By Geeta Anand and Hari Kumar
New Delhi: For a year, Ashish Kumar Mandal scratched out a living selling dumplings on the streets of New Delhi for a bit less than 50 cents a plate, until the government banned most of the country’s currency bills last month, crushing his all-cash business. In desperation, the 32-year-old took a step he had never even contemplated before: He offered his customers the option of paying electronically.
Mr. Mandal is among millions of Indians — snack vendors and rickshaw drivers, cobblers and coconut-water sellers — who are moving swiftly toward a cashless economy, fulfilling what Prime Minister Narendra Modi now says was one of his objectives in banning 500- and 1,000-rupee notes, worth about $7.40 and $14.80.
India is experiencing an acute shortage of bills to replace the large-denomination notes that were banned as of Nov. 9, and which made up 86 percent of the country’s currency. There have been numerous reports of people waiting in line for hours at banks or A.T.M.s, only to find that the machines are out of cash.
As the public struggles with too few bills in circulation, business has fallen in many sectors to a small fraction of what it was before the ban. Economists warn that India’s growth of 7.3 percent in the most recent quarter, among the fastest of any large economy, could take a hit if the cash shortage continues.
“After the currency ban, my sales came down sharply,” said Mr. Mandal, who sells dumplings from a handcart in a market in the New Ashok Nagar neighborhood. “Providing change was a big problem.”
After a customer suggested that he take electronic payments, he downloaded software that allows him to accept such transactions on his phone. Forty percent of his sales are now conducted electronically, he says.
Even merchants who do not have smartphones are contemplating buying one. “If people are flying in planes, how long we can ride on bullock cart?” asked Sunil Jaiswal, who charges less than $2 to repair watches in an alley near Connaught Place.
The large-currency ban was originally presented as a move to curb corruption, counterfeiting and so-called black money, the unaccounted-for cash on which tax is not paid that is estimated to make up as much as one-third of business transactions in India.
To be effective, the move had to be a closely guarded secret until the last minute, to prevent those holding black money from unloading it before the ban went into effect — the morning after the decision was announced. As a result, the government did not print enough replacement cash in time for the change, and it continues to struggle to do so fast enough, creating a cash shortage that has strangled large sectors of the economy.
But Indians are switching to electronic payments more rapidly than many experts had predicted, and in speaking of the recent currency moves, Mr. Modi has begun emphasizing the benefits of a cashless economy over the anticorruption fight.
Across the country, about 70,000 merchants a day are signing up for India’s best-selling mobile payments platform, Paytm, about 14 times as many as the daily average before the currency decision, said Vijay Shekhar Sharma, founder and chief executive of Paytm and One97 Communications, the start-up behind it.
Since the large-currency ban, the number of daily transactions on Paytm has grown to nearly six million, an increase of 350 percent, and the service is adding half a million users each day, Mr. Sharma said.
“Earlier, we were the innovator, now we are the mainstream,” he said. “This is the start of the golden age for financial technology companies.”
More than 230 million people in India use electronic wallets, the finance minister, Arun Jaitley, said, representing nearly one-fifth of the country’s population.
At the same time, the government has tasked banks in the country with adding one million machines in stores to process credit and debit card transactions by March 2017, a two-thirds increase from the 1.5 million available today.
The number of credit and debit card machines that have been added since the large-currency ban was put in place is not yet available. But Icici Bank, one of India’s biggest private lenders, says it has detected a sharp increase in demand from merchants processing debit and credit card charges. A spokeswoman for Icici said that the bank had installed six times as many machines last week as it did, on average, before the limit on high-denomination bills.
Still, A. P. Hota, managing director and chief executive of the National Payments Corporation of India, an umbrella group for sellers of retail payment systems, said that he was skeptical the government could achieve its goal of adding one million new credit and debit card machines in a few months, calling it “a gigantic task.” The infrastructure is not yet in place to process the paperwork involved and to teach merchants how to use the machines, he said.
“A merchant will have several legitimate queries, like how to reconcile the payments, how to get money, if there is a problem, whom to contact,” Mr. Hota said. “There has to be an infrastructure to handle these queries.”
In part because of increased demand from small and midsize merchants, as well as from government departments, the number of credit and debit card transactions has soared to 10 million a day, more than three times as many as before November, said Deepak Chandnani, managing director for South Asia and the Middle East of Worldline India Private Limited, a division of the French company Atos. Worldline produces about a third of the machines used to process these charges in India.
One97, the owner of Paytm, has hired 3,500 employees in the last month, 50 percent more than it had hired in the previous two years, the company’s founder, Mr. Sharma, said. Unable to meet demand from merchants seeking help setting up the systems, the company ran newspaper advertisements with instructions to help business owners do it themselves. The ads also serve as posters for merchants to advertise that they use Paytm.
Saurabh Porwal, 31, who sells onions on the roadside in Harola Market in Noida, a city near Delhi, downloaded the Paytm app after seeing the newspaper advertisement, which he then posted on his stall. “If you deal in less cash, it is less of a problem,” he says.
Moving toward a cashless economy would carry benefits for the government, ensuring that more taxes are paid and providing banks with more reserves to extend loans. About 78 percent of transactions in India last year were made in cash, compared with 20 percent in the United States, a joint study by Google India and Boston Consulting Group found.
Still, those adopting cashless technology are a minority. At Janpath Cloth Market in Delhi, where vendors shout out discounted prices to passers-by, only one of more than 100 open-air shops advertised a cashless system.
Amit Maheshwari, who sells men’s pants, displays a white piece of paper on his stall saying, in bold type, “Paytm Accepted Here.”
After the currency change, sales at the shop fell to about 10 percent of what they were before, he said. Then a customer who was browsing said he would buy some pants if he could use Paytm. “We had no idea what this was,” Mr. Maheshwari said. “He taught us how to use it.”
Since adopting Paytm, sales have risen to 50 percent of what they were before the currency change, he said. “Everybody should use it. Anybody can use it,” he said.
But many vendors around India are still resistant. Mustkeem Ahemad, 38, who sells chicken in Harola Market, says that electronic payment systems are too complex for him.
“How can you pay on a phone? Only an educated person can do it,” he said. “I am illiterate, so I just can’t do it.”
(Source: New York Times)