Two-and-a-half years of Demonetisation: Cash rules, digital payments grow, credit cards drag

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Published: August 21, 2019 3:05:07 PM

“Cash usage declines as the country becomes richer,” says the latest RBI report. However, the cash in circulation surged to Rs 21.16 lakh crore in June 2019, which is over 24 per cent more than the cash present in the system just before demonetisation in October 2016.

cash, liquidity, digital payment, digital india, digital transaction, RBIIn the number of cards, cashless payments and value of cashless payments per inhabitant, India lags behind the AEs and other EMEs.

Cash in India has grown fast since demonetisation, but digital payments have grown faster. However, it’s the use of credit cards and debit cards which has failed to keep up the pace with the changing times, going by the latest RBI data. “Cash usage declines as the country becomes richer,” says the latest RBI report. However, the cash in circulation surged to Rs 21.16 lakh crore in June 2019, which is over 24 per cent more than the cash present in the system just before demonetisation in October 2016.

Notably, one of the objectives of the demonetisation was to decrease the usage of cash and to boost digital payments in the economy. Since demonetisation, digital payments have grown by about 34 per cent, however, the growth in usage of debit and credit cards at POS terminals has declined in the post-demonetisation period, says the RBI report.

The central bank says that the wider adoption of digital payments depends on many factors like robust payments system infrastructure, reduced cost of e-payments, the introduction of new and innovative schemes to attract consumers, push to greater financial literacy, bank accounts and strong consumer demand for e-payments because of convenience, safety and add-on benefits.

Cash tends to be used relatively more by older generations and availability of digital infrastructure can reduce the cash usage. As far as infrastructure is concerned, the roadblock here is that India has only 0.003 POS terminal for every citizen, which is the lowest among other advances and emerging market economies, shows the latest data by RBI. Apart from the POS terminals, the number of credit or debit cards per individual in India is also at the lowest among different advanced and emerging economies. The country has only 0.7 card for every individual. 

In the number of cards, cashless payments and value of cashless payments per inhabitant, India lags behind the AEs and other EMEs. At the same time, the value of the currency in circulation as a percentage of GDP remained high as compared to other economies.  

The Committee on “Deepening of Digital Payments” under the chairmanship of Shri Nandan Nilekani has already suggested to increase the volume of digital payments by ten times in the next three years which is aimed to be facilitated by initiatives such as removing transaction charges on digital payments, simplifying KYC processes and reducing KYC costs for banks. 

 

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