Cheque-out time?

The image of women carrying a headload of firewood has for many years represented India's failure in taking development to every home. Everyone knows how much time the women spend to collect the wood each day, and how long it takes to cook food on the smoky chulhas . No one perhaps has precisely timed the various elements of this daily chore, but it would be no exaggeration to say that each woman in rural India spends at least a couple of more hours on it each day than do urban women who have LPG flowing through stoves at will.

These two extra hours represent the measure of inefficiency of the archaic system that a rural woman is condemned to live with.

INEFFICIENCY OF CHEQUES

Now take the cheque, an instrument that has been used since 1870 to make payments. Some 3.8 million cheques were written out every day in 2010-11. Just add up the time the person spent writing or preparing the cheque, the time he took to dispatch it to the receiver, the time the recipient took to fill out the bank challan, and then take it to his bank, the time officers in his bank took to note the details of the cheque, and send it for clearing.

The clock needs to tick again because the cheque now comes back to the sender's bank, where an officer has to verify the signature on the cheque before the money is cleared for transfer to the recipient's account.

Altogether, that would be more than two hours, at a conservative estimate. If you thought the time spent by those rural women on firewood was two hours too many, this is no less. The “elite” segment of the economy wastes as much time over a cheque as the rural woman spends over her chulha .

In terms of effectiveness, the cheque actually comes off worse. The woman is able to cook the food the same day she brings in the firewood. In the case of the cheque, rarely is the money transferred the same day it is written out; in most cases it takes a couple of days and with outstation cheques, it could be several days.

ELECTRONIC TRANSFERS

Now that we know how inefficient the cheque has become, let us see how much of a drag it is on the economy. Given the volume of cheques used every day, a back-of-the-envelope calculation shows over 8 million manhours were spent on cheques each day last year.

It is not that there is no alternative to this inefficient means of moving money. Electronic transfers from one bank account to another are easy and swift, indeed instantaneous. They do not necessarily consume expensive stationery, there is no need to verify signatures, bank accounts are debited and credited, night or day without highly paid bank officers intervening each time to facilitate the process.

India is starting to embrace this new system. Many companies transfer salaries directly into the bank accounts of their employees, and dividends into shareholder accounts. Phone companies are collecting monthly subscriber bills by directly debiting their bank accounts. The Indian Railways has wrought the most magnificent change of all, allowing travellers to pay for their tickets electronically, and saving them long waits in the ticket queue. Even refunds are done painlessly. The Government's tax departments too are following this trail, with equally good results.

Yet, good as these seem, there is so much more to change. The 2.4 million electronic transactions recorded each day last year represent a small fraction of the total transactions in the economy.

START WITH GOVERNMENT

Why are people not switching from cheques fast enough into the digital mode?

The remarkable revolution that the mobile phone has wrought in telecommunications in India is proof that people quickly adopt a system that delivers value for them. Speaking to one another is a basic human need, and the mobile phone answered it in a way that the fixed wire-line service of a hundred-year vintage could not.

The need to use money is just as basic, but why is the number of people who own a bank account far lower than those who use the mobile phone? The simple answer is that while almost everyone knows what to do with the phone, many people apparently have not had the chance to use the digital interface with their banks.

A great number of cheques in use are either generated by government or are destined for the government till. A reduction in the use of the cheque must, therefore, necessarily start with the government and its units. If electricity boards across the country, for instance, can take payments from all their customers as direct debit from their bank accounts, rather than by cheque or cash, a huge number of cheques that now clog the system will disappear. The electricity boards too can save themselves considerable human effort in bill collection.

Many countries in Europe, such as Germany, have already greatly reduced their use of cheques. People simply quote their bank account numbers if they want to receive payment and the funds are moved directly from the payer's bank account. Even in the UK, where cheques have been in play for over 300 years, there are plans to give them up by 2018.

India too must follow suit. It has an advantage because it never really embraced the cheque system fully in the 140 years it has been in this country and, therefore, can leapfrog from cash to the digital age of electronic money transfers.

The mobile phone showed how willing people are to change. The onus is on the government and the banks to carry the population into the new age.

( >blfeedback@thehindu.co.in )

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