360 Degree: Notes from a ban

The PM had asked for 50 days to fix India’s troubles after the Nov. 8 demonetisation. We are close to deadline and here’s what we know.

There is an evocative verse attributed to the last Mughal emperor, Bahadur Shah Zafar, in which he laments over his unrequited love: “Umr-e-daraz maañg ke laye the chaar din, do aarzu meñ kat gaye do intezar meñ.” Literally, “I asked and got from the lord just four days, two of which went in desiring, and two in waiting.” Our Prime Minister asked the people to bear with him for fifty days and his waiting is about to end in a couple of days. What did he get in these fifty days and what did the people of India get in these fifty days?

He desired, he said on November 8 when he announced the “Demonetisation” –  I put it in inverted commas because actually, it was not a demonetisation in the real sense but a mere currency exchange — to 1. Rid India of black money; 2. Filter out counterfeit currency; and 3. Bankrupt terrorist networks. Let us now briefly examine how much he has achieved in his asked-for fifty days?

Of the total estimated parallel economy, which is now commonly believed to be about 20-25 per cent of the GDP, the government loses taxes on income of about Rs 30-35L crore, or about Rs 10L crore. Last year, the government of India expected to collect Rs 15L crore as direct and indirect taxes. This then was a huge exercise, but what did the government achieve?

The RBI has reported that it has recovered Rs 29.84 crore in fake notes out of the currency it has taken into the banking system. So this is just a case of the government not knowing what it is talking about. As for terrorism, the fact that money in new Rs 2,000 notes was recovered from slain terrorists in Kashmir and other places speaks eloquently about the success.

It is empirically evidenced that of the undeclared income each year, almost half is invested in property, and about 44-46 per cent equally invested in gold and jewellery and illicitly exported overseas, and just 4-6 per cent is held in cash.

Of this black money most of it is in flow and little is held in stock — like the cash recovered from TTD board member Sekhar Reddy or suspended Tamil Nadu Chief Secretary Mohana Rao. People with great wealth seldom keep very of it, in cash. Money is constantly put to work. How do we encounter this money? When even middle-class families celebrate a wedding, the expenses are asked for and taken in cash. This might very well be good and hard-earned tax-paid money but it slips into the vast untaxed and bad economy. Some of this money then re-enters the white economy in the form of everyday expenses, say for food, fuel, clothes and other everyday expenses but a major part enters the black economy to be transformed into property and jewellery. The better connected send it abroad. According to Global Financial Integrity (GFI), India has exported an average of $46 billion each year for the past decade. This from where the fabled Rs 15 lakh for every Indian citizen was to have come from. In the last two years, not a cent has returned. The Gold bond scheme has so far been mostly a flop and gold remains gold hanging on necks and buried in vaults. There has been no spike in the past 48 days either. But of the Rs 14.4L crore or 86 per cent of all currency notes withdrawn, the RBI has received Rs 13.2L crores till December 13. Out of the outstanding Rs 1.2L crores about Rs 30-40,000 crore is in neighboring countries such as Nepal, Bhutan, Sri Lanka, Bangladesh and Afghanistan, where India rupees are commonly used. In addition, our NRI brethren and cousins have an equivalent amount. The rest is probably mostly with very poor people deep in the hinterland who most probably don’t know that their carefully tucked away high-value notes are no longer valid for exchange. So at best the government might get Rs 30,000 crore instead of the windfall of Rs 4-5L crores authorities seemed to believe they would get.

So what did these Rs 30,000 crore cost to get? The new notes itself will cost a massive amount considering that Rs 500 and Rs 2,000 notes cost about

Rs 4 and Rs 6 each to print and deliver. But there are other costs, which are far greater. The abrupt withdrawal of cash practically destroyed the daily wage economy that is about 200-250 million strong out of the unorganized sector’s 415 million. The average daily wage last year was Rs 272 per head. This money is barely enough to feed and provide the most basic essentials for a family of five. Imagine how many jobs have been lost.

Read: Surviving the Cashcalypse

Early estimates suggest that almost 80-100 million daily-wage workers are without work. Millions have gone back home to their villages in Bihar, Uttar Pradesh, Madhya Pradesh, Odisha and Assam. I was recently in UP and Bihar and the devastation to the rural economy is palpable.

Credit card spending has dropped from Rs 55,000 crore in October to Rs 32,000 crore in November, though the number of transactions have gone up hugely. Most economists, including the biggest economist of all, Dr. Manmohan Singh agreed that we are set to lose about two per cent of our GDP. That means about Rs 2.5L crore. GDP lost is lost forever so it is a cost. When the tally is all done, it will most probably be much more than that.

Arvind Panagariya, the top sarkari economist, speaking for the Demonetization agrees that “supply chains” have been disrupted but new ones will regenerate, as happened in New Orleans after Hurricane Katrina. This is an unfortunate and weak analogy. Katrina was an act of nature. Demonetisation is an act of utter stupidity.

The Prime Minister seems to have realised this. He is now slyly making this a campaign for digitalisation or for cashlessness. The reality here is this. In the poorer states like Bihar, UP, MP, Odisha and Assam, the teledensity is about 50 per cent. The ATM density is about one for every 10,000 as opposed to one for every 3-4000 in states like Tamil Nadu and Maharashtra with superior banking networks. Only 20 per cent of the ATMs are in the rural areas. Development here is highly desirable, but it will take many years. Professionals expect we will reach a desired level only by 2021.

So why this shift of goal posts? One fellow panelist described it as suddenly switching a game of hockey midway into football. I have a crueler description. I say Digitalisation is just a fig leaf for the failed Demonetisation.

Decoded In Figures

Rs 3,651 crore cash in undisclosed income detected by the I-T Department
post-Nov. 8.

Rs 98 crore the amount seized in new notes as part of country-wide operations against black money hoarders post demonetisation.

785 the number of search, surveys and inquiry operations under the provisions of the Income Tax Act, nation-wide.

3,647 the total number of notices issued to various entities on charges of tax evasion, until Nov. 22. Rs 522 crore the amount in cash and jewellery seized.

Latest e-payment solutions

Using QR Codes
Mastercard brought the QR or Quick Response code version of their Masterpass payment to India. Ratnakar Bank Limited (RBL Bank) is the first bank in India to integrate the Masterpass QR service into its mobile platform, the OnGo digital wallet
Here’s how it works. A customer scans the merchant QR code displayed at merchant point-of-sale; enters the amount to initiate payment; confirms the transaction with a PIN; receives instant confirmation of a funds transfer; collects goods when merchant receives payment alert.

Using sound
Bengaluru-based start-up, ToneTag, has launched a cashless payment feature that doesn’t require the Internet. The firm uses ‘tone tag’; a term for audio signals, which enables information exchange between two devices. This doesn’t require any software only criterion is that a device should have a micro-phone and a speaker. A consumer has to dial a toll-free IVR number and bring the device close to the merchant’s ToneTag-enabled device, confirm the payment amount and enter his or her banking pin to transfer funds. Once this is done, the device plays a beeping tone for about 10 seconds and the info is transmitted from the customer’s device to the merchant’s device. The technology is now available and can be accessed by dialing a toll free number: 180030101887.

The problems

The problem with closed and semi closed wallets is that you have to lock up your money in each of them. In recent weeks, I opened a PayTM wallet with a thousand rupees because that was the only way I could pay cab aggregators. But Ola Cabs has its own OlaPay wallet and I was forced to put another thousand rupees there since at any given time, I don’t know which taxi is available. Even this doesn’t always work. When I have booked, some drivers tell me they need payment in cash. I usually get a cab willing to take e-payment after 2-3 attempts.

UPI: The Government launched the Unified Payment Interface in August. Each bank has been allowed to launch its own UPI app which allows a payment request from a smartphone. The problem has been that banks have not been keen to launch their UPI app and still push customers towards their own e-wallets.

USSD: There is another offshoot of UPI called National Unified USSD Platform. It is for those who don’t have a smartphone. You have to dial *99# to access banking facilities, provided you are pre-registered for the service. You also need to know the IFSC code of person you are buying from. But how many traders will share IFSC code if you are buying a thing for Rs 50? Let’s get real here!

Debit, credit cards come with a price

These have been around for 15-20 years so they are mature mechanisms. After India mandated security chips in cards and a second level of authentication — entering your PIN number when swiping the card or an OTP received only on your phone — this is about as secure as it gets worldwide. But they come with a price. Merchants have to pay between 2% and 2.5% on the transaction value and many pass on this cost to you.
When you make online payments for utility services such as electricity or telephone bills, such utilities fleece you often charging Rs 50 -Rs 100. Airlines and their aggregators are the worst. They add vague charges to every ticket booked online that range from Rs 200- Rs 300. Post demonetisation, many smaller enterprises such as courier companies or restaurants, who saw their mostly cash business vanishing, have installed card swipe machines from newer companies like mSwipe, where the fee is lower — from 0.75% to 1% for debit cards.

These machines are compact and many pay-on-delivery online groceries have equipped their delivery persons with these machines. You may be charged a fee, or not. Either way credit and debit cards are a good bet — if you can find a merchant ready to take them.

Popular Indian e-wallet apps

Paytm: Possibly the most widely used and has the largest tie ups with
merchants

PayUMoney: Offers fixed discounts on payments. Claims over 1 lakh merchants

MobiKwik: Has recently taken a lot of grocery chains and food outlets on board

Oxigen: Is one of the first in this business. Money can be transferred to any mobile number — which is great for small vendors and friends.

FreeCharge: As the name indicates, was primarily a “recharge with benefits” service — but it has expanded into other vendors.

CitrusPay: Is another combo of payments plus cash transfer service.