Kill cash

TK Arun
10 January 2013, 05:42 PM IST

Marie Antoinette was guilty of thinking a little beyond what then seemed feasible, when she suggested that the peasants be fed cake, instead of bread. In the 20th century, French peasants started to enjoy living standards far superior to those of their guillotined queen in the 18th century. In India, too, it is time to think alittle beyond what seems obviously feasible, when it comes to cash transfers and bank accounts linked to the unique identity number, Aadhaar. Let us get rid of cash for payments. And let us guillotine only cash, and let foolhardy souls be, who propose such extreme measures.

What the unique identity scheme puts in place is the electronic backbone for a cashless economy. Imagine the following scenario. Everyone has a unique identity number, Aadhaar. And a bank account linked to Aadhaar. The Aadhaar database also stores biometric data for each individual. A simple fingerprint reader attached to a mobile phone, or when the phone camera is good enough, an application on the phone itself, can verify a person's identity by querying the Aadhaar records database.

This means that with an Aadhaar number and an Aadhaar-linked bank account, an individual can make payments from his account without a debit card. Instead of swiping a card, what he would need to do is to press his thumb against some scanner/camera attached to the equivalent of a card-swipe machine kept at a shop. His account would be debited for the amount he authorises. Since a clear electronic trail would be generated as to whose account the money has been transferred to, the scope for coercion and fraud would be minimised as well.

Cash is a major source of insecurity. It is best to leave it in a bank account and spend it out of that account. Carrying cash around carries with it the risk of robbery and assault. Retail payments should be possible with the swipe of a hand. Large payments can be made by electronic transfer on a mobile web-access device, typically, the account-holder's own phone or a micro ATM with an authorised banking correspondent.

For cashless transactions to be ubiquitous, card swipe machines have to be ubiquitous. Even vegetable vendors and collectors of small political donations should have their own machines. Pure fantasy?

The gains to the economy from moving from a cash-reliant economy to a cash-lite one are huge. The government should be able to bear alarge part, at least, of the cost of making this possible.It should be possible to integrate a GPS locator into the chip that does the rest ofthe stuff on the hand-swipemachine, so that locating machines that stray from where they are deployed would not be hard.

The swipe machines are one type of hardware required. Connectivity to the Aadhaar database and the core banking solution of the account-holder's bank is another, vital part of the puzzle. Good, affordable data connectivity is what this calls for. The fibre optic cables capable of carrying gazillion bits of data that the public sector Bharat Broadband Corporation is laying to 2,50,000 panchayats across the country offer the backbone of this connectivity. Wireless broadband on 3G and 4G networks will connect consumers - individuals and merchant premises - with the backbone.

A payments company like Visa, MasterCard or RuPay, an RBI initiative, can take care of settling payments. Scale will bring down their fees. And for every crore rupees worth of tiny transactions they settle, they can be paid something from the government so that they have an incentive to make a good job of settling small payments in remote areas. The banks are the agencies to deploy the swipe machines. They can split their incentive from the Centre with the payment companies.

For this model to work, 3G and 4G services in rural areas must be ubiquitous and cheap. This is the main challenge for policy. For low-cost tablets to work the miracle they are capable of performing in education and healthcare, it is not enough to subsidise these devices and distribute them by the million. Their connectivity must be high-speed and low-cost. That calls for spectrum policy that aims for spread of broadband access rather than revenue maximisation from the allocation process. That means scrapping the current policy of allocating dedicated spectrum for services and companies.

We need spectrum pooling and dynamic allocation of spectrum whenever it is used for one act of communications delivery. Sweden already uses a shared network for its 3G services.

To realise all this, what we need is politics. We need constructive imagination and political boldness to explain to the people - the ultimate stakeholders - why what is being done is being done the way it is.

Two kinds of people will lose out, TRUE: those who make illicit incomes and nautch girls who are showered with currency notes. Guillotine them, too - figuratively, of course.

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