Has demonetisation put India on the digital highway without necessary safeguards? CEO of NITI Ayog, Amitabh Kant, feels any such fear is misplaced and that there are various safeguards across different systems. In an interview to CNN-News18’s Bhupendra Chaubey, Kant said the government's move towards a cashless economy is a revolutionary step and that it will lead to an increase in bank savings and decrease in bank interest rates.
Here's a transcript of that interview.
This journey that the PM has described as 'tapasya' for India, how long will this tapasya go on?
I think it’s a very radical move, a revolutionary move in many ways. India is essentially a cash economy, 86% is cash. This leads to a lot of black money, it leads to counterfeit money which in turn, leads to a lot of ills in our economy. That’s why out of a population of over 1.4 billion, only 1% pay tax, 99% don’t.
So why not an increase the tax rates?
You can do many things but they'll keep evading till you don’t formalise India's economy. The government has done several things in the last few months. It opened a vast number of Jan Dhan accounts and a voluntary disclosure scheme. It also initiated several measures going into the GST bill. It is a paradigm shift because a backend has been created, which will allow digital payments.
What is the real agenda behind demonetisation?
A scheme of this nature has never happened anywhere else in the world before. It’s revolutionary. It’s like John F Kennedy saying were going to put a man on the moon. The dimension, size and scale of this move is enormous and we must understand that this is a huge opportunity to make a ‘cashless India, shift it towards digital payments, a formal economy. It is a huge opportunity to increase its tax base, to increase the savings of people, get liquidity and investments. Over a long period of time, you'll see that since the bank savings have gone up, a lot of money will move from the informal to formal economy. Bank deposits will go up and people will end up saving more.
How will a cashless economy model help out an ordinary fruit seller who earns Rs 300-400 a day?
We must look at it in the larger dimension which is that it is a huge opportunity for the country. Only 1.23 million people pay tax in this country. This is a massive opportunity for people to save more, move from informal to formal economy, from a cash to digital economy. In the long run, it should really lead to is an economy where bank savings are up, bank interest rates down and the fiscal deficit will come down. There is a huge opportunity to reduce tax rates and create a completely new equilibrium. The government will ensure that the money that comes in the banking system is put back into long-term infrastructure creation. Lending will go up, and India will move to a high equilibrium growth rate. Therefore there will be some short term pains.
The bank association itself is saying 91-92% of deposits will be withdrawn from the banks soon. So how will the government gain?
Money which is coming into the system is both black and white. There’s a lot of money, which was never in the banking system which is coming in. The black money is thus becoming white which the government is putting back in the system.
Is this back money a sizeable proportion of the economy?
I’m quite sure that this would be a substantial amount of money which will come into the system. It will be mopped up over a period of time and will be used for infrastructure.
If this was huge then why has the voluntary disclosure scheme been announced? Is it not a concern that the real black money hoarders are not coming out?
The government will have to do several things. My view is since this is revolutionary and innovative; the government will have to be extremely creative to see that the back money keeps getting back into the system. More importantly, it has to ensure that people like you don’t get back into cash economy but are pushed into a digital economy. Infrastructure behind that is quite ready to ensure that people shift over to a digital economy.
There is criticism that the government wants India to go on a digital highway without building the required safeguards. Are the safeguards in place?
A huge amount of security measures have been taken across several systems. It is important for viewers to understand that there are various things which are operating. First and foremost, there is a unified payment interface mechanism which connects all the banks. All you need to do is to download an app called Unified Payment Interface (UPI). It enables any transaction in a flash and links up with all the banks. It’s an inter-operable system across banks.
So if I want to buy groceries from a store, I can use this UPI app and directly pay, provided both the users have UPI app?
No, the other person doesn’t need it. The UPI app will do a direct debit or credit transaction into his account and he will see it right in front of you. It’s very simple.
The second is, you may say many people don’t have internet or a smartphone, so there is a system called the USSD, which is usable by any GSM phone. You have to press *99# to get into it and the USSD will enable you to transfer money on a GSM phone anywhere in India. This is an established mechanism. UPI and USSD are open systems therefore can transfer money.
The third is, you have debit/ credit cards. There are 80 crore debit cards, many of us use debit cards only to go to an ATM to withdraw money. Please use them for making all your payments.
There is a possibility debit cards being chipped or cloned. How will you help me on that front?
Don’t worry.
I have heard many harrowing stories about debit card fraud
Debit card is a very simple mechanism because the PIN is known only to you. There are security measures at the back. Don’t get worried over these security measures. I’ve been transacting debit for almost 10-12 years. I’ve never had any issue. So as journalists, it is important for people like you to not create fear in the mind of people.
It’s not an invalid fear. It’s not as if debit card fraud cases haven't happened.
Maybe but I think banks have taken adequate security measures. There are also prepaid cards you can get from banks and pay. Moving on, the fourth step this that there is Aadhar-enabled payment system, it’s a very simple mechanism. Once you have Aadhar and your account number it’s again an open system. You take any micro ATM today, you can take any android phone, you can just link thumb impressions and just feed your Aadhar number. So if my account is in the Central bank of India, I go straight there and transact. It’s a simple three-step process.
But how is this impacting a fruit seller's life who is making Rs 400-500 a day, say Rs 15,000 a month?
In India, 99.1% people of adult population have an Aadhar, 36.5 crore people have their accounts seeded with Aadhar. Now 36.5 crore people can have mobiles, then all that they need to do is to use that to transact business.
So they need to be trained?
Today what is the government saying? That your mobile is your bank and your mobile is your wallet. You can convert your mobile into your bank and your wallet. The great thing about India is that you have today the infrastructure for a billion biometrics. You have a billion phones, no other country in the world has it. Therefore, it is possible to leap frog and do digital payments for India. Now your issue about change of mindsets is important and therefore we need a lot of people. That is what we have done yesterday asked district collectors to create digital armies. What is education ministry doing, every school child, every IIT student? Their intention is convert them into a digital army. What are we doing, look at this E-disha which exists already, the outsourcing of extension centres for information technology. You know how many trained people there are for financial inclusions. There are two lakh people who are already trained for financial inclusions. So they are actually the people who will do all this banking enabled service. Now, what we are pushing is that every district, every taluk, every panchayat, we create digital armies of young people. It’s not you and I. They will push for the mental change in the minds of the people.
I am looking at figures that 55% of India still effectively deals in what is called as unstructured, unorganised economy. Are you saying that this group of digital army, this will now deal with these 55% of people?
Look at what collector of Pune has done. He has made a whole area digital. You can’t transact any cash business. What has the DM in Bukharo done? He said haats will not do any other transaction other than micro ATMs. India is poised for that change because the government has issued 21 bank licenses.
You are saying India’s economic growth will increase post demonetization. But there is near unanimity that the growth forecast for India is being reduced for many agencies. The consensus is that the Indian growth story is hitting a road block. Which of these two world views do you accept?
Let us look at it rationally in a sensible manner. There will be some reduction in economic activity for one quarter which is what happens when all the resources have been pumped in to the banking system. They will get in for infrastructure creation, remonetisation will take place, and we will push for greater level of economic activities. My view is that in the long run, reduction of interest rates, tax rates will take India to a new equilibrium and pushing for economic activity after the first quarter will be a huge activity. So a disruption for one quarter but short term pains for huge long term momentum. Otherwise, you would have never had such a large saving rates being raised, interest rates being reduced, taking taxation to another level and therefore we need to take a larger picture of pushing India into a cashless, digital formal economy.
When you say that we need to look at larger holistic view, let’s also look at specifics. I was looking at your Twitter timeline. You said that making India digital to formal economy would have taken 15 years, demonetistion will make this happen in 15 months. Is this not wishful thinking?
No, no country in the world can become totally cashless. PM has said that it should become less-cash economy. We need to push people into digital payment. Now the infrastructure exists in India.
You want India to become like Singapore?
People like you must have the ambition, the hunger that every state of India should push for digitisation. If Chandrababu Naidu is doing it, if Nitish Kumar is doing it, if Union Territories are pushing for it, why shouldn’t every state? A sense of competition on digitisation is the way to push the growth rate of states.
You believe that best way for India to grow is to go completely digital?
I am saying that there are five different options available. I talked about four. UPI; USSD; debit; credit and prepaid cards; and Aadhar-enabled payments. Fifth is that there are huge number of e-wallets.
Not everyone is aware of these. You go to back and beyond of Azamgarh, nobody is aware of these apps or digital wallets you talking about. How do you answer the farmer who says how do I get cash for my produce?
People like you who are educated should have played a major role in downloading that app and therefore in my mobile I have UPI, USSD. I have a wallet here and I have internet banking all here. Journalists like you must take the challenge of training atleast 30 people.
Give me four or five apps that you believe viewers must have on their phones so that they can move into this cashless economy.
I am going to give you five things which I have in my mobile and you can use any of them. I have four of them here and I have a debit/credit card.
1) UPI. It’s an interoperable open system so your money doesn’t go out of the bank. Unlike the wallet, your money is in the bank. You continue getting interest.
2) The other thing those who don’t have smartphones should have USSD, *99#. Use that mechanism
3) You can have any wallet (public, private, SBI Buddy or Paytm) and have it in your account.
4) Educated people can also use a thumb impression that is linked to your mobile phone. IDFC does all its transactions from there. Just put your thumb and feed in your Adhaar number before transacting. It’s a 3-step process.
5) Internet banking
I agree with you that it’s our responsibility also to disseminate information
My view is that you could have blamed the government if this infrastructure had not existed like the Jan Dhan accounts.
Which are now being used to stash money of supposedly illegitimate cash holders…
I don’t want to touch that issue but people have bank accounts, people have Rupay cards so you can’t say homework hasn’t been done. There is also the voluntary disclosure scheme. The government is moving towards GST. And this is one step towards a whole series of measures which have been taken.
A viewer, Saurabh Srivastava, has a question. What is the real success parameter of demonetization?
We should look at this issue from a short-term perspective of pushing India into a formal cashless digital economy. That’s what we're trying to do. Moving states, collectors, school children, moving IITians so on. But I think long term is that 86% of cash is disastrous for any country. We need to move towards a less cash economy.
There is no way of going back to cash?
The more cash, the more black money, the more counterfeit cash you'll have.
People asking if the new Rs 2000 note has a possibility of being junked in the future?
The long-term solution for a country which has ambition, hunger and the drive to grow at high rates of growth is to go towards a formal digital economy. That’s the way to go. This is a huge opportunity that India should never lose.
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