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Surge in Digital Payments Leads to Less Cash Economy

Surge in digital payments is leading India to the cusp of a digital revolution as more than one billion Indians have a unique identity number with a biometric identifier which is unique in its own way. Even countries which are technologically far more advanced than India with comparatively much smaller size population do not have such a system in place. The Aadhaar card initiative is a watershed event in the development story of India. Unified Payments Interface (UPI) has proved to be extremely useful even in settling small-value transactions, and all this is helping people withdraw less cash. The number of transactions under UPI has jumped from 42 lakh in February 2017 to 49 lakh in March with value of transactions rising from ` 1,900 crore to ` 1,970 crore during the period. UPI is a system that powers multiple bank accounts into a single mobile application (of any participating bank), merging several banking features, seamless fund routing & merchant payments into one hood. It also caters to the “Peer to Peer” collect request which can be scheduled and paid as per requirement and convenience.

Government demonetized high value ` 500 and ` 1,000 notes on November 9, 2016 when currency in circulation was ` 17.97 lakh crore and according to the latest Reserve Bank of India data total cash and currency in the system amounted to ` 13.32 lakh crore as of March 31, that is, it has reduced by 26% and come down to 74% of the levels in early November 2016. Going by international benchmarks, the demonetization initiatives seem to have helped do away with excess cash in the system. India’s cash-to-GDP ratio was over 13% before the November 2016 note ban, which is now estimated to be at around 11% of the GDP. Currency in circulation may settle at around 10% to 10.5% of the GDP which is in line with international standards.

Digital Payments will bring cleanliness & transparency in all kinds of financial transactions, contain evil of black money and stem rot of corruption by plugging unregulated flow of cash. In digitalized system it will be possible to track money trail in any financial transaction right from the beginning till the end and difficult to escape government scrutiny. This transparency will reduce tax avoidance to minimal level. Digital transaction system will break backbone of informal economy black money and make its way towards formalization and give flip to formal economy leaving little space to hide income and dodge tax net.

Various government initiatives such as Direct Benefit Transfer (DBT) and JAM for linking subsidy to the deserving through linking of Jan Dhan Yojana, Mobile & Aadhaar are effective steps towards digital system; besides use of wallets, ATMs, swipe machines and net-banking. Aadhaar Enabled Payment System (AePS) is another payment service empowering a bank customer to use Aadhaar as his/her identity to access his/ her respective Aadhaar enabled bank account and perform basic banking transactions like balance enquiry, cash deposit, cash withdrawal, remittances through a Business Correspondent.


There are a number of obstacles in pursuit of Digital System, such lack of banking in certain remote rural areas and a large part of populace, particularly the farming community and large percentage of laborers working in unorganized sector, finding difficulty in adapting to cashless modes due to lack of education.  As this section feels comfortable in dealing with cash, going in for electronic transaction will take time. Moreover, even those who are associated with banking system, their usage of debit or credit cards is very limited. Presently, India remains primarily cash based economy with about 95% of the personal consumption and 86% of all transactions being in cash. Government has a resolve and commitment to take India towards digital economy. It is indeed a challenging task that requires behavioural change, apart from digital literacy and entire ecosystem that favours digital payments.

Following demonetization, the government took a slew of measures to promote digital payments in the country such as launching Lucky Grahak Yojana for consumers and DigiDhan Vyapar Yojana for merchants on December 25, 2016. As part of the government’s promotional schemes, DigiDhan melas were held in 100 cities over 100 days and 15,000 consumers qualified everyday for total prize money of ` 1.5 crore. Additionally, 14,000 weekly winners, both consumers and merchants, have received a total prize money of over ` 8.3 crore every week.

Recently, President Pranab Mukherjee picked up the lucky winners from the 100th draw of lots under digital payments promotion schemes at Rashtrapati Bhavan. A transaction of ` 1,590 has bagged a Central Bank of India customer lucky bounty of ` 1 crore, while the second prize of
` 50 lakh went to a Bank of Baroda customer. A customer of Punjab National Bank is the winner of third prize of 25 lakh, under the government’s promotional scheme to popularize digital payments. He congratulated the six winners -three consumers and three merchants -of Lucky Grahak Yojana and DigiDhan Vyapar Yojana. All the three customers had done transactions using their RuPay debit cards. The winners will be felicitated by Prime Minister Narendra Modi on April 14 at Nagpur on the occasion of Ambedkar Jayanti.

The bold initiatives of the government for promoting culture of digital payments will achieve their end only if people were to adopt them proactively.

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