Category Archives: Indian Economy

Containing Black Money: Promoting Debit Card Usage Holds the Key

Recently, RBI released its annual data on electronic payment transactions in India. The retail electronic payment systems data showed that the downward trend that credit card numbers had started showing from 2008-09 onwards has continued through 2011-12. Total number of outstanding credit cards dropped to 17.65 million by the end of March 2012 from 18.04 million a year ago. This was a 36% drop from the peak of March 08 when credit card numbers rose to 27.55 million. This was a conscious exercise on part of banks to minimize NPA. Most of the banks drastically cut issuing credit cards to those without good credit history. As a result, defaults went down drastically.

“In the last one year, the percentage of cardholders who have not met their payment obligations for more than 90 days has dropped from 2.82% in the fourth quarter of 2010 to 1.62% in Q4 2011,” says this recent report by Moneycontrol. By and large, analysts have interpreted it as a positive trend. As credit cards were denied to those with bad/suspect credit history, the limited number of cards remained with affluent people and professionals. That naturally took up the average spend on the cards. While the overall aggregate spend on credit cards jumped from Rs 57985 crore in March 2008 to Rs 96613 crore (that is a 68% jump), doing a little arithmetic on RBI data shows that during the same time, the average monthly spend increased more than two and half times—from Rs 1754 to Rs 4562.

There are, of course, reasons to cheer up the trends. But here is the stark reality. The total number of credit cards are just 17.65 million in a country of more than one billion people. Accounting for multiple card ownership by individuals—most of the people that I know have at least two active credit cards; I have three—the penetration of credit cards hovers around just a little above 1% of the population.

On the other hand, look at the rise of debit cards. In the same period—March 08 to March 12—when number of credit cards fell by 36%, debit cards grew 172%. At the end of March 2012, there were 278 million debit cards. Not surprising considering most banks today give ATM cards to their account holders which double up as debit cards. But look at the spend data. The 278 million cards accounted for a mere Rs 53423 crores. Simple calculations show that the average monthly spend on them is a mere Rs 136—that is 3% of the average monthly spend on credit cards.

That is not an encouraging figure. Especially when the finance ministry acknowledges that the card payments should be incentivized to arrest black money growth. The white paper on black money tabled in the Parliament by the finance minister Mr Pranab Mukherji was quite unequivocal about that. “Use of banking channels and credit/debit cards should be encouraged, while trade practices such as cheque discounting should be discouraged,” notes the paper. “Payments by debit/credit cards through e-service intermediaries will simplify and encourage payments in these modes and reduce the cash economy,” it further says. Reducing the cash economy is vital for arresting black money.

But so far, banks have not cared to do much for promotion of usage of debit cards. Most users do not even know that they can directly make payments through debit cards. They still rush to the ATM to withdraw cash to pay in a shop. In small towns, many shopkeepers actually encourage that even though they are aware about debit card payment. That is because they save on paying the transaction fees. Yes, banks still charge similar kind of transaction fees that they charge on credit cards.

Of late, RBI has voiced its concern about that. G Padmanabhan, Executive Director, RBI, in charge of payment and settlement systems recently called the practice illogical. “We are saying that the debit card interchange fee should be lower because credit cards get paid after sometime, whereas in debit cards, there is an instantaneous debit into my account. Hence, logically debit cards charges should be lower,” Business Standard reported him as saying, at the launch of RuPay debit cards, promoted by National Payments Corporation of India (NPCI).

There is no participation fee in RuPay for banks and there is aggressive plans by NPCI to take up its market share. If successful, it may actually cut down the transaction cost drastically—something similar to what the National Financial Switch (NFS) has done for ATM transactions. NFS, started by Institute for Development and Research in Banking Technology (IDRBT) is now managed by NPCI.

But that is some time away. Till such time, RBI can well go proactive on promoting use of debit cards, as they provide a risk free way for banks to increase electronic payment. Just asking banks to promote/build awareness on debit cards can go a long way in growing the use of debit cards. Removing artificial blocks like high transaction fees can further accelerate the trend. Any other incentive can only help.

We may well see some concrete action on this front this year, if the government is really serious about minimizing the hold of black money on our economy.

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Filed under Digital Economy, Indian Economy, Technology & Society

Sorry Amazon, You Are Not Welcome

Today, the government notified what it calls the circular 1 of 2012, its fifth six-monthly update on Consolidated FDI Policy, since it began doing so in March 2010.

In one of the major clarifications that will impact e-commerce in India, the policy has clarified that “existing restrictions on FDI in domestic trading would be applicable to e-commerce as well.” Which means a foreign company cannot take either the automatic or government route to invest directly in a retail e-commerce venture in India. However, like in offline retail, it allows FDI B2B e-commerce. In short, all the rules of FDI that apply to offline retail would apply to e-commerce as well.

This is the first time that the government has clarified its stance on e-commerce. Earlier this year, in a column that I wrote in Dataquest, titled, Stoped FDI in Retail? Here Comes E-commerce, I wrote about this anomaly. “Online retail is not defined as retail by today’s government definition,” I pointed out that time.

Most of the e-commerce ventures, though, will not be affected, as few, if at anyone at all, has FDI investment. In fact, Amazon, which has been eyeing Indian market for a long time was not taking the big step anticipating this policy stance. So, it entered with junglee.com, a sort of marketplace, in the likes of eBay but targets different kind of sellers, mostly the e-commerce service providers. This India-specific services serves as an aggregator platform.

However, the market was rife with speculation that Amazon wanted to buy out Flipkart. It was even speculated that the two parties were in negotiation but there was valuation mismatch.

With this clarification, though, for the time being, any plan of Amazon to enter Indian market directly selling to consumers, has to be shelved.

 

 

 

 

 

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The Importance of Being Shri Nandan Nilekani

If there was one proper noun that stood out in the budget speech of the finance minister, Mr Pranab Mukherjee this year, it was undoubtedly Aadhaar. The speech had as many as nine reference to Aadhaar. Whether it is for subsidy being credited directly to beneficiary’s bank account, creating a more efficient public distribution regime by creating a PDS network, or for disbursement of government payouts—such as MG-NREGA payments, pensions and scholarships—the finance minister seemed confident that Aadhaar could be leveraged as a platform to deliver.

And it was just a couple of months back that a section of the media was writing off the project when the National Identification Authority Bill met with some adverse comments from a parliamentary standing committee headed by BJP MP and former finance minister Yashwant Sinha! In a cover story in Dataquest, The Politics of Identity, I had unequivocally pointed out then that “the Parliamentary Standing Committee’s return of the National Identification Authority in its present form is not a mandate to scrap the project; though some vested interests portray it that way.”

And I was not exactly being prophetic. Anyone following the project would know that this has been the most important project for UPA II for driving its No 1 policy priority: inclusion. And the government would not easily allow it to fall by the wayside.

In fact, since 2009 (that is beginning of UPA-II), the finance minister has, in all his budget speeches referred to the project. Here is a compilation of what he said about the project, in each of his budget speeches.

The setting up of the Unique Identification Authority of India (UIDAI) is a major step in improving governance with regard to delivery of public services. This project is very close to my heart. I am happy to note that this project also marks the beginning of an era where the top private sector talent in India steps forward to take the responsibility for implementing projects of vital national importance. The UIDAI will set up an online data base with identity and biometric details of Indian residents and provide enrolment and verification services across the country. The first set of unique identity numbers will be rolled out in 12 to 18 months. I have proposed a provision of Rs.120 crore for this project – July 2009 Budget Speech

The 2010 budget speech referred to the progress and raised the allocation to Rs 1900 crore

In my last Budget Speech, I had announced the constitution of the Unique Identification Authority of India, its broad working principles and the timelines for delivery of the first UID numbers. I am happy to report that the Authority has been constituted and it will be able to meet its commitments of issuing the first set of UID numbers in the coming year. It would provide an effective platform for financial inclusion and targeted subsidy payments. Since the UIDAI will now get into the operational phase, I am allocating Rs.1,900 crore to the Authority for 2010-11 – Budget Speech 2010

 By 2011, Aadhaar project had established its potential, in the eyes of the FM, as one of the most important initiatives to improve governance

The UID Mission has taken off and Aadhaar numbers are being generated in large numbers. So far 20 lakh Aadhaar numbers have been given and from 1st October 2011, ten lakh numbers will be generated per day. The stage is now set for realising the potential of Aadhaar for improving service delivery, accountability and transparency in governance of various schemes – Budget Speech 2011

The 2012 speech, which was full with reference to the project, too saw it on top when it came to highlight plans for improving governance.

The enrolments into the Aadhaar system have crossed 20 crore and the Aadhaar numbers generated upto date have crossed 14 crore. I propose to allocate adequate funds to complete another 40 crore enrolments starting from April 1, 2012. The Aadhaar platform is now ready to support the payments of MG-NREGA; old age, widow and disability pensions; and scholarships directly to the beneficiary accounts in selected areas – Budget Speech 2012

This year, the FM allocated Rs 14,232 crore for the project.

It is now amply clear that as far as the finance minister is concerned, this is a project that is close to his heart, as he admitted in his July 2009 speech.

That is not too surprising, considering that the government has huge expectations from the project. What is, however, noteworthy, is the kind of importance the finance minister has given to the person driving the project: Nandan Nilekani.

In 2010, he was appointed as the chairman of a Technology Advisory Group for Unique Projects (TAGUP) in the Finance Ministry. The group submitted its report in end January 2011. In his budget speech this year, the minister informed the parliament that two of the projects are being implemented, including the ambitious GST Network. Soon after the TAGUP submitted its report, Nilekani was appointed as the head of a task force to recommend mechanisms for  transferring the subsidies directly to the beneficiaries. The 2012 budget speech also informed the Parliament that the task force recommendation has been accepted.

“The recommendations of the task force headed by Shri Nandan Nilekani on IT strategy for direct transfer of subsidy have been accepted. Based on these recommendations, a mobile- based Fertiliser Management System (mFMS) has been designed to provide end-to-end information on the movement of fertilisers and subsidies, from the manufacturer to the retail level,” the FM said in his budget speech.

And with that, “Shri Nandan Nilkani” had the honour of featuring in three subsequent Union Budget speeches. I doubt if there is any other example of this in independent India. While in 2010, only two people featured in the budget speech, Nilekani and Kirit Parikh, 2011 too saw two names: Sam Pitroda and Nilekani. This year’s speech had only Nilekani’s name.

And who knows what new assignment is in store for him this year!

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Indians Call Centres Selling Britons’ Personal Data: See Who is Buying the Story

“Indian call centres selling Briton’s personal data”—the headline was everywhere in the websites of Indian media throughout Sunday. While some put the sentence in a quote, implying that someone else was saying it, some others attributed it to a report, without naming if that report was by a reporter in a newspaper or was based on a study by some research agency. And no, none of those which I opened—I did open five of them, belonging to leading media brands—had any quote from any Indian company or NASSCOM.

What was the news? In a story, headlined in second person: Indian call centres selling YOUR credit card details and medical records for just 2p  (that all caps YOUR is not mine; it is the original headline), the Daily Mail UK reported that confidential personal data on hundreds of thousands of Britons “is being touted by corrupt Indian call centre workers”. The paper further said that “credit card information, medical and financial records are being offered for sale to criminals and marketing firms for as little as 2p.”

It said that two ‘consultants’, claiming to be IT workers at several call centres, met undercover reporters from The Sunday Times and boasted of having 45 different sets of personal information on nearly 500,000 Britons.

Now, that is explosive news. In an economy where job loss is constantly staring at you—and shifting of call centre jobs is a particularly sensitive issue—it immediately fuels resentment. And those opposing offshoring have a shot in the arms.

Am I sounding too dismissive? Maybe, I am. But here is a question that I would like to pose.

This kind of revelation is not new. In fact, this is very, very old. As long back as in 2005—that is seven years back—the same Daily Mail reported a very similar story, citing similar undercover reporting. “An undercover reporter was sold information on a thousand accounts and the numbers of passports and credits cards for £4.25 each, according to the Sun newspaper,” it reported then.

So, nothing has changed in India in these seven years. Corrupt call centre guys still keep selling personal data of Britons! And companies from there—a lot of them banks—continue to offshore to India!

And how many of their customers have lost millions because of these credit card and bank account data that is being bought from Indian call centres? I guess that number must at least be in thousands, if not in millions!

Time to grow up, for sure!

This is not to say that one is denial of such cases. Not to say that all Indians are saints. Not to say that Indian system is fool-proof.

But that also does not mean that “Indian call centres are selling personal data of Britons”.

It is like saying in the aftermath of Pamela Bordes scandal that Britain’s democracy and press are hostage to escorts and call girls.

It hurts.  Right? And as a citizen in a democracy that has borrowed a lot from Britain’s, I will be pained if someone says something like that.

And so am I now, when some undercover reporter manages to lure a couple of guys and a country gets a label like this.

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