October 5, 2017

Speaking at WEF Session with Mr Ajay Banga, CEO & amp; President of Mastercard

A: I am happy that it got raised. When post-demonetization, we were looking at all the digital modes of payment and seeing how we can encourage. That’s when Ajay and his team, and I had a lot of interactions. We actually studied the South Korea Model. But, we learnt a lot from the South Korea model.

And, that’s the advantage of having a government, which has an open mind. We are not necessarily saying that we have to reinvent the wheel on everything. For example, in our tax policy, Finance Minister, Mr Jaitley, brought in this clause that when you have a turnover up to, I think, Rs 2 crore, the amount you transact digitally, the presumptive taxation rates are much lower, significantly lower. Instead of 8%, they take only 6% as profit. Now, we are in our own way trying to encourage digital payments. My sense is that all of these various initiatives, steps will help us move the needle very rapidly.

I will tell you one or two small things. The railways used to charge a service charge, post demonetization they removed that service charge, and we saw the digital transactions really shoot up. Now, the only charge that is charged is a MDR (Merchant Discount Rate). I am actually now engaged with bankers to see what we can do about that MDR also. Ideally, I would like the amount a person has to pay, whether digital or cash, to be the same. And, this talk about the State Bank incurring 3,800…

Q: Not State Bank, it’s a report put out by State Bank because banks….

A: Okay, now I will give you another perspective Shirine, you understand banking. I have been on the board of two banks. I remember in the board, we used to agitate about ATM costs, the costs per transaction on the ATMs. And, now I am talking, and I am becoming older by the day, I am talking at least 10 years ago. 10 years ago, we used to calculate that cost per ATM transaction at about Rs 45, probably, today it would be in the region of Rs 60 or Rs 70, even with technological upgradation, let’s say even Rs 50.

Now, what sense does it have that a person goes to an ATM, withdraws cash and then spends. And the banks are all the time filling in the ATMs with more cash. Go to the next level that everybody has their debit cards, and instead of withdrawing cash has the ability wherever he goes, in a train, in a bus, in a grocery store, in a movie hall buying popcorn, anything, as the ecosystem grows, bankers will be saving tonnes and tonnes of money far more than 3000-2800 or whatever figure this report has attempted to suggest, far more than that if they promote digital transactions.

And with technology, look at the BHIM app. It’s made it so simple to transact digitally that I personally don’t think a transaction will cost positively anything more than half a rupee or a rupee. It could be a $100 million transaction, it would happen for Rs 1, because ultimately the value doesn’t change the nature of the transaction.

A: Let’s understand, I will give you my own personal experience. Once upon a time, it’s very old example that I am sharing with you. And it’s an example which actually will reflect to all of us, the Indian thinking. We are a very conservative society. We are conscious about waste, every rupee we calculate when we are spending. So, if in a particular shop, you get tomatoes at Rs 20 a kilo and another one at Rs 22, the lady of the house is going to be attracted towards that Rs 20 store. It’s not as if those Rs 2 is going to make any difference to Mr Rahul Bajal, but he will certainly as a good conscientious person want to save that Rs 2, I think, which is how they make the billions in their company. That’s intrinsically Indian.

Q: Well, it’s intrinsically business as well.

A: Yeah, now in this situation, I had once gone to somebody’s, somebody had passed away. I was sitting there, and we thought there should be some Bhajans being played. So, I went to buy a small radio, or a VCR in those days, remember there used to be a VCR with those cassettes? I went to buy one of those to play Bhajans, I still remember. A tape recorder or something. Now, the guy said it will cost you a Rs 1000 if you cash and a Rs 1020 if you pay by your card. I had actually taken out my card, because middle of the night you suddenly go, you are not even carrying cash and all that.

Now, I was psyched out. So, I am just trying to reflect to you, card or cash, 20 bucks. And, I actually was very unhappy about it. I still recall, and imagine remembering something which happened 20 years ago today at the WEF, means it must have struck a chord somewhere. Pay 20 bucks more just to pay by card to buy a tape recorder! So, I suspect that if the bankers, it’s largely the bankers who are at the back of the MDR, right? The bankers will have to reorient their business models, they will have to reorient how they are going to make digital transactions free, and use that database to make money out of alternate ways.

Q: So, digital transactions have to be free. That’s very clearly and unequivocally the message that’s coming here from Piyush Goyal.

A: I will give you a simple example. I now have to look after the railway story, so IRCTC passes that Merchant Discount Rate to the consumer. I have been at them that you have to eliminate it, but railways has its own challenges. They need funds and they cannot increase their tariffs very easily. So, in this conundrum I am going to be talking to bankers, look you have the railways account, you have accounts of all my coal companies. You are getting business from me. So, you have to take a call on the business that you are getting, on the cross-sales that you can do. I will allow them to sell insurance policies on my website. I will give them an economic incentive to work with me. And, I hope all the bankers are listening, because this is coming next in the next 2-3 days.

Q: Let me ask you about the issue of regulation, and I remember when Kenneth Rogoff was here in July and we spoke with him about demonetization and the lessons from demonetization. He was very clear that he doesn’t believe in going cashless, but what he did seem to suggest is that you should have regulation to bring down the use of cash. Now, we have seen several recommendations, whether it’s the SIT saying that there should be a cap on withdrawals and so on and so forth. From a idea or a vision as far as regulating the use of cash is concerned, what further can we see?

A: We have no plans to really focus on regulation as much as on persuasion. And my own sense is that is what works well with the people, and will give us faster and better results. I don’t think we need to regulate that, I think what we need to do is only incentivize like we did with the income tax for digital transactions, B2B. Going forward, the government is looking at different ways to encourage people to transact digitally.

For example, one thought I can throw to all of you in the audience, and through you to all the viewers. Can we not, all of us, in whatever work we are doing, insist on a bill? It’s a small thing. But I remember, I used to go to, I love seeing Hindi movies, it’s my stress buster.

Q: Which one have you seen off late?

A: I just saw one half a movie actually, I saw a movie for 40 minutes, that’s the time I had, so I saw it for 40 minutes. But, the important point is, when I used to buy popcorn there, right? And, that’s the fun of seeing a movie in a theatre. Every time I realise that the guy would skim me of a 100 bucks. And, usually, when you are going to an INOX, you don’t count the change. And, probably, it’s fashionable not to count the change, unfortunately, I am little old-fashioned. I generally look at the thing, as I am ordering I know what’s the bill going to be, I check the cash.

So, on three or four occasions I found in Mumbai that I was being fleeced of a 100 bucks. And I would raise the issue and they will say, oh, sorry sorry, galti ho gayi. So, I raised it with the owners. They said we have changed action, blah, blah, again it happened with me. It was unfortunate. Probably, the young person there may have thought this is an easy way to make money. Then they started bringing in, ‘if you don’t get the bill, the purchase is free,’ like you have it at the airports. And, it made a world of difference. I have never had to have that kind of a problem again.

Now, if we as a country insist on a bill for whatever we purchase, and if this message goes down the line, we will move towards a formal economy and then nobody will hesitate to pay by cash.

Q: So, Mr Goyal, you said that more regulation is clearly not on the government’s agenda at this point in time. You would like to use persuasion to get people to move to digital transactions. Let me also then ask you about what the future is as far as high denomination notes are concerned, and there was confusion post demonetization that we brought in an actually, a Rs 2000 note, but the government explained it saying that this is what was needed to tide over the demonetization?

A: A very logical thing. It was stupid if anybody didn’t understand the basic logic of it.

Q: No, we understood the logic of that then, but I am saying now what is the thinking as far as high denomination notes are concerned?

A: I don’t know. That’s something which is well beyond my pay grade. But I am sure not too many people here are….

Q: Okay, let me ask for your point of view personally sir?

A: I don’t think many people here are carrying too many high denomination notes these days, that’s passé. We all use digital means to transact, more and more of the country is using digital means. Now, tell me one thing, this story about high denomination notes, how many occasions are there in any of our lives where we need to pay Rs 5000 or 10,000 or 20,000 to somebody? It’s a very rare thing. This may be in a 5-star hotel like where we are that we may need to pay, settle a bill if, you know, Rahul Bhai has had a big Marvadi thali which is too expensive for somebody else that you may need to pay a large amount of money, right?

Or if Mr Godrej has had some nice delicious prawns maybe, but otherwise, where do we spend large amounts of money in any case? So, there is no need to really have very large amounts of cash or wads of cash any more.

Q: You know, you have pre-empted my question and I was going to ask you that and I will get Ajay to comment on that as well. And while we debate the issue around Aadhar and so on and so forth, I am not getting into the privacy issue as much as I am getting into the data protection issue, and the need for a robust regulatory framework, given the strides that we are making in this space. How conscious is the government of this and how soon can we actually expect meaningful action on this part?

A: Extremely conscious of it. In fact, I think the UIDAI has been very very focused on this, Mr Nandan Nilekani himself has told me that right through the development of the Aadhar framework they have been conscious about this. And it’s not as if, I mean after the Pentagon gets hacked, you can’t just keep picking on the Aadhar.

Q: No, no, the idea is not here to pick on the Aadhar. As I said, I am not getting into that issue at all, but I am saying that there is a need for a robust regulatory framework in the country as we move towards more digitalization.

A: Absolutely, I think that’s an evolutionary process. It keeps evolving. And, as Ajay will I think agree that you can keep adding firewalls and safety features and there will always be somebody who will be one step ahead of you. So, it’s a continuous race, race to the bottom possibly.

Q: Mr Goyal, since we are talking about digitization, let me also bring in the aspect of inclusion now, and whether it’s through Aadhar, it’s through the JAM trinity, the effort on the part of the government is to try and get more of the unbanked within the banking system or at least access to some kind of finance and credit. What next now in that endeavour, what next in that effort?

A: Well, first of all, I must acknowledge the contribution of all the bankers of India. I remember it was at Davos in 2015 when the World Bank President actually asked me to convey to Prime Minister Modi his compliments that in a short span of 4 months, India was able to do something which the World Bank has targeted 2030 as the terminal date. And at that session, he said that, frankly, now we need to rethink even our Sustainable Development Goals that do we need 2030 to really expand to the rest of the world also.

Same thing we are doing on electricity; how can we ensure access to electricity to every Indian citizen in the next 15 or 18 months. We don’t have to wait till 2030, do we need to keep the children of tomorrow deprived for another 10 years?

Similarly, when it comes to financial inclusion, look at the dramatic impact it has had on the way people get government support, affirmative action, the Direct Benefit Transfer. It’s almost saved $10 billion already, and that’s money that goes in for social welfare causes. It’s not as if that money is frittered away giving somebody a coal block, without charging him for it or telecom spectrum without charging money for it. In this government, every rupee gets used to serve the poorest of the poor.

Similarly, look at the fact that Mudra Loans, we have now nearly 90 million Mudra Loans amounting to about $50 billion, more than that, $60 billion now. $60 billion given out to small entrepreneurs making them job creators rather than job seekers, helping them stand up in life, becoming self-reliant.

Look at the way we have been able to connect financial inclusion and MNREGA. MNREGA where all of us knew there was a lot of leakage. Now, we can actually with the JAM trinity identify the person through his Aadhar No., his bank account into which the payment is made directly, all middlemen are out. In fact, post demonetization, one of the set of people who most vociferously opposed were the middlemen or the leaders who used to skim a note out of the payment being made to casual labour, or to labour in the Assam tea gardens. They were very unhappy, because if money is going to directly to the bank, then they lose their commission or their ability to skim money out, he said the illegal transactions, cost of cash.

So, I think the next steps are going to be, we now have a bank account in every home. We should move that to a bank account for every individual, the connecting of the Aadhar No. with the bank account. Going forward, connecting that bank account with GST and tax, so that more and more people have free flow of information. The ability of that account and the transaction history helping us to give loans to people in their homes, literally, credit and insurance, through the financial inclusion programme.

So, then it’s a multifarious benefit that will just keep multiplying and there are endless possibilities, I mean you can keep discussing this till the evening and we won’t be through…… of other benefits. You can give discount schemes, you can help people get connected with technology. It’s endless.

Q: I want to pick up on a comment that you just made when you talked about the DBT and the savings that the government is accrued on account of DBT, you said that that money is not frittered away. I want to ask you sir about the coal cess, and at this I ask you as the Coal Minister. The coal cess is now being used to compensate state governments for the loss of revenue on account of the GST. For a country like India, where in a state like Delhi we are struggling to be able to breathe clean air, should realistically the coal cess have not been used to do something about improving the air that we breathe, etc. as opposed to sending that money towards compensating states for possible revenue loss?

A: Absolutely right Shirine, that is where this coal cess started. It was a clean environment cess to promote renewable energy. But thanks to the honest government that this country finally has, we have been able to procure solar power at 1/3rd the price that the previous government used to buy it.

We have been able to bring down wind power costs to 1/3rd of what was being paid 4 years ago. And only this morning, at 4 o’clock, the only the second wind auction brought down wind power to Rs 2.64/65 paisa. We have been able to bring down LED prices, which the Prime Minister alluded to yesterday, from Rs 310 for a 7 W bulb to Rs 40 for a 9 W bulb. Now all of this is savings, is honesty in action. And that is why now we don’t need that coal cess to promote renewable energy. By itself, it is below grid parity. So, I think it is available resource, which is being put to good use and help GST roll-out.

After all, in GST roll-out, we are all familiar, states were very concerned what happens if the producing states lose out on revenue and the consuming states get an unfair advantage. So, this was an issue because of which the previous government could not bring GST, states did not trust that government. They had not even paid the CST dues, remember the Central Sales Tax dues? It was Mr Jaitley who provided 12,000 crores, brought in confidence – Vishwasniyta – I often talk about trust, that missing trust factor in government Mr Jaitley and Mr Modi brought back. And thanks to that GST is happening.

Now, this money is not required for renewable energy, we are using to another use, to introduce a common tax, make India one market. So, I think it’s a great use to that money and I am delighted that we are probably the only nation in the world, which is taxing carbon. Even the United States of America does not tax carbon; it encourages more and more use of carbon and pollutes the world and the atmosphere.

In fact, just for your information, the United States of America consumes more coal per capita 150 years ago than what India consumes today, and as of now they consume 8 times the amount of coal that India consumes in 2016-17. So, that’s the sensitivity and concern.

Of course, there are many other things one can speak about, but it is countries like India and leaders like Mr Modi who are truly passionate about climate change. So, I can assure you, what this government is doing to address this problem of pollution, I don’t think any government in the past in India certainly, and most governments in the world, have taken as many pro-active measures as we have done in the last 3.5 years.

Question and Answer (Audience)

Q: Hi, Sandeep Parikh from ……. I want to talk of regulation. I think 6 or 8 months back we had a major breach of banks where lot of banks and even money was stolen. So, I just want to highlight, you mentioned that we don’t need more regulations. I think we have had western countries which capped liabilities of individuals when there is a bank fraud. So, I can give you my example where I use credit cards a lot, I don’t use debit card at all, because I am scared of my bank getting wiped out and then me fighting with the bank for the next 20 years. So, maybe if I can have each of your comments on some kind of regulation which caps liability of consumers?

A: That’s not a regulation, that’s more in the nature of an insurance, we are basically providing an insurance, then one can always do that. I think, in India also we have some period in which, if at all, your credit card or debit card is lost, you are secured, you are protected from any losses.

I actually just saved some money like that. Somebody had put in $4,500 of transactions on my credit card, and in all parts of the world some hotel bills, hotel rooms were booked and we didn’t get any SMS alert. And, I got a full reversal of $4,500 right away.

Q: I am Sunil, Global Shaper from Ahmedabad. You just mentioned Mr Goyal that government is saving a lot of money by reducing a lot of prices across different …. So, what is it that government is going to do by collecting this lot of money into the accounts of government through, let’s say, GST you paying pro-active taxes, through demonetization you are getting all the cash within the bank accounts. You mentioned crude oil I guess, which is not transferred to us, because we are still paying 70-plus rupees per litre of petrol. So, what is it that government is going to do with a lot of money in their accounts?

A: I am delighted you asked this question. I am very very happy because this is something, again I am I think quite passionate about. During the roll-out of GST, I went around the country. I used to meet business persons, traders and it was in Vishakhapatnam I think that a person got up from the audience and he asked me, what is the incentive for me to pay taxes?

In some sense, the bottom line of your question is that. And, I said to him, that’s exactly what I am explaining. So, ultimately, tax is money coming into different governments, largely it goes to the state governments, centre gets its share. So, what’s the incentive for the person because you are feeling that you are being burdened with that tax, right? You just said crude oil, for example.

Now, we have all boarded the train, if I can take a punt on the new Ministry that I am handling. But we still have millions who haven’t boarded the train. You know, those 40 million families who don’t have power, their children are just like you and me. We got an opportunity. We got education. We got a good deal in life. That child over there, does he not have a right to electricity? Does he not have a desire to have opportunity for quality healthcare, quality education? Should not every government be concerned about taking an LPG cylinder into the homes of every family in this country, so that the women in that house cooking there does not inhale 400 cigarettes of smoke? Or would you rather that a person in Odisha has to carry a patient on his shoulders for miles altogether to reach the nearest doctor or hospital?

Now, certainly, one can argue that there is a lot to be desired, a lot of improvements, but ultimately it’s going to happen when all of us pitch in. It’s the 125 crore Indians that you are working for, but it’s the 10 crore privileged Indians who will all have to pitch in to make those 125 crores get a better deal of life. So, I think whenever you are paying your tax, just keep in mind that if you are going to evade that tax, or if you are not happy about paying that tax, there’s somebody out there who doesn’t have access to internet. There’s somebody whose child there, probably, is barefoot. There is somebody out there whose aged mother is not able to get quality healthcare. There are still maybe 200 million women in India who can’t afford sanitary pads.

That’s the story of India. Now, we all are pitching in to change that narrative. We are all working to see how we can use some of this money, as I said earlier, we are not squandering away coal blocks to anybody free of charge. We are running an auction process, which will bring the states $50 billion in the years to come, which will go to serve the poorest of the poor. We are not giving away spectrum to friends and family, and Members of Parliament of the government so that they can profiteer. We are not buying LED bulbs at Rs 310 so that some people in between make huge profits, or people remain deprived of $6.5 billion worth of saving every year, because they cannot afford LEDs at Rs 500-600. We are rather making it available for Rs 10 a month paid in instalments for 5-6-7 months, so that they can save far more than that every month in their electricity bills.

So, I think this is a government which is putting every single rupee that is collected in tax to fairly good use, to serve the poor of India. We believe in what Pandit Deendayal Upadhyay had said that the first right of a nation’s resources are for the poorest of the poor, the person at the bottom of the pyramid. And I think if that is not incentive enough to pay your taxes right, then certainly I have no better argument to that.

Q: Thank you very much, my name is Abhishek Aggarwal from Axion, and you touched upon on the digital inclusion, financial inclusion. My question is to you Mr Goyal in terms of what are we doing as a government to promote now the digital literacy, the financial literacy, specifically for the rural segment where this is now rolling forward. And what efforts are we putting on the financial institution to really make this as compulsory as they roll it out?

A: Excellent question, though on the second part I personally don’t believe in anything being made compulsory. My basic belief is that persuasion gives you far better results than compulsion on anything. When I was sent to model science classes in school, it was not a compulsion. You could go to church, you could go to the model science class, you could be a NCC cadet or whatever, you could go to a social science class. I chose to go to that model science class, and I am happy I did it. In fact, I sometimes regret why schools in India no more have that at least one lecture in a week trying to inculcate some value system, some ethics in our youngsters.

So, digital literacy or financial inclusion also in a way is something which will be more persuasion. We have about 230,000 common service centres run by the Ministry of IT under Mr Ravi Shankar Prasad, which is working towards taking financial literacy and educating the people in rural India particularly about different modes of transacting digitally, about banking, benefits of banking. So, different wings of the government are doing that, but I promise you nobody can do it better than all of you. Because, ultimately, government has processes, government has its own limitations. But what the private sector can do, what each one of the youngsters, after all, all of us, suppose you were to go on a Saturday evening in a train to one of the rural areas of India and train children in a village, maybe, wherever you come from, wouldn’t that be great? They would learn it far better from you than from a typical government servant.

So, I think if everybody, that’s what Prime Minister says, Janbhagidaari, if everybody takes it upon himself or herself that I have a role to be the change, as that young girl this morning said, Malvika, that if each one of us decides that I will be the change that I want to see in the other, I will make a difference to my country’s future. There is no limit, it’s boundless goodness in this country that we have.

Q: And, I think that is the perfect note to end this conversation on. There is consensus between Minister Goyal and Ajay Banga on a lot of the ideas that have been put on the table to try and make sure that India gathers more momentum on its path to digitalization with the exception of MDR. I think that is going to be a battle that the two of you will have…..

A: There is no disagreement at all. There should be a fair MDR and a reasonable cost to it. But it’s not necessary that the consumer or the merchant needs to bear that cost, there are million ways to recover that money in a more efficient, more smart way.

Panelist:  And my suggestion would be to get these two gentlemen back post lunch next year as well, to stir things up once again. Thank you very much Piyush Goyal, Ajay Banga for joining us here this afternoon.

Thank you.

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