By Prachi Srivastava
India is predominantly a cash-based economy with one of the highest cash to GDP ratio among emerging economies. The ratio stood at 10.6% in March 2016; the highest since 2000. However, the government aims to decrease this ratio to 6%.?
Cash fuels a large part of the informal economy. 87% of transactions in India were cash based in 2012. With the advancement in technology, holding cash has become costlier. It is high?time that the country moved towards a cashless society. Since India contains a significant parallel economy, fostering a cashless environment can actually help curb corruption, tax evasion, etc.
India?s dependency on cash imposes an estimated cost of approximately Rs 21,000 crores on account of various aspects of currency operations including the cost of printing new currency, costs of currency chest, costs of maintaining supply to ATM networks, and interests accrued. Changing the mode of transaction from cash to digital payments will significantly reduce the cost to government by approximately Rs 100,000 crores annually.
The world is going cashless
India?s ‘cashless’ performance is behind even countries like Kenya and Somaliland. Cashless transactions have positively affected the household sector in Kenya which showed an increase of 5-30% in income. This system has also financed multiple start-ups through mobile payments from buyer to seller. It has also integrated the traditionally unbanked population in Kenya, as over 80% of people use mobile phones as of 2016.
According to a 2014 survey, only 53% of the Indian population is covered under financial services; since then many policies have aimed to increase this percentage. The most popular policy was announced by the BJP government in 2014 called, Pradhan Mantri JanDhan Yojana (PMJDY), which accomplished the task of opening 25.63 crore bank accounts across the nation.
The demonetisation effect
Post the demonetisation announced on 8th November 2016, there was an upsurge in digital payments in India. Mobile e-wallet firms such as Paytm, Oxigen, MobiKwik, FreeCharge, etc., witnessed a surge in usage of their services. Within a day, Paytm witnessed an increase of 435% in overall traffic on its platform. FreeCharge, a mobile wallet owned by e-commerce firm Snapdeal, also reported a sharp 12-fold rise in the average wallet balance loaded by its customers. India has entered a demographic dividend?wherein, by 2025 a majority of the population will be under the age of 35 and with the combination of JAM (Jan Dhan, Aadhar and Mobile phones) it will be easier to adopt new methods of payment.
Going cashless a costly affair?
We need to consider the cost associated with a cashless system which includes, merchant costs i.e., the amount needed to setup internet connections. For UPI (Unified Payments Interface), merchants are charged 0.75% per transaction plus other costs. Consumers will have to incur the cost of smartphones, internet connections, etc. As of 2014, the government has allocated Rs 1.13 trillion to provide internet connections to all citizens through the?’Digital India’ initiative.
If going cashless is costly, then why is the government emphasising on this economic change? Because a cashless setup will provide the government relief from tax evasion, corruption and terrorism.?The government has initiated steps to reach out to the people with multiple online payment options like Rupay Card, USSD, Aadhar, BHIM app etc. Also to drive people to go cashless, the government has budgeted Rs 340 crores in plans like Lucky Grahak Yojana and Digi Grahak Yojana. These initiatives aim in the right direction and if implemented efficiently, the results can be highly beneficial for the economy.
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