How Does India Become Cashless?

Mainstream media was puzzled about a surge of physical cash with the public. The likes of which have not been seen since 2011 - a time of very high inflation. It seems the amount of currency with public has shown an almost 50% increase in 2015 - 16. Even though the RBI has hitherto maintained a position of net negative liquidity position with Banks. Specifically when it has been a year marked by its exact opposite - low inflation ! And furthermore sectors which are known to normally soak up cash like a sponge viz. retail, real estate, gold & jewellery etc, shown less than buoyant growth as compared to last year. It is an odd situation. Economists are chasing their tails trying to explain the phenomenon. And there are a slew of them from various quarters. And no consensus as such. An appealing and explanation was provided by the RBI Governor - elections in 4 State and 1 U.T! Which necessitates being awash in cash for obvious reasons, though not necessarily for the right ones ! And then there are some twists to the tale too. ATM withdrawals increased slightly,whilst average debit card transactions declined ! That sounds logical. So maybe people shelled out more cash. And did not use their card. To keep out of the tax net possibly! Also, since you get eight ATM withdrawals for free - you push for the most buck for your ATM punch ! “A Kitna Deti hai” moment for the value conscious ATM consumer! Paradoxically credit card transaction value doubled in last few years! Why is this so? Like for cheques, there are zero 'transaction costs' to the customer to make moves into hard cash. And coupled with "high compliance and administrative cost" for transparency in our day to day economic life . The inevitable is bound to happen - reliance on cash. And a substantial shadow economy estimated at 70 % of GDP (2013)! However,there could be much deeper structural and cultural reasons; (1) I would venture to say that the total 'money stock' in a predominantly 90 % cash economy like ours is generally indeterminate. Therefore when some of that comes under the surveillance radar of tax authorities or into the formal financial system for the very first time say via a surge in deposits into newly opened 200 million JDY accounts, sundry PO accounts to Post Office Bank accounts or new accounts in newly licensed Payment & Universal Banks. This makes for 'double counting' in M1, M2+ time and crafting of monetary policy trickier. . (2) With e.money uptake viz. prepaid/mobile wallets. The coming festival of lights could again see spike in currency with public. That would be conventional wisdom - perhaps more withdrawals from ATM to 'load up' the prepaid /wallet for redemption across a merchant network base. After all 40% of wallet popularity is in Tier 1 &2 cities where 'cash is king'. That can however change if Banks incentivise and encourage that the wallet be now directly loaded up from accounts and debit card. But many Banks are not encouraging their customers to do so with popular third-party wallets. Thus possibly styling the growth of wallets. The third party wallet cos, which include Telco's, have a much larger active base than the banks. Estimated to be 150 million plus. But Banks still prefer their own in-house prepaid card and wallets! The more the wallet is loaded up directly from the bank account or debit card via net banking,IMPS.etc. And more redemption is electronic. Less currency should be in circulation. On the other hand use of credit card (preferred option for mobile wallets) and cash from outside the Banking system to load up a wallet leads to an spike in other broad money indicators. Which when used in the formal measurable economy leads to an uptick in velocity. (3) One could also argue that the "stock" of "money under the mattresses" already circulating from "mattress to mattress" in exchange for goods and services in informal and formal economy. Does not get reflected in inflation - too much money chasing too few goods. This is the shadow economy at work. Or, flip side, inflation not explainable by money supply numbers, may be attributed to this shadow economy, money - stock- on- the- move (velocity). Lastly, I am going to use a term - 'technological deflation' - to explain the urban spend. Which is where online consumers clearly "get more, for less". Specially during festive season from Oct to Dec. Much of it CoD. But trying to match urban spending uptick to published GMVs of our favorite online e.marketplaces may give a false positive. In view of the discounts, cash backs, free offers at hand. This systemmic problem can be solved. If the prepaid card networks, wallet & UPI ecosystem - both Banks & 3rd party, play their roles. And B2C marketplaces guys get their payments leg electronfied. There ought be less of a mad rush to cash in time to come.

The dilemma that is ' Net Neutrality '

Groucho Marx once said military intelligence is a contradiction in terms. The same could be said for net neutrality! A whole lot of column centimeters in mainstream and online space has been used up fulminating against a big fat social media company trying to get the internet to the next billion people on the planet — the digital have nots. They have a name for this. It is called Free Basics. The problem is about the term itself. Critics dont particularly see it as ‘free’, or want it to be ‘basic’.They sense a deeper agenda.Perhaps even a profit motive. And a big brother approach to acting as a self appointed gatekeeper as to what sites will be available. Is google or wikipedia going to be available? What about whatsapp? Will that co exist with hike ? What about other media and content sites? Will they get a free run? No pun intended! Then there is the question of why should only one preferred telco be chosen to offer this freebie. Why not a smogasbord of telcos. After all there are twenty two such in India itself. Just one telco will not get you the next half a billion. There are other fundamental issues. Is the net really neutral? Can it technically ever be? Can anyone at anytime, anywhere get as much bandwidth, speed and access to any part of the web for as little cost as possible. What about for absolutely Free ? Let me rephrase that. Can millions of people watch 4k high definition Games of Thrones at the same time or video conference with each other on their cellphones at the same time without significant degradation of service? The answer is ‘NO’. You will have to allow for differentiated pricing for speed and data. There cannot be uniform access and speed. Look at it this way. The internet is like your favorite expressway (that is if you could have one!). Now imagine at peak hour traffic or where the road capacity is limited compared to demand. What happens? A traffic jam. Gridlock. Call it what you want. You are now doing 10 in a 70 mph zone (If you are lucky). Suddenly you cant get as much road as you want, in the face of some unrelenting evening traffic. Whether you are on the way back home from your office in Gurgaon to Delhi or Upper Worli to Borivali or Bombay to Pune.The same happens in Manhattan and the City of London during peak office hours (of course the latter has a congestion tax to disincentivise folks taking their cars in) In short there are physical limits. There are a few ways out. If you use a Expressway. You can pay for a monthly pass and use an electronic tag to get through the less congested tag only turnpike (if you can get to one!) Or, you can use the old and much longer Bombay-Pune road and unruly inside roads and be free of any obligation at all.But move a whole lot slower and in a haphazard manner. The net is a bit like that. Someone has to build the capacity. Someone has pay for it (Unless it is the state e.g Connecticut which is planning to build a 1 GB/sec fibre network) It is not limitless. It is certainly not free. Whilst economists will tell you that the marginal cost will be zero for the nth customer. Someone has to pay for the capacity in the first place. It could be content guys, or customers, or both It cant be none. Else the carriers would go bust. (Unless the Internet company owns spectrum,lays its own fibre and is a internet company all by itself). So clearly sponsored sites meaning — Free (thats why the word sponsored) have to be subsidised by the internet company, and the revenue slack have to be taken up by paid customers —for non sponsored site access e.g amazon, medium, cnn, yahoo, expedia, flipkart, etc.Of course the aim of the telco would be that someday a free basics user could very well sign up for a paid one.And that would help. Whilst to get internet to the masses is a must. Innovative models have to be tried, tweaked and encouraged. People carried.Governments be on board.