How going cashless could impact your monthly budget

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Published: December 15, 2016 10:28:55 AM

After the recent demonetization drive launched by the Modi government, ‘cashless’ has become the buzzword. The government is trying to boost the use of digital modes of payment.

The Central government began the drive, saying it would curtail black money, terrorism and the circulation of fake currency. (Reuters)The Central government began the drive, saying it would curtail black money, terrorism and the circulation of fake currency. (Reuters)

After the recent demonetization drive launched by the Modi government, ‘cashless’ has become the buzzword. The government is trying to boost the use of digital modes of payment. Going digital is a great ploy that will reap plenty of economic rewards in the long run.

While people at large have been supportive of this move, going digital comes at a cost, at least for now.

Here we will take a look at how going cashless is expected to impact the monthly budget of the typical Indian household.

How it affects our monthly budget

Commuting: Going to work or college or school via public transport would be a little more expensive now. In the absence of cash, it’s likely that you would turn to cab aggregator services than opting for more common public transport options like autos, rickshaws or buses which require cash currently. “Cab aggregators will accept online payments but their minimum charges may be much higher than those charged by others. Hence you can expect your cumulative commuting expenses to increase if you are relying on cab aggregators due to cash crunch,” says Adhil Shetty, CEO, BankBazaar.com.

Supplies: Since many local stores will not have the digital infrastructure to support plastic or mobile payments — at least for some time now — many consumers will have to shift to buying from supermarkets. It has generally been observed that shopping there tends to be more expensive than shopping at local stores. Also, many people even end up buying things which they don’t require. “You should also include the added costs of commuting to the nearest supermarket and the time spent during this exercise. Ordering supplies from e-tailers would also involve charges. Some e-tailers may not apply delivery charges if your purchases exceed a limit, for example, Rs. 1000. Anything below that will be charged,” informs Shetty.

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Lifestyle: Eating out will be more expensive as small restaurants may not support plastic or digital payments. Large restaurants provide these facilities, but there is a cost attached. A typical meal that costs you Rs. 200 may cost you Rs. 300 and more with the addition of service charges and the assorted taxes and cess.

What changes we may see in future

Indian businesses have shown immense flexibility while accommodating new realities and challenges. Demonetization poses short-term challenges to them. They are expected to emerge strengthened from the disruption. However, the full impact of demonetisation on people’s habits, economy and the overall growth will be ascertainable only in the future.

Changes can be observed in many cities where many business establishments have shifted to e-payment solutions. “Even small businesses such as tea stalls and cigarettes shops, which deal only in cash, have started accepting e-wallet payments to keep their businesses going. Similarly, agricultural produce is being bought and sold on wholesale marketplaces using digital payments in states like Karnataka, MP, and Maharashtra,” says Shetty.

Additionally, a large, banked population is good for the economy and its growth. While difficulties may persist for a few months, the future of a less-cash society and economy looks inviting.

Challenges in a less-cash economy

Why did the demonetisation of high-denomination currency notes happen? The Central government began the drive, saying it would curtail black money, terrorism and the circulation of fake currency. Later, the narrative shifted to digitising the economy. The simple fact is that all of these activities would be impacted. However, there are challenges to going cashless.

The first challenge is building up the infrastructure for digital payments. While it is robust in Tier-1 cities, our Tier-2 and Tier-3 cities have some catching up to do. Villages are altogether a different story. Things have to be taken on a war-footing to ensure a smooth transition.

Secondly, awareness of digital payments needs to be increased. “The government should budget for educating the public about the internet, UPI, e-wallets, Aadhaar-linked schemes, USSD, etc. The government should also allay any fears the public may have about data safety and security of digital money,” suggests Shetty.

Thirdly, the government along with the RBI should incentivise the use of cashless financial products. Indirect taxes on the online sale of insurance and other financial products should be reduced or temporarily waived off. This would encourage more people to buy through online channels.

Fourthly, the government must encourage the use of e-KYC and e-signing since these are key facilitators of financial inclusion.

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