By: Dhruv Kapur, Project Manager, Slonkit
The Indian Government has recently launched a string of activities with the objective of pushing India to become a digital and cashless economy. In May 2017, a plan was set to achieve 25 billion digital transactions in 2017-181. Consequently, we’ve seen new found incentives to lead people to make digital payments over cash payments, coupled with new orders and grants from the government to help with this transition. From discounts on items such as petrol and diesel, to insurance to customers who purchase rail tickets via digital means, the government is trying to push Indian citizens to start paying digitally via various perks. The commencement of these efforts was when the Indian Government announced demonetization on 8th November 2016. Although criticized by many, this change was an absolute masterstroke by the government for a variety of reasons. To begin with, printing of paper money for a population of 1.3 billion is associated with very high costs. According to a 2014 study by Tufts University, The Cost of Cash in India, “The Reserve Bank of India and commercial banks face a total of Rs. 21,000 crores in currency operations costs annually”.2 Second, the cash dependent black market was put to a sudden halt with the bulk of its currency rendering useless. Finally, it incentivized the entire Indian population to go digital, a trend that exists across developed countries in the world. According to government data, the surge in the use of e-wallet services was 267%, within a month post demonetization, from Rs. 52 crore per day to Rs. 191 crore per day.3
On the face of it, it seems like everything went as planned and India is now transitioning to becoming a digital and cashless economy. However, in August, 2017 the RBI estimated that 99% of the high denomination notes that were discontinued had been deposited or exchanged for the newly issued currency notes.4 With paper currency returning into circulation at almost full flow, I started wondering whether this transition to digital payments has any permanency embedded in it or not? According to me, there is definitely a concern regarding how long the Indian public will continue this trend of using e-payment. Will people go back to their old ways once the government incentives cease to exist? Will digital payments still be the go-to choice when e-wallet companies start reducing the cashbacks and discounts that they are currently providing to attract customers?
Was e-payment serving as a bridge until cash was back into circulation, or is it becoming the preferred choice of payment for our nation? Change is never going to be easy, especially when you have a country with a population like that of India’s. That’s when I thought, that there might really be a simpler and more permanent solution to this concern. In addition to targeting the current working generation of the country, let’s try and start sowing the seeds of this digital concept in the minds of India’s youth.
Today, approximately 57% of India’s 1.3 billion population is under 30 years of age. As per a recent Goldman Sachs report, “with 440 million millennials and 390 million Gen Z teens and children, the sheer size of India’s youth paves the way for India’s consumer story to be one of the world’s most compelling in the next 20 years.”5 Being a millennial myself, and a proud member of India’s youth, I find the idea of using digital methods of payments pretty remarkable. No need to carry cash and worry about having change, no stress regarding whether I have the required amount of cash with me at that moment, and the assurance that my parents can always transfer money to me whether I’m with them, or even at the other end of the country. Besides, the idea of paying digitally makes me feel grown up and responsible, since earning and well settled individuals are the people who are usually associated with such forms of payment. But, at the end of the day, most of us have been brought up by being taught to make payments via cash, and will need a slight push from the Government’s end to give us a reason to really forget about cash and make a permanent switch to digital payments. So how can the government do this? In my opinion, it would be a fantastic idea to get hold of the youth when they are still in schools and colleges and make this learning a part of their educational experience. Keeping in mind that these youngsters will be the drivers of change for our country, let’s focus on them specifically and make the digital way the only way that they know!
The government is already pushing the idea of digital payments in higher educational institutions by asking the University Grants Commission to advise these institutions to make all monetary transactions via digital means under the National Digital Payments Mission (NDPM). In fact, the National Convention on Digital Initiatives for Higher Education was conducted in Delhi in July, 2017, in order to solidify this notion of going digital. So, why doesn’t the government combine this immense effort with a small incentive for the students, to get them to want this change? As of today, higher educational institutions are subject to GST for services provided by the government, which includes the very important service of a college canteen. College canteens, like restaurants, are subject to 5% GST in higher education institutions. Although the taxation after the implementation of GST is not very high, and is a reduction from the initial GST rate of 18%, it still does not make any particular exemption for students. Having been a student recently, I know how difficult it was to manage my pocket money, and how much it used to bother me when the actual price of my food was higher than the price mentioned in any food menu, because of tax. The imposition of GST on students living on tight budgets can be a huge let down for them. Yet, this situation presents a unique opportunity for the government to start pushing these students to start going the digital way.
Most students make the extra effort to grab any form of discount that is made available to them. Personally, I know that feeling of satisfaction when I get a sandwich for Rs.25 instead of Rs.30. With this saving, I can get a chocolate along with my food, for the same price! Can the Indian government take advantage of this mindset of students to push them to start using digital means of payments? Maybe they could provide incentive by reducing the GST applicable when a non-cash transaction is made in a college canteen? All of sudden, digital payments will be the student’s route to save money, because cash transactions will suddenly be more expensive than digital ones. Now, they’ll want to switch to using digital payments! They might be doing it just for discounts, but in the process, they will be learning about the convenience of using digital payments, and will slowly absorb this as a habit. In my opinion, this is a game-changer and can really help the government in achieving its mission to go digital. Maybe not instantly, but this win-win situation will be a more permanent solution for the government and students for a variety of reasons.
Reducing the GST rate on e-transactions in college canteens will incentivize students to start spending using digital payment methods rather than via the traditional style of cash payments. In the current scenario, youngsters have no reason to use digital payments, as most are given pocket money in the form of cash. By agreeing to forgo a small amount of tax, the government will have millions of students using digital payment methods, who will now believe in and promote the government’s vision, for the simple reason that it helps them save money. It is understandable that the government might hesitate to take such a step, as it will lose out on a certain fraction of tax from these students. However, it would be a small cost to pay in order to get the youth of this country on board to fulfill India’s mission to go cashless. If the government provides this impetus from their end, it will do wonders in aiding the transformation from cash transactions to digital payments.
Align with the trends of developed countries:
Colleges in the USA do not charge students any tax on food that they purchase using their campus cards. Isn’t this a fantastic idea to push students to pay digitally, and not via cash? Although this may not be the exact model that the Indian government should implement, given the difference in various facilities and factors between both nations, we can still be inspired by the model to help give students a real reason to use digital payment methods, in a manner that matters to them most- Saving money. If not via debit and credit cards, the government can use the USA college model to let students save tax via some kind of campus card. For students, the benefit is
simple- cheaper food and drinks. They will be motivated to use digital payment techniques for this reason alone, and will unconsciously be developing this method of payment as a habit, rather than a choice.
Change is never easy for anyone, let alone for an entire nation with a population as dense as India’s. So instead of only focusing on trying to change the mindsets and habits of adults, it is vital that we instill the values of a cashless and digital economy in the minds of younger generations if we want to achieve our target of 25 billion digital transactions in 2017-18. The government has taken a first step in this transition via the UGC’s letter asking universities to go cashless. The next step would be to implement this change, and not leave it as just a notice. This is a step in the right direction for India, and the government should make sure that it happens!
Let’s make this transformation more permanent by incentivizing our youth to start young, and become the agents that transform India to a cashless and digital economy. Let’s bring them up knowing the cashless way! Let’s show them how convenient it is to be cashless! Let’s start today!
1 “Govt departments set plans to meet digital transaction goal” by Livemint (Komal Gupta)
2 “The Cost of Currency in India: Institute for Business in the Global Context” by the Fletcher School, Tufts University
3 “Digital payments soar by up to 300% after demonetisation” by the Times of India (Pankaj Dovali)
4 “India demonetisation fails to purge black money” by the Financial Times (Simon Mundy)
5 The Asian Consumer: India Consumer Close-up-Tapping the spending power of a young, connected Urban Mass by The Goldman Sachs Group, Inc.