In 2009-10, RBI incurred annual costing Rs. 2800 Crore to just print currency notes. This is 0.4% of the total currency in circulation. This cost does not include the cost of storage, transportation, security, detection of counterfeits, etc.To the printing cost, if we were to add the cost of storage and maintaining these currencies through ATMs alone, the cost of printing and distributing cash constitutes about 0.2% of India’s GDP. Given the growth rate in the volume of currency, the cost of printing and distributing will soon become enormous. In the face of this, a moderate growth of cashless transactions by 5% a year will save more than Rs 500 Crores annually. Therefore, there is a direct benefit in terms of cost savings of moving towards cashless transactions in India.
According to Reserve Bank of India (provisional estimates), the amount of currency in circulation in 2015 stands at INR 9,70,309 Crores out of which only 5% of the currency is with the bank, implying that almost the entire volume ofcurrency is transacted every day.This is a growth of 50% in little over two years. Naturally, this implies a huge cost of printing and maintaining paper currency.
Among all cashless retail electronic payment systems, 27% are in ECS (Electronic Clearing system), 60% are through NEFT (National Electronics Funds Transfer), 10% are through credit cards and a mere 4% are through debit cards (RBI) in 2014-15.
Financial Records: Recording financial transactions has many advantages. First, it aids the Government to collect appropriate tax revenues; second, it can effectively detect, and help curtail, illegal transactions; third,it will give us a better estimate and understanding of the huge unorganised sector in India; and last, but not the least, it will help plug the ‘leakages’ in various Government programmes. Although we do not have accurate estimates of the amount of ‘black money’ in the country, if one were to correlate the black money present in the economy with the black money held abroad, the amount will be enormous.
With cashless transactions, almost all transactions will leave a digital footprint. A system that encourages and incentivises the ‘buyer’ to pay through cashless instruments will have higher financial transparency.
Lower transaction costs: With appropriate technology and instruments, the need to be physically present during any financial transaction can be dispensed with. This can reduce transaction costs as cashless transactions often reduce processing costs and waiting times. The process of calculating and tendering the exact change is often cumbersome and time consuming.
The banking sector in India has 171 banks. Out of these 166 are scheduled commercial banks while 5 are non-scheduled commercial banks.
The instruments considered under EPS are ECS (electronic clearing systems), NEFT (electronic fund transfer systems) and credit and debit cards. Note that credit and debit cards still make up the bulk with 55% of total EPS transactions. The amount in Rupees of EPS has increased 25 times in the eight years 2003-04 to 2010-11.
Cashless transactions and PDS: In India, food security for the poor is addressed by the Government through the Public Distribution System (PDS) to the beneficiaries who possess the Above Poverty Line (APL), Below Poverty Line (BPL) and the Antyodaya cards. However, although Government has been allocating funds for PDS, only a fraction reaches the intended beneficiary, due to leakages, wastages and a system of “clogged pipes”.
Given that the Government uses around Rs 280 billion per year as PDS subsidy, this immediately means that if cashless transactions are made mandatory at FPS (Fair price shops) (approximately 5 lakhs in all), there will be a savings of around INR 100 Crores per year alone on printing and managingcurrency.
Linking Cashless Transactions with MNREGA: Given the volume of transaction and number of beneficiaries, linking cashless instruments (through specific cards issued by the bank) will have a significant impact on enabling cashless transaction in rural parts.
