan Dhan accounts should be allowed.
Make crop insurance universal, ie, applicable to all crops/regions and pricing.
SKOCH has argued for cashless economy (demonetisation) since 2009. Several consultations and conferences have been organised over the years with focus on extinguishing cash and moving towards cashless economy. As recent as September 2016, during our last Summit, all the stakeholders from banking, insurance and financial services argued for a combination of biometric, Aadhaar and mobiles.
Kochhar believes that a combination of Cloud, Aadhaar, Mobiles (CAM) moving away from Jan Dhan, Aadhaar, Mobile (JAM) trinity will shorten the linkages and try new business models for delivering government and other services like banking transactions with electronic tagging and tracking. The lowest transaction cost for low-value, high volume ought to be CAM. CAM also removes ‘smart’ or ‘dumb’ cards. It would let telecom and payment service providers handle e-payments, DBT as well as allow cash-out. (Modi’s Odyssey: Digital India, Developed India, 2016). The other recommendations included:
India must pioneer a model called Cloud, Aadhaar, Mobile (CAM). Jan Dhan, Aadhaar, Mobile (JAM) is an inadequate strategy to eliminate multitude of bottlenecks, including corruption, diversion and pilferage in our social security welfare delivery system.
It offers possibilities and opportunities for making cash payment electronic removing ‘smart’ and ‘dumb’ cards from the chain and in increasing the velocity of money.
Electronic tagging or the use of technology to track each instance of money transfer.
Leverage Aadhaar with increased use of encrypted and safe biometrics.
Tech neutrality to encourage innovation and promoting competition. Suitable regulatory framework and availability of optimal infrastructure are essential steps to attract domestic as well as MNCs to the Digital India drive.
On a different note, a research conducted in Kenya shows that mobile banking can actually help India defeat poverty in a record time. Mobile money in Kenya helped lakhs of people beat poverty in Kenya in last ten years. Kenya had introduced M-PESA (a mobile money service)
in March 2007. In ten years, the service has become “ubiquitous” in the country, used by at least one person in 96 per cent of Kenyan households. There are around 110,000 M-PESA agents and only 2,700 ATMs in Kenya. The study, published in ‘Science’, shows that access to M-PESA increased per capita consumption levels in the country resulted in lifting nearly 200,000 households above poverty.
According to Census 2011, 88 per cent of households in India have a mobile phone. This number must have increased in the last 3-4 years. The country’s Internet-using population is expected to reach 60 crore by 2020.
Mobile money has the potential to increase the efficiency of the allocation of consumption over time, while allowing a more efficient allocation of labour, resulting in a meaningful reduction of poverty.
eMonetisation, therefore, provides India with a never before opportunity!
SKOCH in Policy 2006-2017
Digital Cash – Demonetisation
Dematerialisation of Insurance policies
Intent on policy portability
Focus back on group micro-insurance
Cloud, Aadhaar, Mobile
Revival of Rural Roads Scheme
Universal Insurance Schemes
Smart Cities and Municipal Governance
Take-out financing for infrastructure
Long-term lending for infrastructure
Promoting Islamic Banking
Aadhaar to get legislative push
Aadhaar to become central universal identity
Livelihood linkage and skill development – core of social agenda
Inclusion is the first magazine dedicated to exploring issues at the intersection of development agendas and digital, financial and social inclusion. The magazine makes complex policy analyses accessible for a diverse audience of policymakers, administrators, civil society and academicians. Grassroots-focused, outcome-oriented analysis is the cornerstone of the work done at Inclusion.