Way to bring down cash usage should be structural reform not by taxing it
State Bank of India chairman Arundhati Bhattacharya wants a levy on cash withdrawals. This is a suboptimal solution. True, cash entails a huge cost: for the RBI, to print, replace, transport and secure notes; for the government, by way of lost revenue from opaque transactions; and to merchants, who have to store and guard their cash. But the way to bring down these costs is by a combination of structural reform that kills the demand for cash and positive incentives for use of digital payments, not penalizing cash. If at all transaction fee on cash withdrawals is considered, it should be tiny and kick in above, say, Rs2.5 lakh — equivalent to the threshold set for banks to file information returns on deposits.
The real challenge is to root out the factors that generate demand for cash: corruption, high levels of tax and steep rates of stamp duty. The key to removing corruption is transparency of political funding.
That would end misuse of the state machinery by the politician to raise funds, roping in the services of civil servants and undermining both accountability and integrity of the administration. So long as people need cash for bribes, they would withdraw cash and a transaction cost would not deter them.
Cleaning up political funding is hard work and will create enemies. Levying a tax on cash withdrawals is easy and people have little choice other than to bear it. Chances are, we will see a tax on cash and little action on political funding.
The RBI can pass on the potential savings from reduced cash handling to lower the cost of electronic transactions. So can the government. Outlays from the RBI and the government, in tandem with competition to Visa and MasterCard from RuPay, should make digital payments virtually costless for merchants and consumers.
Stay updated with The Hindu Editorial Vocab24 app, your definitive source for breaking news and comprehensive coverage from India and around the globe. Whether it's political developments, business updates, sports highlights, the latest technology trends, or current events, The Hindu brings live, accurate, and reliable news directly to your device.
Don’t fall for sensationalized or fake news shared online. Read and share accurate updates with friends and family through The Hindu Editorial Vocab24 app. Download it today!
News Coverage in The Hindu Editorial Vocab24 App
Breaking News: Receive instant notifications on breaking news stories as they unfold. Stay informed about major events and developments in India and around the world with live blogs, news in shorts videos, and concise articles.
Politics: Get the latest updates on Indian politics, including elections, policy changes, government decisions, and political events that shape the nation.
Business and Economy: Stay ahead in the economic landscape with detailed business news and market analysis. Learn about stock market trends, financial reports, corporate news, and economic developments to make informed investment decisions.
Current Events: Follow stories on social issues, policy changes, global events, and daily current affairs, tailored for UPSC and other competitive exam preparations.
Technology: Keep up with the latest gadgets, innovations, and tech trends. Read expert reviews and analyses in short, concise updates on cutting-edge technology from India and beyond.
Sports: Never miss a moment of your favorite sports. Get live scores, match reports, and expert analysis on cricket, football, tennis, and more.
International News: Stay informed about global events and geopolitical developments, including the Russia-Ukraine war, Israel-Palestine conflict, and other key international stories.
Local News: Stay connected to your community with the latest updates on city events, issues, and local news. Coverage includes hyperlocal updates from cities like Bangalore, Chennai, Delhi, Hyderabad, Mumbai, Kolkata, and more.
Trending Topics: Discover what's trending today with the most talked-about stories and hot topics across India and the world.
Experience journalism that values integrity, accuracy, and reliability. Download The Hindu Editorial Vocab24 app today and stay connected with the world.
Subscribe to our newsletter!
