What are the 10 things that could have proceeded Demonetization?

After the announcement made by Prime Minister Modi on Nov 8, 2016, people in India were not divided in to just 2 groups, in fact, there are 3 groups. There are people who support the move and there are people who oppose the move and the third group, in which people like me argue that it could have been planned well and implemented better. Of course, some of best friends have started thinking that I am corrupt and hoard tons of cash. Please understand, even those who have given bribe, which includes most of us and those who received bribe, think that India should be corrupt free. It is the system and the culture which makes us all corrupt.

Though some of us may not agree, India is still not ready for democracy in terms of values of the people. Why? We are a strong kinship based society and value karma more than rule of law. I am not questioning our belief. That makes it difficult for us to believe that by following rule of law a society can be better. Many may cite that our ancient kingdom’s preached and practiced all these dharma and we are intelligent and have all the wisdom with in us. Yes, we have them all. But the question is do we practice them now.  Democracies succeed only when everyone is considered equal in the eyes of law. This requires that we treat all of us equal, including our leaders, celebrities the rich, poor, politicians, and ordinary folks. Do we treat them all equal? But unfortunately, we have a tendency to praise and pray our leaders, whom we like, as God’s avatars. This makes us think that they can never be wrong. Hence, we lack the rational ability to distinguish between what is right and what is wrong. 

My argument here is good and bad comes mixed. We only have to weigh what is good and what is bad and rate it according to them accordingly.

Is Demonetization a great initiative?

Unquestionably, Yes!

Did Government do a good job in implementation of Demonetization Initiative?

Certainly, No.

Could they have done better?

Yes.

What about secrecy?

Yes, with maintaining secrecy we could have done a better job.

Why is that important?

Because, even today a vast majority of our Indians are not digitally enabled and our financial inclusion programs needs to be further enhanced.

Tell me 10 points, you think, could have been done better, within this constraints?

Before I answer this question, I would like to give an analogy. Some people become obese and fat and have all the complications in their body, such as High Blood pressure, Diabetes, heart disease and inability to move around. India over years acquired all these symptoms, like a person with poor health. I am not going to question or reason why we are like this? Now, we have to deal with this person and make him better.

What would most doctors suggest?

Most doctors would suggest immediate measures

1. Diet 
2. Excercise
3. Medication
4. Surgery in some cases

Human mind always thinks that after a problem has become very big, we want instant solution. Instant solution in this case is immediate surgery, not just a strong tea.

But good surgeons, before they perform surgery make sure the patient condition is stabilized to make sure the patient survives post-surgery. This process may be long, but ensure less pain as well as higher chance of survival.

To fight black money, we have to fight several things simultaneously, such as

Make sure corruption is removed from all the potential contexts such as

a.       While availing Government services

b.      Political Parties in election

c.       Favoritism to Businessmen.

d.      Corruption in Education Sector

e.      Poorly regulated Financial Markets

f.        Corrupt Tax compliance officers

g.       Corruption among Police and Local Bodies

h.      And many more…

Can we fix all these fast? No. But demonetization and digital cash or cashless society can make it difficult for people to give and take bribe.

What are the foundations of Cashless society?

1.       Digital Infrastructure – in terms of connectivity and high quality power and at low cost.

2.       Payment Systems and Devices – Availability and affordability

3.       Robust settlement and dispute resolution mechanism

4.       Cultural shift from Cash economy to cashless economy

5.       Ability to manage / use tax based transactions and ensure compliance

6.       Interface in Government and Private sector to convert their systems in to digitally ready systems, both software and hardware in place.

7.       Education, awareness and support during transition.

8.       Fall back mechanism when digital system’s fail in critical conditions

9.       Government Support network and Citizen Access point for redressal when people face problems in digital money transfer system.

10.   Removal of additional transaction fee when we shift to digital mode of payment.

Although I can add many more, I would like to stop here and explain each of these ideas briefly here.

1.       Digital Infrastructure – in terms of connectivity and high quality power and at low cost.

Let us all honestly ask this question. Whether we have covered the entire nation with strong and robust network and access to internet? Let us not sugar coat. We have done a decent job. But we are not digitally ready in all places 24x7. Government and Private Players must have jointly done this. For example, private and even Government agencies have an economic angle when they have to expand their business. No Telco or a bank would be interested in serving areas, which does not have enough customers to make enough money and to justify that investment. This is where Government must have come up with alternative means of providing access and robust fail safe access with industry grade SLAs and uptimes. Not just installing an ATM, but also making sure that they function or figure out a way to enable our post offices or other Government offices to be converted as digital transaction points. Banks and Government can through statistics. But, we have to be honest about this infrastructure. Without fixing this we would not be able to successfully implement the cashless dream. We may even implement this and it would not help our rural and marginalized people. We are after all still a poor country. And in many villages people climb on trees to access mobile network.  We cannot leapfrog to great heights overnight, although all of us think that it should be possible to get rid of all the problems like the person I described.

2. Payment Systems and Devices – Availability and affordability

Do we have the technology in place for the above? Yes perhaps. Let me give another example of how even America comes up implementation of such initiatives. When Healthcare reforms took place in US, successive Government pushed for change over many years. Each step, instead of making it unfriendly to people, US Government literally bribed doctors to change over to digital systems. So Government must have introduced schemes to help all micro, small, medium enterprises to become digitally enabled by providing them with financial and technology support.

3. Robust settlement and dispute resolution mechanism

Last week soon after the announcement of Government, SBI Chairman was giving an interview in TV. When the interviewer asked her about SBI was late in introducing UPI payment. She was explaining the problem in dispute resolution. Looks like the Regulators are not clear yet who would be responsible for failed transactions and how do people resolve it. We know, how difficult it is to deal with our Telcos, already when we have dispute with them. The would b extended to our banks and payment companies. Without a clear mechanism as well as sufficient institutional and people infrastructure in place, we cannot have a smooth transition. If these initiatives fail, then people would lose confidence and they would stop using such services.

4. Cultural shift from Cash economy to cashless economy

Government must go out and educate people and help them culturally transition from cash based society to cashless society. This is similar to family planning drive or Polio eradication drive. In both these cases, despite being a very large poor nation, we have succeeded. It has not come by sudden imposition of rules, but by sustained systematic efforts. I will not say we cannot do this change. Change may not happen easily unless we prepare the stakeholders and their buy-in. We the city based educated masses owe this to our rural folks. What we do now is that in a 4 wheeled vehicle trying to accelerate only one wheel faster than the others. Even in Cities, we have marginalized citizens who need similar support.

5. Ability to manage / use tax based transactions and ensure compliance

Once when we do this, we also have to gear up our entire system in Tax administration to gear up to receive taxes digitally and ensure quicker settlements. This would mean large scale infrastructural changes in our hardware, software, and training of existing human resources and adding new experts.

6. Interface in Government and Private sector to convert their systems in to digitally ready systems, both software and hardware in place.

Not just large players, but also MSMEs should be provided support such as software, hardware, training and support systems to migrate to digitally enabled process. For this we should have appropriate interfaces of people, offices and software hardware to deal with the change. If these is not ready, then people who take decisions based on officers’ discretion will become a big source of corruption. On this front all the State Governments, right up to the level of Panchayat should bring about these changes.

6. Education, awareness and support during transition.

Massive advertisement and PR using all types of media must have been unleased simply to mentally and perhaps physically prepare the people about the coming of the digital shift in all areas. This is very important as without this, people may be in to a surprise like they do now. They should have repeatedly done this with many events and all the Ministers and Officers talking in every other meeting and with their departments, perhaps for at least a year. This is also important because Cash does not require trust. It does not require follow-up or does not require power, connectivity and it is easy and quick. When people do not touch currency they may have psychologically issues initially. This awareness should prepare them to handle this coming change. Perhaps some incentive schemes should have been introduced already, such as tax break etc. 

7. Fall back mechanism when digital system’s fail in critical conditions

This is equivalent to disaster recovery systems that IT companies have. When we go completely digital, if these infrastructure fails or even a big payment gateway fails, be it public or private, there should adequate systems to recover fast and ensure essential services during such critical times. Only those few would had to deal with sickness and death during this chaos would have felt the need for cash and its importance. Most of us managed some how. But there are time in life, people cannot be expected to adjust. 

8. Government Support network and Citizen Access point for redressal when people face problems in digital money transfer system.

This is like a Banking Ombudsman or TRAI. There should be a separate Ombudsman like body where people can go and make complaints and redressal about issues that are relating to settlement about digital issues. This body may not be able to address all the issues, including complaints against State Governments or private bodies. At least this body must fix responsibilities for each of the entities so that people would not have problem in getting justice.

10. Removal of additional transaction fee when we shift to digital mode of payment.

Even today in most places, the remitter and receiver are forced to part with up to 2.5% of transaction fees. When margins in most business is in the order of 5%, how do we expect to part with 2.5% of transaction fees to the intermediary? The irony is cheques are transacted free, whereas EFTs are charged. This is one important area the Government must address to ensure the success of our journey to cashless society.

Government could have taken even a year or so to ensure all these are done and launched this initiative. The economic loss and the cost that we would have to incur for an initiative and the listed actions would have been the same. But the patient has a very high chance of becoming healthy and surviving long.

This is dedicated to my friends, who do not understand why none of these preparation has to do with secrecy, but simple preparation. This is involves details and India has to human capability to roll out and complex idea like this. But we did not take in to account the knowledge and expertise of best people.