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India Needs Chinese Help to Prop-Up Demonetization Drive

© REUTERS / Himanshu SharmaA man displays 500 Indian rupee notes during a rally organised by India’s main opposition Congress party against the government's decision to withdraw 500 and 1000 Indian rupee banknotes from circulation, in Ajmer, India, November 24, 2016.
A man displays 500 Indian rupee notes during a rally organised by India’s main opposition Congress party against the government's decision to withdraw 500 and 1000 Indian rupee banknotes from circulation, in Ajmer, India, November 24, 2016. - Sputnik International
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As long queues outside ATMs and banks threaten to unravel Prime Minister Narendra Modi’s bold gambit of Demonetization, India will have to bank on the Chinese to ensure it doesn’t become a fiasco. With cash in short supply, banks are scrambling for PoS that must be imported from China as India lacks the technology to manufacture such machines.

A man holds placards and shouts slogans during a rally organized by India's main opposition Congress party against the government's decision to withdraw 500 and 1000 Indian rupee banknotes from circulation, in Mumbai, India November 28, 2016. - Sputnik International
India's Opposition Should Help Gov't Navigate Post-Demonetization Chaos - MP
New Delhi (Sputnik) — It is not only the one billion plus people in India undergoing a harrowing time in a cashless country. Merchants, big and small are also finding it difficult to cope with this unforeseen challenge.

As a result even small merchants are racing to install point-of-sale (PoS) machines at their outlets. Banks that charge a small fee from the merchants for the machines see a huge opportunity but are finding it difficult to purchase them from overseas vendors as India doesn not have the technology to manufacture such terminals.

According to a market study, two overseas firms — Verifone and Ingenico control 80 per cent of the market for PoS machines. Indian banks order these machines from the two firms, which in turn manufacture them in China. The Indian government has waived off the duty on importing the machines from China.

"PoS machines are manufactured by two companies in China and the Government has waved off duties on them so that these machines become cheaper and reach the shopkeepers easily," said Finance Minister Shri Arun Jaitley, during a meeting of the Parliamentary Consultative Committee of the Ministry of Finance on "Shift to Digital Transactions."

A source told Sputnik that some members of the Consultative Committee had strong reservations against the hasty enforcement of digital payments without ensuring adequate security both in case of hardware and software in order to secure the data and the transactions made through digital mode.

Meanwhile, the government is being criticized for going against its own policy of Make In India by easing the import duty on PoS machines as it will discourage their domestic manufacturing.

According to a Reserve Bank of India estimate, Indian commercial banks operated a little more than 1.4 million online and offline PoS machines as of August 2016. The present digitization drive has created a demand for at least two million additional PoS machines.

 

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