Banning Large Cash Transactions - Have we got our Priorities Wrong?

The recent news that government is thinking of banning any cash transaction above two lakhs is supposed to be a good move. But, the reality is far different. As like always with regard to banking, the government has got it’s priorities wrong. If cash is banned, the only possible ways I can think of, any normal person will do will be an online payment, card based payment, cheque and DD. Let’s see them one by one. A person pays by DD. For every little thing, going to a bank to get a DD is a joke and getting it encashed, again, is a joke. On top of that, DD costs. Why will I do that? Cheque is even better and a cheaper option. If I finish my cheque book, I need to pay only Rs 20 for a reissue. Well, for example, my bank account is in Guwahati. Any cheque which I deposit anywhere will be outstation. And that, incurs charges. Now, let’s see the additional side effects of these two modes. Cheque and DD means someone will have to get them encashed. Encashed means someone will have to go somewhere to deposit them. And once deposited, someone should convert them to cash. We don’t have a system where a cheque is deposited somewhere and cash is deposited into the account yet. I have seen it in UK but not in India. But, even there, someone will have to stand at a booth loading cheques one by one. This means, a bank employee should be present to encash/deposit it. Think of the volume of cheques which needs to be encashed then. This means opening of new branches/increasing the size of existing branches. Once more branches are opened, the regular demands start – how to increase the footfall, how to increase turnover, targets and all such. In an age where we are going digital, what sense does it make to go retrograde?

Next comes online payment. If I go to a jewellery shop or for clothes, I would rather try them than buying online. Meaning, online payments will work only in some cases, not everywhere. Then, the most comfortable one – card payment. Well, the maximum card limit for an average card for daily withdrawl is around 25-50,000 and for payment is 50-75,000. What use will a debit card have when the need is to pay for more than two lakhs?

Yes, banning large transactions through cash is correct. But, with the constraints we have got, does it make any sense to implement this without correcting the actual problems we are going to face? What are we doing to ensure a payment happens? Do we have any ways to achieve it? The first thing government should do is to increase the cash withdrawl limits considerably, by five or ten fold and remove an upper cap for card swipes altogether. To achieve this, government should first encourage people to use debit cards.

1.     No surcharge for using debit card swipes. Rather, there should be a sort of discount(even 1% is fine) should be given to customers to encourage card payments

2.     No charges for cash withdrawl above a limited number of times. This will ensure people maintain cash in accounts and go to the ATM whenever they want cash, not withdraw a large amount to avoid usage charges. If charges are not there, you will always see that people don’t have cash in their pockets and this will force them to go for card swipes. It’s but a matter of time it become social habit. This is what our generation does – flush in cash in accounts and no cash in pockets

Well, all these need not be thought about simply because by enforcing mandatory invoicing in every outlet, we are looking at complete accountability - the sales tax collected on every transaction is sufficient to bring in black money into the open.