Global studies have shown the cost of cash to be between one per cent and three per cent of a country’s GDP. Given this, we are encouraged by the Government of India and RBI’s collective resolve to move to a cashless society as outlined in the Digital India vision.
Financial inclusion initiatives have resulted in taking the total number of debit cards in circulation to over 620 million.
However, the Personal Consumption Expenditure (PCE) of digital and plastic currency, as a percentage of overall PCE is still only about five per centin India, which is amongst the lowest in the world, indicating that there is yet a long way to go.
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Over the past year, industry bodies have proposed incentivising transactions made through debit and credit cards, along with suggesting that payments of utilities be made mandatory through electronic payment methods or cheques.
Countries like South Korea that provided tax breaks on the use of credit cards to consumers and two per cent reduction in VAT to merchant for accepting card payments have benefited from an accelerated pace of electronic payments, strengthening the overall currency ecosystem.
Taking cue from this, India should consider incentivising consumers to use electronic payment instruments.
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This can help mitigate costs and risks associated with cash, ensure transparency and facilitate tax compliance.
This could also be a huge lever to boost citizen-to-government payments. Further, efficient infrastructure and delivery mechanisms (mobile phones, small and payments banks) will play a significant role in accelerating this shift.
We very much hope the policies announced in the upcoming budget will help accelerate the shift to electronic payments, as over time moving to a cashless economy will help increase the revenues for the government as the share of the taxable population expands.
The author is Group Country Manager, India and South Asia, Visa