Card transactions have fallen to a nine-month low, posing a new challenge to the government’s demonetisation drive. According to a new SBI research report, the aggregate of debit and card transactions at point of source (PoS) terminals fell to a little more than Rs 35,000 crore in November, the lowest since February. The amount spent at PoS terminals was a little more than Rs 51,000 crore in October. That the decline happened even when most banks have reported an increase in the number of transactions involving swipe cards after the announcement of the demonetisation drive throws up issues which the government must address. It signifies a fall in consumer sentiment. People seem to be using their debit and credit cards for purchases of relatively inexpensive items, while there has been a sharp fall in big ticket purchases. This does not augur well for the economy.
The government could well claim that this signifies a short-term economic slowdown. After all, Prime Minister Narendra Modi did talk of a 50-day period to get the economy back on the rails. But the fact that card transactions in the first half of December (till December 13) remained slack, at a little more than Rs 18,000 crore, should be cause for worry. The SBI report also points to the necessity of bolstering the digital transaction infrastructure. The are about 15 lakh PoS machines in the country. The SBI report points out that the country needs an additional 20 lakh such machines. A vast majority of these should be in tier II and tier III cities, and in rural areas. A PoS machine costs between Rs 4,000 and Rs 8,000. There are low cost options but these require the use of smartphones. Given that only about 250 million people in the country have such phones, it’s difficult to imagine that the seemingly low cost options will be adopted without sound incentives. The government took more than a month to announce incentives for cashless transactions. But these incentives did not address the problems at the level of digital infrastructure.
People prefer making their purchases in cash because they are not convinced about data safety in digital transactions. In fact, a security breach a few weeks before the demonetisation drive had forced the SBI to recall more than three lakh debit cards. The government should bring in a privacy law with strong liability clauses to allay people’s fears. All this should be accompanied by robust awareness drives, hardly in evidence so far. Bank officials have to play a major role in this endeavour. But they have their hands full in the aftermath of demonetisation. The SBI report is a warning that the economy needs a push. Sound digital infrastructure and robust privacy laws could be the first steps in that direction.