11% of Urban India has embraced Cashless transactions Approximately 11% of urban Indian households have embraced cashless transaction that can set the tone for more people to use less cash. However, penetration of cashless transaction stands at measly 0.43%. It has been seen that only about 3.6% of the households in India make cashless transactions. Two main reasons for 94% not using cashless transaction are i) Seller not accepting cards and ii) Lack of awareness amongst consumers. With over INR 1 trillion of cash circulating, a transformation of 1% moving to cashless transactions can reduce cash circulation by INR 1 billion. According to a report Road To Less Cash, a moderate growth of cashless transactions by 5 percent a year will save the country more than INR 500 crore annually. The report goes on to add that Inducing MNREGS beneficiaries to undertake cashless transactions would immediately mean that around 52 million households from rural India will be part of the cashless network. A modest amount (10%) spent on cashless expenditure from the MNREGS payment would immediately mean that close to INR 3000 crore will be the additional cashless transaction leading to an annual savings of INR 25 crore on printing and managing currency. Almost 96 percent of all transactions in the country are conducted in cash and the repercussions are felt by individuals, businesses, the Government and the nation as a whole. In 2009-10, RBI incurred an annual cost of INR 2,800 crore to just print the currency notes, which was 0.4 percent of the total currency in circulation. This cost however, does not include the cost of storage, transportation, security, detection of counterfeits, etc. The cost of printing and maintaining this extensive amount of cash costs the country about 0.2 of its GDP. The report states that electronic payments have a role to play in bringing more people into the folds of the formal economy through financial inclusion. That, by itself, is the single most important reason to encourage a shift from cash to cashless. Charting the roadmap for moving towards a cashless economy, the report recommends the need for designing of appropriate instruments, which are in sync with India’s current path of development and her strengths; and a detailed policy initiative that sets the targets and then outlines the steps to get there. The report also finds that there is a lack of transaction points for basic services like cash-in and cash-out, even though the RBI has offered a solution in terms of reasonably relaxed BC guidelines. However, the number of BCs where the customer can transact is still very low. As such, there is a need to expand the availability of cashless options beyond formal banking channel at rapid pace. The report also recommends the need to dis-incentivize cash, and accelerate acceptance of electronic payment channels. While the e-payments industry continues to ensure that more and more Indians have access to e-payment instruments, there is no incentive for them to use their card in lieu of cash. In many other cases, there is no “point of payment” infrastructure where these millions of instruments can be used. The report recommends that a massive campaign at the country level be carried out by all stakeholders including the government, regulators and the industry. Given the state of the economy, it is imperative that we shift to a more cash free economy, which will usher in more transparency and will also prevent leakages in the government delivery of social schemes.
Posted on: Wed, 11 Sep 2013 03:25:30 +0000
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