Cash is still king for Government

You may have exacting standards for considering yourself as having been thrust with the proverbial silver spoon — if not quite born with it — somewhere along one’s life-journey. But I consider myself blessed if I don’t have to stand in queue for more than ten minutes at the counter to pay my electricity bill. But the occasions when Lady Luck has thus smiled on me have been so few and far between that I dread the prospect each time.

I had toyed with the idea of depositing a large sum as advance against future billing so that visits to the local office of the state-owned utility would become less frequent. Twice, I deliberately delayed paying the bill so that I could just walk across to the special counter where there are usually just one or two persons standing in queue, and pay the bill with a small fine. At Rs 60, as delayed payment charges versus the time saved, the deal seemed enormously profitable.

I can hear the Facebook, Twitter crowd’s snigger and the inevitable question, “But surely, haven’t you thought of making payments online?”

Hitting a blind wall

I did, but soon gave it up as an utterly impossible task. The system was designed as a two-stage process — register yourself as an online customer first and then move on to the next stage where you register your intent to make payments online. The system was very slow but, nevertheless, I succeeded in negotiating the first stage, with a username, password, and so on. I was now about to register my intent to make online payment.

Just as I hit the ‘Submit’ button, the site — which held up quite valiantly up to that point of time, in the face of what I reckon was a staggering amount of traffic from people possessed of the same desire as mine — decided it had had enough and went blank. With it went down the drain, an effort of half-an-hour or so.

Undaunted, I logged onto the site once again. That is when I realised what a devilish plot I had walked into.

The section where I had to register my intention to make payments online kept telling me that I hadn’t registered myself as a user in the first place. But when I traced the path for registration all over again, the computer responded, saying that I was already a registered user!

Since one part of the system (registration) wouldn’t talk to the other (online payment), I would not have been able to make payments online simply because I hadn’t registered for the facility in the first place. And, every time I tried to register myself, the system kept rejecting my request, with the response that I was already registered!

If all this sounds very bizarre, I wouldn’t blame you. Mind you, I am not accusing the company in charge of electricity distribution in Tamil Nadu of having deliberately gone about creating a ‘Chakravyuh’ of an online payment system for unwary consumers to walk into. But the allusion to Abhimanyu got firmly cemented in the mind by the time I hit a blind wall with the registration process.

But a larger point needs to be made as well. Why does Tangedco want to register anybody at all in the first place? I mean, what are they afraid of? That I would end up making the payment for my neighbour’s bill? A fat chance, considering that he keeps fending me off every time I try borrowing a bowl of sugar to see me through the last few days of the month.

Indeed, it shouldn’t care one whit even if I wanted to pay my neighbour’s electricity bills as a silent tribute to his wife’s charming looks and pleasing manners. Its job is to supply electricity and not regard itself as custodian of some obscure moral principle.

Perils of automation

That only goes to show what a challenge the RBI is up against in moving the Indian economy towards a cashless society. It lamented the other day that Indians use far more cash than economies of comparable size and scope.

The central bank is quite right when it says, “there is a large scope for further ‘electronification’ of collection of Government receipts”.

But getting the State and Central Governments and their various arms to switch over to the electronic mode of transacting business with the public is not going to be easy.

The staff in these agencies would have, by now, instinctively recognised that, by creating an online payment platform, they would be rendering themselves superfluous. One can therefore be certain that they are not going to embrace online initiatives by their managements with any great enthusiasm.

Indeed, the RBI can get some useful insights on employee resistance for such automation from its own staff managing clearing houses for cheques.

While the task no doubt, is challenging, that is no reason for the RBI not to nudge the State governments into taking some action. Fortunately, they do have some aces up their sleeve. They manage the auction of State government securities.

So why not the RBI impose a conditionality that they (governments) commit to meaningful and user-friendly systems of automation, not just for their own transactions but also for entities owned/controlled by them, for it handling the States’ borrowing programmes?

For greater effect, it can tell banks subscribing to these bonds that States that do not fulfill the automation targets will be subject to an added risk weight for capital adequacy purposes.

Since insurance companies too subscribe to the debt securities of State government-controlled entities, the RBI can, in coordination with the Insurance Regulatory Authority of India, ensure that insurance companies too are subjected to higher capital adequacy norms with regard to their investments in securities of electricity companies, water utilities, and so on.

RBI’s vision

Getting small retail establishments to offer electronic payment facility against debit/credit cards is the other challenge that the RBI faces. This can be overcome with the right incentive structure.

All of them need working-capital finance. So why not link their access to bank credit facilities to the volume of electronic payments they generate?

These transactions are, after all, a proxy for the volume of inventory they hold for setting their working-capital limits. It gets even better. Most of these mom-and-pop stores operate on the principle of extending one-month credit to their middle-class and lower middle-class customers. So they are, in their own way, doing some credit appraisal.

Banks can, therefore, be persuaded to rope in these small retail establishments as banking correspondents and have them issue co-branded credit cards.

As banking correspondents, the credit risk on their customers’ purchases can be fastened to the retail establishments.

The potential for shifting to electronic cash is huge. There are 10 million retailers accounting for nearly Rs 50 lakh crore of private final consumption expenditure in the economy.

They can help take India to the cashless world that the RBI has dreamt of in its vision document.

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