For more and more Indians, ‘cashless’ is king

The Hindu Business Line, Mumbai, October 30, 2016

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For more and more Indians, ‘cashless’ is king

The Center’s initiative to move from a cash-driven economy to a cashless one so as to improve audit trails, plug revenue leakage, and target subsidy transfers to the needy seems to be bearing fruit.Data from the RBI, sourced through a Right To Information (RTI) application, show that usage of currency notes is shrinking as more people switch to digital payments.

Production of currency notes fell from 23,792 million units in the financial year 2015 to 21,665 million units in 2016. In the current year, only 8,118 million units of currency notes have been printed till August; under 20,000 million units will have been produced by the year-end.Correspondingly, the number of digital transactions has gone up from 10,518 million in 2015 to 14,026 million in 2016. In the first four months of the current financial year, there have already been 6,739 million digital transactions.

According to experts in the payments business, every 1 per cent conversion of cash to digital corresponds to $10 billion in retail payments. In India, digital retail transactions constitute about 10 per cent out of the entire retail payments. However, among the BRICS countries, India is at the bottom; most other countries are at 30-50 per cent for retail digital payment transactions.

GST, a key driver
The Goods and Services Tax (GST), which is expected to come into force from 
April 1, 2017, could prove to be a major driver towards digital payments. In the GST ecosystem, if there is a cash transaction anywhere in the value chain, the GST benefit will be lost for the next beneficiary.

In addition, the move to remove surcharges on government payments is expected to encourage electronic payments,which currently account for only 5-7 per cent of retail payments, experts say.Pramod Saxena, CMD, Oxigen Services (pre-paid instrument), said: “The coming into force of GST, the move to do away with surcharge, the Department of Financial Services’ establishment of a special task force to push for electronic payments, and the RBI’s initiative for an Acceptance Development Fund and Aadhaar-based payment on PoS are extremely encouraging steps that will push India from bulk-cash economy to less-cash economy over next few years.”

Naveen Surya, Managing Director, ItzCash Card and Chairman Payments Council of India, observes: “With the current products and the environment, we can expect to go from the current 10 per cent (cashless) to the best-case scenario of 30 per cent over the next three years.”

E-money usage
To deepen the digital payments systems fuirther, he says, “Either digital products need to be seamlessly allowed to be issued and accepted like cash up to ₹50,000 or the ceiling for all-cash transactions need to be reduced to ₹10,000 without KYC (know your customer) paperwork, as is the case with digital payments option.”

Alternatively, he adds, “the option is to create a digital currency/digital cash or coin duly backed by legal tender, which can work in both the physical and digital domains.”