Government’s decisions to boost digitization have always come under fire from opposition parties. We have seen various examples in the past, for example, when Aadhaar was made compulsory for receiving subsidies and other benefits. Linking of Aadhaar with PAN has been opposed by certain political parties and social groups. Limit on cash withdrawals and cash deposits at banks and ATMs and tax on cash transactionsis also being criticized by political groups. The most widespread opposition was against the government’s decision to ban Rs 500 and Rs 1000 notes. Demonetization was opposed so strongly that it became one of the main anti-government agenda for political parties in 2019 elections.
Political parties such as Congress have accused the government and the RBI of looting the country in the name of digitization. So, is this really true? Is your money being usurped by the government in the name of digital payments and transactions? Well, quite unlikely because digitization actually helps reduce corruption and boosts economy. Let’s take a look at some key benefits of digitization to better understand the vision and objectives of the government.
Direct fund transfer to farmers, poor and needy: In the past, there was a lot of corruption in distributing subsidies and other funds to farmers, poor and other needy people. Middlemen and agents often used to demand commission from people to sanction their subsidy/funds. There was also the problem of fake accounts, which led to major losses for the government. With digitization, subsidies and funds are now being transferred directly to the bank accounts of people. Aadhaar linked bank accounts have also reduced the case of fake identities and fake accounts. Government’s Direct Benefit Transfer (DBT) system currently serves various schemes such as LPG subsidy, funds for farmers, scholarships, old age pension, MNREGA payments, etc.
Reduction in corruption, black money and hawala transactions: A couple of decades back, it was estimated that an amount equal to India’s GDP was black money. The main source of black money is unreported income, usually earned in cash and transacted in cash. Since no tax is paid on such income, it is a major loss for the government. Earnings in cash also lead to corruption such as bribe and commission being demanded by government officials and other people. With digitization, all earnings will be channeled through the banking system. This will act as a deterrent for people involved in corruption and stashing black money. Digitization will also help reduce hawala transactions, which has often been linked to criminal activities and even terrorist funding.
Increase in number of taxpayers: In India, only a small percentage of people pay taxes. 2018 data shows that top 5% taxpayers contributed more than 3/5th of total tax collections in India. Many people in India earn money in cash, which is not taxed. Since demonetization, GST and other cashless rules created by the government, around 1.8 million taxpayers have been added to the tax system. The number of taxpayers has been consistently increasing. This will boost tax collections and make more funds available for the country’s development.
Reduction in property price and house rent: Earlier, property owners used to sell their properties at rates higher than that mandated by the government. The excess amount was taken in cash and was never taxed. For example, a 50 lakh property was sold for Rs 1 crore and half the money was taken in cash. This system has led to steep rise in property prices. With digitization, property owners will have to sell their properties at governmentprescribed rates. This will reduce property prices and allow more people to buy a home. In a similar manner, digitization will also help reduce house rent and shop rent rates.
Reduction in benami properties: Earlier, it was possible to use black money for buying properties in fictitious names. This has been controlled with digitization, as large cash transactions are now reported to tax authorities. The onus has also been put on builders to report any large cash transactions. Linking of properties with Aadhaar number is also helping reduce benami properties.
Curb on troublemakers and mischief mongers: In the past, it was very easy to use black money to take out morchas, protest rallies and even instigate riots. This often led to law & order problem and affected the local economy. With digitization, it has become easier for enforcement agencies to control anti-social activities.
Curb on drug mafia, criminals and anti-social elements: This group has been among the main beneficiary of black money. Even today, drug mafia and other criminals thrive on cash. However, digitization is making increasingly difficult for them to carry out their illegal operations. Criminals can still earn money in cash, but they won’t be able to invest it in a profitable manner, as all big cash transactions now require PAN number.
More funds for development: Black money is often locked up in cash or jewelry, which is unproductive for the economy. With digitization, more money will flow into the banking system and economy through taxation. This will boost the economy, as there will be more money for development projects and setting up new industries and businesses.
India is not the first country to embrace digitization. Countries like Singapore, Netherlands, France, Sweden, Canada, Belgium, UK, US,Australia, Germany, South Korea, Spain, Brazil, Japan and China have already achieved a high level of digitization. India is just starting on its cashless journey and a lot depends on how its people support the movement.
If you feel that digitization can help the country, you should use digital payments whenever possible. You should also encourage your family members and friends to do the same. Digitization and cashless transactions will make it easier to achieve the target of USD 5 trillion economy by 2025. With that, India will become the fourth largest economy in the world. It issomething that will make all of us proud and boost our prosperity as well.