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Moving towards a cashless India

Monday, November 28, 2016
By Dominic Rebello

“Our dream is that there should be cashless society. It is correct that 100% cashless society is never possible. But we can make a start with less-cash society - then cashless society will not be a far-off destination," Prime Minister Narendra Modi said in his 'Mann Ki Baat' address.

The current size of digital banking (including credit card + debit card transaction through PoS terminals, transaction through Prepaid Payment Instruments like m-Wallet, PPI cards etc and mobile banking) is around Rs 1.2 lakh crores. This size has to increase from the current level to at least Rs 3 lakh crores (which is a conservative estimate of the gap between the actual currency in circulation and required currency in circulation), according to Dr. Soumya Kanti Ghosh, Chief Economic Adviser & GM, Economic Research Department, SBI.

The digital infrastructure too needs to be ramped up, keeping in mind the government's quest for a cashless society. “Keeping the share of each digital channels same at the current level and assuming that the size of digital banking increases to Rs 3 lakh crores then it is estimated that we may require around 20 million extra PoS terminals. Further, we have to ensure that per mobile banking transaction increases currently (Sep’16) from Rs 10,000 to Rs 25,000 monthly. To fully utilize the potential residing in the digital channel, banks also need to focus on Prepaid Payment Instruments particularly on mobile wallets. Mobile wallets transactions need to increase from current level of Rs 32 billion to around Rs 100 billion going forward. This means that value per transaction needs to increase significantly from current level of mere Rs 425 to around Rs 1000,” Dr. Ghosh said in his report SBI Ecowrap - The Life After Demonetization.

The Government should come up with a detailed list of incentives to popularise digital transactions. These could be, completely banning all cash transactions for government services, mandatory installation of POS machines at merchant outlets and making PAN details mandatory for any cash transaction above a specified limit. The Government may also look at specifying a certain limit for digital transactions for individuals that could be available for tax deduction. These may be akin to tax rebates given under section 80C, the report added.

“High level of cash usage tends to slow down the flow of money through the economy. As we transition to a greater usage of fintech for payments, spending will rise leading to additional economic growth,” said Chandrajit Banerjee, Director General, CII. This is also a great opportunity to transition to a “plastic economy”, where there is a prevalence of debit and credit cards for transactions, he added.

Among the main benefits of moving towards a cashless society is that it eliminates the need for carrying huge cash, which is risky and inconvenient too. The risk of theft or loss too is substantially reduced. Digital payment also offer the convenience of using it anywhere in the country as well as abroad. With the increasing use of smart phones, online payments of utilities and booking of rail, cinema tickets apart from various other transactions are very convenient.

Currently, India's cash to GDP ratio -- an indicator of the amount of cash used in the economy -- is around 12 to 13%, much higher than major economies including the US, the UK and Euro area but below that of Japan (about 18%). Experts feel that continuing rise in the circulation of currencies in economic activities could well be a key impediment in the transformation to a cashless and digital economy.

“There has been an increase of 300% in the use of Rupay Card, when poor people started using it. I invite small businesses to adopt cashless economy. Each bank allows online transactions. All banks have their own mobile app and e-wallets," Modi said.

Start using debit cards and digital wallets: RBI Governor
Breaking his silence over the demonetisation issue, RBI Governor Urjit Patel yesterday said the central bank is monitoring the situation on a daily basis and taking all necessary actions to "ease the genuine pain of citizens" with a clear intent to normalise the things as early as possible. Patel also said the RBI has announced an incremental CRR (Cash Reserve Ratio) of 100% "because of the large increase in deposits of banks on account of the return of Rs 1,000 and Rs 500 notes" and the decision would be reviewed immediately once the government issues adequate quantum of MSS (Market Stablisation Scheme) bonds which they have promised to do.

Patel urged the people to start using cash substitutes like debit cards and digital wallets, saying it will make transactions cheaper and easier and in the long term, it will help India "leapfrog into a less cash-use economy at par with more developed nations."

"We are also urging banks to make a big push with PoS (Point of Sale) machines with traders so that debit card use becomes more prevalent," he said. Giving details of the steps being taken by RBI, he said, "Both RBI and government have been getting the printing presses to work at capacity to get the new notes available to meet demand.

"The RBI is interacting with the banks every day. They are telling us that the situation is gradually easing. The queues in branches and ATMs are shorter and the markets are starting to function, and there are no reported shortages of daily items of consumption.

"Also, about 40-50,000 people were deployed to refit the ATMs. Currency is available and banks are working in a mission mode to lift currency and take them to their branches and ATMs. The staff members of all banks have worked very hard, and we all owe them our gratitude," Patel said.

"Having said that, it is important to regularly review the situation, and taking the required decisions to ease the genuine pain of citizens who are honest and who have been hurt. There are no precedents on this subject at this scale and we have to be reactive to the situation. "People have asked why the new currency introduced was different in size and thickness from the old. This is because the new currency has been designed to make it hard to counterfeit. When you are going to make a change of this magnitude, you need to get the best standards in place," Patel said.

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