Why does Modi sarkar want people paying in cash to shell out more?

Niti Aayog has unveiled its plan for a more digital economy, but the big question to ask is if it’s indeed time to make cash more expensive.

The Committee on Digital Payments, headed by former finance secretary RP Watal, has proposed a nominal levy on cash transactions of higher value. The idea is to make dealing in cash more expensive and push consumers towards e-payments.

So far, the government has announced discounts on payment by debit card/credit card/digital wallets for fuel, insurance, railway tickets and toll plazas. But will it now bite the bullet and make cash transactions more expensive too?

SBI chief Arundhati Bhattacharya recently mooted the proposal for taxing high-value cash transactions.

For banks, it is expensive to deal with cash transactions each time, with the costs increasing at every point - be it deposits or withdrawals. The upside of a digital transaction is it not only reduces labour costs, but also makes money management more convenient.

Interestingly, it’s not the first time that such a proposal is being mooted.

In 2005, under Manmohan Singh's government, the then finance minister P Chidambaram had introduced Banking Cash Transaction Tax (BCCT), which was 0.10 per cent for withdrawals of more than Rs 10,000 every day. This was done to check money laundering, but abolished in 2009.

On the flip side, “levy on cash” can hurt growth in critical sectors. For example, real estate, which is already reeling under the demonetisation fallout, will see a major dip in demand if the voluminous cash payments are taxed.

Also read - 10 ways demonetisation will affect Uttar Pradesh polls