'In God We Trust, Rest only Cash’ is a common notice one often finds in neighbourhood stores across India. For traders, it is a way of asking patrons not to seek credit or deferred payment, and instead settle the dues at the point of sale. In many ways, however, it is also emblematic of Indians’ comfort with cash as the preferred payment mode. About half of India’s black money transactions are believed to be in real estate deals — especially in secondary market sales. For instance, if a house is sold at Rs 50 lakh, the buyer may pay 50% (Rs 25 lakh) or more in cash, and the balance in cheque.
The seller pays the income tax for the amount which he has received in cheque, and the cash payment is concealed.
The government’s proposals to offer major incentives to encourage electronic transactions, including tax benefits for individuals making payment through debit or credit cards, need to be seen in this context. The draft proposals issued on Monday seek to do away with transaction charges on card payments at petrol pumps, gas agencies and railway tickets.
Besides, transactions of over Rs 1 lakh could be allowed to be made only through electronic means.
It is imperative to develop systems such as incentivising the use of credit and debit cards for small purchases to squeeze India’s parallel economy. As a government White Paper on black money had said in 2012, given the primary importance of cash in relation to both generation and use of black money, there is no alternative but to target cash transactions in a way that will not affect those complying with the law, while making it difficult for those intending to generate and utilise black money. This will require keeping fairly high transaction limits and exempting those with a reasonable audit trail at both ends of the transactions. Payments by debit and credit cards through Indian e-service intermediaries can further bring down the costs of their use, improve their acceptability and reduce the cash economy.
It is imperative that payment of wages and salaries in the private sector should be made through banking channels and should become cashless for financial inclusion. A bustling cash economy is an anachronism in a modern economy. India can ill-afford to allow it to swell.