Is Modi government planning to withdraw cheque books?
A year after the Prime Minister Narendra Modi-led demonetisation drive rendered the then legal tenders of Rs 500 and Rs 1,000 useless, the quest for a “Digital India” is still on, and the next casualty of that quest might just be your cheque books.
According to multiple reports, Praveen Khandelwal the secretary general of Confederation of All India Traders (CAIT) said on November 16, “In all probability, the Centre may withdraw the cheque book facility in the near future to encourage digital transactions".
According to Khandelwal, the government plans to encourage the use of debit and credit cards through a move like this. Talking to the Business Today at the launch of “Digital Rath”, a joint initiative of the CAIT and MasterCard, Khandelwal said: "The government spends Rs 25,000 crore on printing of currency notes and another Rs 6,000 crore on their security and logistics. Moreover, banks charge 1 per cent on payments through debit and 2 per cent through credit cards. The government needs to incentivise this process by providing subsidy directly to the banks so these charges can be waived."
The BJP government’s last attempt to “encourage” digitisation of currency was not very successful. What began as an initiative to flush out black money from the economy, soon turned into a push for a digitised economy. According to a detailed report from The Wire in July 2017 noted that: “Tall claims the government is making about digital transactions are nothing but growth in small components of the larger sea of digital transactions.”
A Business Today report adds that while digital transactions rose by 31 per cent from November 2016 to September 2017, on the whole the numbers are down. Digital transactions in September 2017 reached 877 million, down from the peak of almost 1 billion in December 2016.
In light of such information, it is important to ask two questions? Will removing cheque books altogether see a significant rise in digital transactions? Two, will this move cripple a significant chunk of people – the same way demonetisation affected the general population?
A Business Standard report cites experts who claim that 95 per cent of transactions take place via cash or cheques, at present. This is something that Khandelwal too admitted to at the event, when he said, "Only 5 per cent of the total 80-crore ATM-cum-debit cards are used for cashless transactions." The report also speculates that post-demonetisation, a decline in cash transactions may have also resulted in an increase in bank transactions through cheques.
If one is to look at ground realities, business transactions are still heavily dependent on cheques, especially in micro-, small- and medium-sized enterprises. Cheques are also very much in use when it comes to real estate, especially in terms of tenancy. Landlords all over the country still prefer post-dated cheques as a preferred means of collecting rent.
Will the move then benefit the public, if at all?
Speaking to Financial Express, Value Research CEO Dhirendra Kumar said: “The phasing out of cheque books, in my view, is imminently possible. From a personal finance perspective, especially for investments, it would be beneficial as it would prevent delays in the transaction and help protect both parties better. The way digital transactions are moving forward, in the days to come, the use of cheques would reduce further. So, yes, it is possible in the near future, but to make it mandatory and withdraw cheque books as of now is a bit premature. Maybe a year down the line, the system would be better placed to take this step.”
Other experts too believe that while digitisation is the future, proper steps need to be taken to ensure that institutional failures like demonetisation are avoided. A key step in this is to further encourage digital transactions, first through better incentives to the public. It is only when people are used to online transactions should cheque books be removed.
Additionally, for furthering the idea of a digital India, internet penetration, especially in rural areas need to be improved. Finally, what needs to change in order to facilitate such a move is not just the mindsets of people, but also of government and public sector institutions.
A push for digitisation is always a welcome one, but just as long as it is a push and not forceful shoves.