The Reserve Bank of India is all set to marginally hike ATM usage charges come January 1, 2022 after a long hiatus of more than five years. One can withdraw from same bank ATM five times a month without any user charges and from other bank ATMs three times a month in metro ATMs and five times a month from non-metro other bank ATMs. User charges will be Rs 20 plus GST per each transaction kicks in after these generous limits are exceeded.
Come January 1, 2022, there would be a marginal hike of Re 1 thus making the user charge Rs 21 plus taxes per transaction once a card holder crosses the Rubicon.
Weaning away people from cash
The RBI concern is not as much to compensate the banks for the facility provided by them as to wean away people from cash. After all banks do save tremendously on cashier salary, cash handling, storage etc. by investing in ATMs. So, the depreciation on ATM machines plus the rent for housing them at convenient places together with the fees payable to security agencies for standing guard at each ATM are all more than compensated by the above enumerated savings in handling cash.
Bank officials, too, are spared of the agonizing burden of end of the day reconciliation between physical cash and cash as per books to the extent cash handling burden is shifted to ATMs.
Airlines and IRCTC among others have been roundly criticized for imposing convenience fee for booking tickets online because the boot is on the other leg: it is they who benefit tremendously by huge cost savings emanating from asking the customers to do what their employees would have done otherwise. So, one may turn around and say if they are wrong in charging convenience fee, banks too are wrong in charging ATM user fee.
A moment’s reflection, however, would show that the parallel is not on all fours, but superficial. ATM charges kick in after a liberal streak of generous exemptions---5+3 free withdrawals---whereas convenience fees are per ticket, period. Be that as it may.
Why hike in ATM withdrawals is meaningless
Having said that, hiking the fee is not the way forward for curbing usage of cash for payments. When ATMs lie cheek-in-jowl with each other in many of the urban centers with often a single street boasting as many as ten ATMs at close proximity, it is a natural temptation for people to withdraw cash at the drop of the hat. Na rahega baas na bajegi bansuri is a pithy Hindi aphorism that has resonance in this context. Roughly translated it means when you make a thing available, it beckons people. Wrench it away from them and its usage goes down.
Cash is back with vengeance
With cash in circulation witnessing a steep 16.8 percent increase in 2020-21 when the GDP contracted by 7.4 percent thanks to the COVID pandemic. The RBI obviously is worried and its decision to hike ATM user charger albeit marginally may be to discourage cash.
In the USA, one sights an ATM after a long search whereas in Indian urban centers they have become as commonplace as kirana stores and restaurants. That is because while in the US a card is used more for swiping at merchant establishments and for making online payments, in India it is the reverse----more for withdrawals at the ubiquitous ATMs and less for digital payments.
So, it has to be a combination of carrot and stick. Dismantling at least 50 percent of the urban ATMs with banks learning to share ATMs like telecom companies share their towers could be a step by way of wielding the stick. But there can be a lot of incentives for making digital payments.
The Income Tax Act presumes a small trader’s income at his option at 8 percent of his turnover but post-haste reduces it to 6 percent to the extent his turnover is accounted for by digital payments made by customers. This is a good measure, but then a trader cannot show the doors to a cash payer.
Give rewards to spenders for digital payments
Arun Jaitley, the former finance minister, promised rewards to spenders for embracing digital payments. The government should redeem his promise. There is no reason why there cannot be an income tax rebate in proportion to one’s digital payments during the financial year.
As per Section 269ST, any person who enters into a transaction of Rs 2 Lakh or above in cash, will be liable to a penalty of an amount equivalent to the amount of transaction. For example, if you buy a luxury product for cash worth Rs 7 lakh, it is the shopkeeper who will have to pay the tax (penalty) of Rs 7 lakh. Such inane laws invite smirks from both the businessmen and consumers.
Indians have over the years perfected the art of splitting and splintering. If you intend to buy jewels for Rs 10 lakh in cash, you would do so from at least five or six jewelers unmindful of the additional legwork done so the Rubicon is not crossed. And if you are enamored of a particular jeweler, he would welcome you with open arms on successive days once again to steer clear of the danger mark.
It would be simplistic to assume that any one singular measure can wean people away from cash. Not even dismantling of ATMs. But together with other measures as mentioned above, it can produce the desired results. The threat of periodic demonetization of high value notes in a manner of spring cleaning can also produce the desired results if only we keep in mind the results learnt from the 8th November 2018 exercise especially the monumental delay in remonetization that crippled the economy.
(The writer is a veteran columnist and tweets @smurlidharan)