The government’s proposal to incentivise electronic transactions in preference to cash dealings so as to curb black money is one of the most complete attempts made till now to achieve that end — although it is not entirely a new idea. Earlier attempts, such as the UPA government’s Banking Cash Transaction Tax, sought to address the issue only at the bank level, ignoring the actual users of cash — the merchants and the public. That tax, introduced in 2005 by then Finance Minister P. Chidambaram, stipulated a charge of 0.1 per cent on cash withdrawals above Rs. 10,000. However, it was messy: the somewhat arbitrary move that was also poorly implemented, was repealed in 2009. This government’s new proposal takes a more holistic approach to the cash economy, and as such is more likely to work. In a draft proposal now open for public comments, the government suggests income tax benefits for individuals who incur a certain proportion of their expenditure through electronic means, while proposing a nominal handling charge on cash transactions above a specified level. The removal of the additional charge often levied on electronic transactions should come with this. As for merchants, the government proposes a tax rebate to those among them who handle, say, 50 per cent of their transactions electronically, and a small reduction in value added tax on the items involved. At the moment the system discriminates against electronic transactions. Banks and service providers levy extra charges on them, while cash transactions are implicitly subsidised by banks, which do not factor in the cost of teller services. Paper money comes with hidden overheads: the cost of printing and providing additional security features, and the price of counterfeit money.
Cash transactions and black money are directly linked, since a cash trail is nearly impossible to track. As such, electronic transactions and the ease of audit they afford should make the government’s job much easier in terms of curbing illegal transactions. India is a massively cash-dependent economy, with its cash-to-GDP ratio being around 13 per cent as compared to a global average of 2.5 to 8 per cent. Little wonder, then, that some experts estimate the size of India’s black economy to be at least half the size of the white economy. Commendably, this government seems to be taking a systematic view in working towards minimising cash-based transactions. At the heart of it, even the Pradhan Mantri Jan-Dhan Yojana is aimed at providing direct, cashless subsidies to those who need them. There are still more steps that could be taken, such as encouraging major cash-users, traders with large public dealings for example, to move on to electronic payment modes. But this proposal is undoubtedly a good beginning.
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