Let’s not go electronic, please

‘‘Let them eat cake’ — the queen of France is said to have told her courtiers when apprised of peasants in her kingdom starving for bread. In a modern day parallel, Indian policymakers, confronted by problems of governance or inclusion in the financial sector, are telling their constituents — ‘Go hi-tech.’

Whether it is the need to improve disclosures, increase shareholder participation, trim cost or increase the reach of financial products, policymakers and market participants in recent times have come up with a pat solution — the Internet.

But this is impractical, as only a minuscule proportion of Indians today enjoy access to reliable Internet connections.

Go electronic, please

In 2011, the Ministry of Corporate Affairs flagged off a ‘green corporate governance initiative’ that required all companies, after writing to their shareholders, to send annual reports and other notices through e-mail, instead of post.

After this, whether one asked for it or not, many investors have begun to receive key notices and financial statements from companies in their e-mail. It is another matter that these documents have become even less readable.

Shareholder participation in crucial company decisions has been abysmal under the current system of postal ballots. The Securities and Exchange Board of India’s solution is to require the top 500 listed companies to enable electronic voting for their shareholders.

Filing income-tax returns is no cakewalk, given the number of accompanying documents one has to produce. But the Income-Tax department thinks the task can be made more palatable through electronic filing of returns. In fact, it has recently made e-filing of returns mandatory for taxpayers with an income of over Rs 10 lakh.

The Reserve Bank of India has been pushing public sector banks to promote electronic payments. Last week, it set them a target — reduce cheque-based transactions in top branches by 20 per cent each year, starting 2012-13.

If regulators have been rooting for electronic transactions, market intermediaries have been quite ‘proactive’ in taking to the electronic platform, mainly to save on costs.

Many mutual funds, home loan companies and banks today offer e-mailed electronic account statements as the default option. Disgruntled customers complain that they literally have to jump through hoops to receive a hard copy of their account details.

Now, e-mail dissemination of information or electronic platforms for financial transactions may be acceptable as long as they are optional. The trouble starts when they are mandated by law, or made the default option.

Why not?

But what’s wrong with regulators or market participants pushing consumers to switch to the electronic mode? It is cheap and saves trees, doesn’t it?

Sure, it does. But the problem is that it is also patently unfair. A mandatory push for the electronic medium would be justified if a vast majority of Indians did enjoy access to hi-speed Internet connections or e-mail. But the truth is that only a fraction do.

By any measure, the section of the Indian population that has access to an Internet connection today is minuscule.

The recent Census 2011 noted that only 3 per cent of India’s households have a computer with an Internet connection.

More optimistic industry estimates put Internet penetration at about 9 per cent.

This puts India leagues behind other BRIC nations as well as the developed world on connectivity. (Internet reaches over 50 per cent of China’s population and over 70 per cent of the populations of the US, Japan and Brazil).

The blame for this state of affairs lies squarely with the government. The sluggish pace of infrastructure rollout has made sure that Internet penetration in India is today at half the levels envisaged way back in 2004.

The latest National Broadband Plan from the telecom regulator also has other statistics to show that the 14 million broadband connections in India are available only to a select few.

Sixty per cent of broadband Internet users are located in the top ten cities and just 5 per cent in the rural areas.

Internet connections outside the top cities (numbering 8 million) are mainly of the dial-up variety. With unreliable connections and regular power outages, is it realistic to expect that consumers would take to sensitive banking transactions, stock market trades or payments through the Internet?

Not inclusive

This has implications for financial inclusion, too. It is quite clear that, if India means to make financial products accessible to a larger section of its population, it needs to rely more on physical infrastructure and a feet-on-the-street model than on electronic platforms.

Today, India already has 20 million stock market investors and 47 million mutual fund accounts. It is realistic to assume that a good number of these investors also dwell in the big cities and enjoy Internet access. So with Internet reach at a similar 20 million, how can financial product penetration or shareholder participation be enhanced significantly by taking to the electronic mode?

None of today’s private sector mutual funds or insurance companies have yet managed to replicate the investor base that the Unit Scheme 64 or the LIC effortlessly attracted over a decade ago. It was their extensive field force that made the difference.

What’s the benefit

Aside from all this, for consumers or investors to take to electronic transactions, they must benefit from it. As the RBI Deputy Governor, Dr K. C. Chakraborty, pointed out in a recent speech, a technology-based inclusion model will work in India only if customers see value in the shift.

For this, electronic transactions must be faster, hassle-free and provide customers with protection against fraud.

More important, cost savings from adopting technology must be passed on to the customer. If you run the recent ‘Go green’ initiatives through this checklist, three of the four conditions wouldn’t be met.

Is it at all surprising that Indian consumers still want the bread and not the cake?

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