While demonetization was a big disruption it itself, the central government is exploring new ways to boost digital transactions. The Modi government is likely to withdraw the cheque book facility to improve digital transactions.
The probability of banning the cheque book facility is predicted by a prominent trade body. Praveen Khandelwal, secretary general of Confederation of All India Traders (CAIT) said, “In all probability, the Centre may withdraw the cheque book facility in the near future to encourage digital transactions.” He was talking at the launch event of ‘Digital Rath’.
Digital Rath is a joint initiative by CAIT and Mastercard. The trade body is trying to encourage the traders to adopt new modes of digital transactions and promote the cashless economy. The rise of digital wallets, NFC-based payments, virtual cards, unified payment interface (UPI) has already boosted the digital transactions.
However, most of the hyperlocal businesses are still relying on the traditional way of payments through cheques. Traders prefer cheque-based payments as they get the confirmation of the delivery of goods. The supplier often asks for the advance cheque to secure the future transaction from customers. In many cases, cheque transactions offer the convenience that digital transactions cannot.
Landlords prefer taking rent via cheques as they can accept the advance payment. But with the rise of the cashless economy, there are easier options to collect the payments in a secure manner. Digital transactions recorded in September reached 877 million. The banking sector had recorded the highest digital transactions in December post the demonetization.
The ban on cheque book can heavily boost the digital transactions. According to the RBI data, more than 95% of transactions still happen via cash and cheques. After the limit on cash transaction was introduced post demonetization, businesses have shifted their focus to cheque-based transactions.
The RBI data suggests that before the demonization, the cash in circulation was at Rs 17.9 lakh crore. The latest data of cash in circulation is Rs 16.3 lakh. Which is still at 91% as compared to pre-note ban days. The government has a target of reaching 25 billion digital payments by end of this fiscal year. A ban on cheque book will help the government get closer to the target.
After deciding to revoke the legal tender of Rs 500 and Rs 1,000 currency notes in November last year, the Narendra Modi -led central government might now be working on another disruptive step to boost digital transactions — banning the cheque book. A senior functionary of the Confederation of All India Traders (CAIT) on November 16 said the Centre might withdraw the bank cheque book facility in the "near future" to encourage digital transactions.
CAIT Secretary General Praveen Khandelwal said the government needed to encourage the use of debit and credit cards. "In all probability, the Centre may withdraw the cheque book facility in the near future to encourage digital transactions," he said.
Demonetisation was a big disruption for most Indians, right from poor labourers to big industrialists. Now, the withdrawal of the cheque book facility could have a massive impact as well. Most business transactions are conducted through cheques. According to experts, 95 per cent transactions currently take place via cash or cheques.
Since cash transactions have declined, transaction by cheque might have increased after demonetisation.
Use of cheque in India
Cheques are fairly popular in SME payments. By taking a PDC (post-dated cheque) against the delivery of goods, a supplier secures payments due in future from its customer. People pay by cheques while buying land and house, too.
Many landlords now take rent from tenants via cheque. Since November 8, 2016, digital payments like BHIM have grown. However, their sweet spot has been small-value payments (two to three figures). The retail and commercial payment usage strongly suggests that cheque is a very compelling method of payment for large-value payments (four figures and above).
Growth of digital transactions
The Narendra Modi-led BJP government has been pushing for a less-cash society. While digital transactions have shown mixed trends since demonetisation, overall cashless payments are much higher than in the pre-demonetisation months.
Centre's #CashlessIndia drive has multiplied visibility of preexisting digital payments and led to the launch of several new digital payments. Among the former category were web A2A electronic fund transfer (NEFT, IMPS, RTGS), mobile wallet (PayTM, PayZapp), credit card and debit card (Visa, MasterCard, RuPay). Among the latter category were mobile A2A electronic fund transfer (BHIM) and interoperable QR code POS payment (Bharat QR).
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