Demonetisation threatens to stall economic growth

Money is a medium that lubricates the economic system. Without it the wheels creak, and turn slowly. Make no mistake: the current cash crunch will last. Let's face it we have just removed 86 per cent of our money. The mints weren't built to replace so much in one go. It will take many months of suffering, scrimping and standing with outstretched hands in bank queues unless we do something.

The only way out is to promote the use of digital money. More transactions with digital money will reduce the need and dependence on cash.
The good news is that most of the salaried class in urban India have converted stores and e-commerce sites report a higher percentage of card usage vis-a-vis cash.

The bad news is that most others have not. Among the lower middle- and lower-classes, which form the bulk of our population, digital money hasn't made much headway. Rural India as a whole is also bereft of card penetration, banks are always miles away, and few ATMs function. Only if we convert these people to the use of digital money can we emerge from this cash crisis which threatens to stall our economic growth engine.

The lower middle and lower-classes normally don't have smart phones and internet. Now, with technology, they can use their normal phones to make and receive payments. Some are already doing this, but if we can quickly get the majority to adopt mobile money we can ease the requirement for cash and bolster spending. This is the challenge: to get everyone to use digital money for every purchase.

Here are some suggestions. In order to induce the masses to get Paytm, Freecharge, m-pesa, Airtel money, or any other mobile money on their normal phones, let the Centre give a one-time incentive of Rs 100 as a bonus for those who install it. Everybody loves a freebie, and Rs 100 is a lot of money for most Indians (wages for half a day's work).

If the communication and ease of installation is right, one can expect at least 50 per cent penetration across India – perhaps 20 crore connections (out of a population of 125 crore). With 20 crore Indians keen to use their bonus money, shops and establishments will surely install the mobile money apps and ensure suppliers and customers can seamlessly be serviced with mobile money.

The penetration of mobile phones in India is 82 per cent and growing. It is not unreasonable to envisage that the penetration of mobile money will be over 50 per cent to start with, if the campaign is carried out right. If phone numbers are linked to Aadhaar cards, then a useful data base can be generated as to which category of customer spends how much, and on what items.

Get as many people to embrace mobile money, especially among those who don't have smartphones. The key will be the ensuring of adequate call centre points to address the growing demand for clarifications in vernacular languages.

By Salim David