The hue and cry to introduce a cap on personal cash holding, as part of rooting out corruption and black money from the face of India, may die a natural death as the country is yet to put in place adequate infrastructure for a huge number of cashless transactions.
Without legalising a cap on hoarding cash, the campaign on digital money and cashless economy is unlikely to yield any substantial result.
A cross-section of tax experts from top global consultancy firms like KPMG, EY and PwC told DNA Money that wide-ranging challenges from inadequate infrastructure to legal hurdles put up by people who perceive threat to individual rights can frustrate any such move by the government.
While hearing a case involving seizure of loads of cash from a contractor, the Karnataka High Court recently asked the Central Bureau of Investigation (CBI) whether possessing cash in hand in itself is an offence. The investigative agency clarified that it’s not a crime, but at a time when the notes are being rationed, possession of a huge number of Rs 2,000 banknotes indicates criminal action on part of the accused and bank officials.
Mayur Shah, tax partner at EY India, is of the view that while putting restrictions on individual cash holdings would be difficult to implement due to the sheer impracticality of the exercise using current state of banking and digital infrastructure, the exercise may become feasible in foreseeable future when the digital ecosystem is put in place and the majority of the population is made aware of and become proficient in digital transactions.
“A significant section of the rural economy would remain cash-based for some time to come till the digital infrastructure is put in place. There is a lot of resistance to adoption of technology in rural and also in Tier 3 and 4 cities. Unless that issue is fixed, replacing real cash and putting restrictions on its storage would be difficult,” Shah told DNA Money.
According to Asim Parashar, executive director, PwC, the government can think of putting a check on individual holdings after the infrastructure is put in place. “Without adequate infrastructure in place, executing any cap on cash being hoarded by people would be a challenging and difficult task for the government if not altogether impossible.”
“Using technology, the government can keep a tab on cash movements which is channelled via the banking system. But we do have a huge informal segment of the economy. In any case, a vast portion of the total population is to some extent cash dependent. In such a scenario, putting in place a monitoring system don’t give any productive value,” he said.
Girish Vanravi, KPMG’s national head of tax, however, said it may not be possible as such restrictions will take away the right of individual which is wealth creation. He agrees to the commonly-held belief that corruption is encouraged when cash is hoarded but argued that putting restrictions on the amount of cash held by people is not possible.