With the demonetisation programme having been in operation for nearly five weeks, most Indians have arrived at some tentative conclusion over whether the huge shake-up was worth the inconvenience or not. Their final view will, of course, depend considerably on how well they — as individuals, families and communities — succeed in adjusting to a new India where cashless transactions may well become the new normal.
I for one am not entirely convinced that the transition from a mixture of the traditional and the modern to the ultra-modern will be as daunting as some — notably economists —seem to suggest. There are reasons for this optimism.
First, there is the Indian experience with mobile phones. When it was introduced in India in the late-1990s, the mobile phone was more a status symbol than a daily necessity. The call rates were extraordinarily high and the various add-ons ranging from email and text messaging to banking transactions were still largely non-existent. However, once the telecom companies and the government formulated a model that sought to leapfrog over the patchy (landline) telephone network, mobile telephony heralded a revolution in India. It was no longer a toy for the rich and the middle classes; mobile phones became a lifeline for every section of the population. Indians have taken to mobile telephony far more enthusiastically and innovatively than the West. The most trivial example of this is the ‘missed call’, a peculiarly Indian invention (I can’t speak for China) that often leaves Europeans and Americans befuddled. However, there is also the more startling statistic that indicates that some 58 per cent of all railway reservations in India are being done online. If nothing, this at least should shatter the stereotype of an India that is reluctant to change and embrace new practices.
Secondly, caste and community is also a reason for believing that the transition from traditional ways of doing business (which includes an overweight of cash transactions). Anecdotal and media evidence so far seem to suggest that the demonetisation and cash rationing have affected the traders in the traditional wholesale markets the hardest. On the first day of the Winter session when the Rajya Sabha initiated a much-needed debate on demonetisation, the veteran Lohia-ite stalwart Sharad Yadav spoke with characteristic passion in defence of traditional commerce in India where cash, barter and hundis lived in happy unison. Modern banking and the plastic economy, it seemed to him, were needless intrusions.
There are obvious strengths in these traditional business practices that explain why they have endured, sometimes even without modifications, in India. However, the issue is not the form but the use of technology and their adaption to modern requirements. A casual glance at the profile of those who helped kick-start India’s fledgling e-ecommerce industry indicates that many of the entrepreneurs who have made a mark either through start-ups or working for global corporations that are hungry to tap the Indian market are from the trading castes. To my mind that is very revealing. It suggests that the new generation of entrepreneurs from traditional business families will be inclined to embrace the cashless, plastic economy with a measure of energy and innovation that the pessimists feel India is incapable of showing.
Traditional trade blessed certain communities with the skills of handling money. They used to optimum advantage whether in India or overseas, not least in the heartlands of global capitalism. The perversities of India’s taxation structures, especially during the bad days of socialism when the government presumed to tax some 96 per cent of personal incomes, ensured that the skills of handling money were channelled into skilful evasions. The desire to stay out of the tax net was an unfortunate consequence. Today, if sufficient impediments in the path of a black economy are coupled with a tax administration blessed with integrity and compulsory transparent accounting practices, there is absolutely no reason why the traditional trading communities would not reinvent themselves. After all, they have done so successfully in Europe and North America where low-cash, tax compliance and transparency go hand in hand.
Finally, the war against black money and the move towards greater cashless transactions is calculated to enlarge the sphere of tax collections. The more a transaction is recorded, the greater the chance of the necessary tax coming into the state or national exchequer. Apart from Mamata Banerjee who has devised her own economic logic, the consensus is that the demonetisation programme is certain to impact the government’s treasuries positively. Many more people will start paying taxes that they had earlier not bothered with. This is good news for people who were already taxpayers and who always lived in trepidation that they would be squeezed more because there was no political will to take action against tax evasion. But this reassurance can turn into fright unless India’s tax administration develops a human face and couples it with a culture of integrity. The government has to realise that after demonetisation the fear of an intrusive tax regime has grown. It is up to the relevant ministers to ensure that this does not become a self-fulfilling prophecy.
Since November 8, Indians have patiently suffered some inconvenience and even hardship. They have responded to Narendra Modi’s appeal for sacrifice to achieve a larger purpose. It is up to the government to respond to this exemplary show of nationalism with a parallel show of imagination and efficiency.
The author is a senior journalist and Member of Parliament, being a Presidential Nominee to the Rajya Sabha.