Introducing traceability in financial transactions will strike a blow against black money

On my views of having a transparent banking system and its future growth in India, I quite liked the views of the author of the below article (Ashok Jhunjhunwala, a teacher teaching electrical engineering at IIT Madras and a member of the PM’s Scientific Advisory Committee) share his views on the same. Some of his views are quite realistic but I'm afraid that the challenges and mechanisms proposed could be easily dented if adequate secure monitoring isn't carried on.
None the less something new for a better tomorrow...
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Dictators in Tunisia and Egypt have fallen. Internet technologies played their small part in this. India is not like Tunisia and Egypt. Its economy has belied expectations and grows at 8 to 9% year after year. As large sections do not benefit adequately from this growth, there has been considerable focus on government programmes to make it inclusive. At the same time, our press has demonstrated its independence. The RTI Act enables citizens to demand and get information. Our CAG stands tall, just as our Election Commission and courts do. Yet India is in a crisis. Its citizens are tired of governance deficit, corruption, black money and an inspector-raj.

Everyday we see scams (sometimes even when they are not there) being exposed in the media, demonstrations, Parliament jams and court orders. But there is little positive action. What is needed is action against black money, the driver of all corruption. Are we citizens ready to move beyond protests and take a small step that could hit at the heart of black money?

Black money thrives in the cash economy. If we introduce traceability in financial transactions, it will be difficult to hide. We can do this using some simple available technologies. It is possible to carry out all transactions in electronic form, where money is transferred from the payer’s bank account to the payee’s. The back-end core banking system of almost all banks allows that. ATM withdrawals, any-branch banking and Internet banking thrive on it. The Internet, however, is used by a small section. Credit card (and debit card) based payments and transaction could be another way, but have not caught on much (except for use of debit cards for cash withdrawals).

But India has over 750 million mobile phone connections, and growing at 15 million per month. Over 500 million individuals are believed to have mobiles. In a few years, mobile telephony could touch most of India’s adult population. It is now possible to link one’s mobile phone to a bank account. So, it is possible to carry out most transactions including money transfer, bill payments, balance enquiry and checks on past transactions. A bank’s computer uses the caller line identification (CLI) and a customer’s PIN to authenticate her, following which any transaction can be carried out using an application loaded on her phone. End-to-end encryption makes transactions secure. Transactions are instantaneous: for example, any payment is notified by sending an SMS to the payer as well as payee.

The Mobile Payment Forum of India, RBI and National Payment Corporation of India worked with banks, telecom operators and technology providers to make money transfer possible between customers of any two banks, any two operators and any two technology providers. One does not even need the bank account number to make payments, as the payee’s mobile number and a mobile money ID (MMID) uniquely map to her bank account.

Mobile payments would make cash redundant. One could pay a vegetable vendor who displays a mobile number and MMID at the shop. Similarly, auto fare or kirana shop payments can be made instantaneously. Money can be transferred whether the recipient is near or far. Doing so from Mumbai to an Orissa village would now be a simple matter. A single day amount could be small, say Rs 50, or as much as Rs 50,000.
Safe, secure, simple, instantaneous, and with a complete list of payments and receipts in one’s passbook, there is no reason why anyone would not use this method. Using mobile payments instead of cash could be our way to bring in traceability and say no to the black money economy.

Do all banks provide mobileto-mobile payments? About 10 banks do and another 15 will by the end of next month. Will there be teething troubles? Sure, but nothing that can’t be handled. Will transaction charges be too much? Banks and telecom operators can make transactions below Rs 1,000 free and charge one or two rupees for transactions up to Rs 10,000. Will SMS come in real time? Telcos can ensure that.

One may argue that many in rural India and some in urban India do not have bank accounts. With financial inclusion initiatives, no-frill accounts can be opened quickly. In fact, mobile payments would incentivise people to open such accounts. Further, telecom operators are tying up with banks to come up with phone-based pre-paid cards (mobile wallets) for making payments and transferring money as in mobile banking. Will illiteracy be a bottleneck? Several banks and technology providers use mobile voice banking: one just has to speak to carry out a transaction. So, there may be some hiccups, but there are technological answers.

Many of us will remember that computerisation of railway reservations in the 1980s dealt a blow to rampant corruption. As an example of technology being used to bring in transparency, mobile payments give us a much bigger opportunity. In due course, we would demand that government recalls 500 and 1,000 rupee notes and makes it mandatory for all shops and vendors to accept only electronic payments. But let us take the initiative. Let us get our MMID and start making mobile payments instead of using cash. Let shops start displaying their mobile numbers and MMID. That would be a big statement against black money.

- Prasad

Money Losing Value Drop by Drop

A major outcome of relentless food inflation is the declining share of each individual item in our grocery basket. The decline may be in dribs and drabbles. But added across 800 million households, the number is now large enough to start affecting business.

Cooking oil is a good example. Last January, a kg was available for 48. This year, it’s worth 60. City people who buy branded packs have no choice. But what does a village family do? It is used to buying ten bucks worth loose oil daily. Last year, that fetched a full 200-ml bottle. Now that bottle is a quarter empty. Does the family increase its cooking oil budget? It can’t afford to. Not when atta, vegetables, sugar, rice and salt are all simultaneously more expensive. The family merely uses each teaspoon more carefully. Very soon it will buy even fewer teaspoons. A good crop of soyabean, groundnut and cotton seed last summer led to ample local oil supply. What we are eating today for 60 is this home-grown produce. This is also the cheapest oil will ever be this year. A good mustard seed harvest is on its way in March. That should extend local supply by another month. By May, it will run out.

Thereafter India is back to depending on imported palm oil and soya oil. Both are at least 20 more expensive than desi oil. Local prices have to match that to make import worthwhile for traders. You can expect oil to touch 80 by June. That village family’s bottle would then be almost half empty. This is the true meaning of inflation. Its ten bucks are worth less and less. India’s loose oil market is four times the packaged oil market. When millions of families with similar purchasing habits face the same budget constraint, the impact is immediate. Demand is slowing. Last week, wholesale prices fell by 100 per quintal for two straight days for want of buyers. Even though Holi and the marriage season are only one month away.

Is business worried? You bet. Industry likes oil to be at 40. That is when business booms. Rising prices make the oil in corporate tanks more precious but harder to hawk. After growing 10% annually for several years, India’s cooking oil market is decelerating. It grew 7% last year due to high prices. This year, industry would be lucky to see 4% growth. In case global prices start spiraling due to bad weather in producers Malaysia, Indonesia and Latin America, accelerated Chinese consumption, or the wider inflow of hot money into commodities, Indian household demand could weaken further.

The upshot of demand uncertainty is a corporate crisis of confidence. Refineries for imported crude palm oil at Mundra and Kandla owned by giant Indian and multinational companies are currently shut or running spasmodically because tanks are full. Betting on a bull run, many imported a lot of crude palm oil in October-November. Since local oil was cheaper, they lost money. Several fingers were burnt.

Logically, their business should improve in summer once local oil finishes and imported palm oil is the only supply. But how much should one import when there are few takers even at 60? If everyone contracts, oversupply could lead to price undercutting and loss. If few do, spiraling prices would scare away more consumers. Besides, it might push the government into imposing stock control limits. When net profit margins are 2%, credit limits are tight, breakeven a fantasy and crude palm oil is worth $1300 a tonne, the risk becomes exceptional.

Brands are more insulated from demand volatility, being urban and middle class. But they are a fraction of the total. In a $16-billion edible oil market, they are worth only $4 billion. Already margins are squeezed by rising costs, advertising expenditure and competition. Sales promotions will further reduce profit. There have been seasons when we tolerated branded sunflower oil for 100. Today, with everything more expensive, it pinches. We will switch to something cheaper.

Cooking oil shows the grim aftermath of general price rise. Free trade has brought ample oil and fair prices. Inflation has driven away buyers. Instead of supplyside constraints, it faces a demand slowdown. Instead of moving up the value chain to brands, India will regress to more loose oil.

For stretched Indian families, it is the only way left to still buy some...

Living the dream...

Got this interesting article in today TOI, interesting observations:

At last, a dream job offer! "You have a job offer! Would you like to be a police officer? Please click on the link below," said an email from an old friend. A dream job, what with all that i could collect including the royal salutes i would get, i thought. But who would offer someone on the wrong side of 50 a job in the police force, i wondered? Had my old friend married the police chief's daughter, i tried to recollect – and in any case, why would my friend who had not bothered to keep in touch all these years except for a friend request on a social networking site, want to pass on this opportunity to me?

Never mind, i told myself – if he had such a lucrative offer for me, it was for me to grab it and enjoy the good times that come along with it, not to question it to extinction. I would begin my day with the kanda-poha at the 'zunka bhakar' stall, which incidentally did not sell any zunka-bhakar. I could now amble into the closest sabzi mandi and the vendors squatting there would hand over a bunch of the green veggies – all for free! All the farm produce would be my privilege, although out of reach for the common man on the street – real farm produce, mind you, the stuff which we sit down to at lunch and relish, not the colourful, exotic ones on Farmville. Then i would be entitled to my pav-bhaji at the street corner vendor who had put up his stall in the middle of the road flouting all urban rules. Several 'chai-paani's awaited me!

Being a cop, i would no more be the aam admi reeling under the burden of the spiralling food price index that stoked the inflation fire in our country. I
would be khaas – not aam! No more meaningless ranting about rising prices on my blog – just do the daily beats around town and find your choicest picks for your family's living needs. I was elated. I had always regretted not having chosen the enviable IRS or IAS career options at the appropriate juncture in my career. It could've been a great life if i had, what with plum postings and lucrative inflows guaranteed to come my way, which was assured once i was deeply ensconced in the bureaucratic race.

I even convinced myself about how i was cut out for the job – being suspicious in nature, i was not the kind to fall into the trap of the several forms of windfalls – of millions of dollars and pounds to be claimed – by way of inheritance, lotteries or for simply being the claimant of my email account, which i was often informed to be a lucky one. Never the easy pawn for such clever trappings, one had always avoided responding to such spurious offers.

One had also been wiser by the steady advice from friends which warned me about the perils of clicking on files with bizarre sounding titles like 'Black President in the White House' or any other enticing titles. But this was a lucrative job offer!
So what was i waiting for when life's greatest opportunity was a knock, er, a click away? Click! A new window opened up to Citiville, another game on the social networking site, Facebook, on the lines of Farmville and Fishville. "Allow access?" it asked me, when, thankfully, realisation dawned upon me – that i would have to make do with the onions without stench and live on that Farmville produce, and bid goodbye to the moolis and the moolah i was dreaming about!