India’s Cashless Frontier

Going cashless is the paradigm that several leading economies around the world are striving towards. In India as well there have been several moves towards enabling a cashless economy. The most significant move in recent history was demonetization which has helped drive the penetration of cashless payment mechanisms in India. Nandan Nilekani, termed this demonetization move as “a defining point in India moving to cashless”.

The Myth of Free Cash

In India many of us assume that cash itself does not cost anything but according to the Institute for Business in the Global Context report “The Cost of Cash in India”, the Reserve Bank of India and Commercial Banks annually face a total of Rs. 21,000 crores in currency operations costs. This spending is huge especially when we compare it with our peer developing nations like Brazil, Mexico and South Africa. In Delhi alone citizens spend 6 million hours and Rs. 9.1 crores to obtain cash yearly.

“For a number of reasons, cash is a drag on the economy. It imposes costs on consumers, businesses and most significantly Treasury. We have studied the cost of cash in over 70 countries around the world and India scores among the highest in terms of the costs to the consumers”

Says Dr. Bhaskar Chakravorti, Senior Associate Dean at IBGC and coauthor of the study
Dr. Bhaskar Chakravort

In this scenario, cashless systems will save time and money that could be deployed more productively.

Cashless Economies around the world

Cashless economies have various benefits including: better tax collection, greater transparency and accountability, direct payment into accounts and lower corruption. Globally, some of the benefits observed in cashless economies include a decrease in cash transactions in Sweden to just three per cent in the national economy. This has not only solved the black money problem but it has also resulted in better tax collection. In the UK an average of 89 per cent of the population uses digital banking for transportation and other transactions whereas in France people haven’t stopped at mobile payments, they have even started using contactless cards and mPOS to avoid the daily hustle of obtaining cash from ATMs.

India’s Journey towards a Cashless Economy

India had been preparing itself for going cashless since a long time. In the 1990s the Reserve bank of India introduced Electronic Clearing Service(ECS) Credit to handle bulk and repetitive payment requirement (like salaries, interest, dividend payments) of corporates and other institutes. In 2004 Real Time Gross Settlement (RTGS) and in 2005 National Electronic Fund Transfer (NEFT) were introduced, now it was easy for Individuals/corporates to transfer money from one account/bank to another. Soon to follow was National Electronic Clearing Service (NECS), a new avatar which allowed and managed multiple credits to beneficiary accounts. As a result of all these initiatives the total transactions(by value) for the year 2015-16 through RTGS was Rs. 824,578 billion and NEFT was Rs. 83,273 billion. Hence we can say India was already equipped with several different modes of electronic payments before November 2016, the demonetization drive just accelerated the push.

Demonetization also acted as the catalyst to boost the growth of e-Wallets in India. The mobile wallet sector in the 1st quarter of 2017 grew up by 81 per cent in terms of volume over the same quarter a year earlier, as reported by RedSeer Management. With more and more people switching to mobile wallets for their daily transactions, companies like Paytm, MobiKwik and FreeCharge have increased their Active User base by 10 times in last 6 months.

The prices of smartphones have also gone down as a result India has around 320 million smartphone users but still there is a long way to go until 100% of the Indian population has mobile internet access. Nevertheless, the banks made sure that getting a smartphone is not a barrier to access mobile payments, thereby providing a USSD option on older, “non-smart” phones. All these factors led to Rs.111.09 trillion digital transaction in the month of May alone.

The government is also promoting going cashless to consumers proactively, offering different incentives and rewards. BHIM, Direct benefit transfers, launch of Aadhar Merchant App are just some of the measures by the government to accelerate the push.

Cashless Transactions at the Local Government level

The Central Government has also asked all the statutory 4,041 urban local bodies to switch to e-payments as soon as possible. Every year crores of Rupees are collected by ULBs in form of Property tax, Issuing trade licenses, Building plan approvals and other Service charges. There are many ULBs which are not yet digitized and hence it becomes burden on these resource starved ULBs to operate cash counters and keep an account of all this money manually. Both cash and cheque reconciliations are tedious, time consuming processes. There are a significant volume of transactions to validate every month for which a lot of data entries and manual adjustments have to be made. Moreover manual processes are fraught with the risk of data errors. The citizens on the other hand have to stand in long queues multiple times a year to deposit these taxes and payments.

eGovernments Foundation’s SmartCity platform enables ULBs to go cashless, reduce their burden of manual cash accounting while saving citizens time and money in the process of making payments to the ULBs. SmartCity comes embedded with different online payment options, automatically generates demands and receipt and streamlines reconciliation thereby reducing paperwork and eliminating errors. The time and effort currently spent on payment collection and reconciliation can be greatly reduced enabling ULBs to focus on better service delivery to citizens.

This platform has enabled New Delhi to roll out complete cashless transaction services to the citizens of Delhi. Now all the payments to NDMC can be made through cashless options such as credit and debit cards, mobile wallet, e wallet, aadhar enabled payment systems, Unified payment interface etc. Even in Chennai the platform has met with great success since it was introduced with total property tax collections rising from 280 crores in 2012 to 680 crores in 2016. The share of online payments also rose from 4% to 25% during the same period. The system has helped save time for municipal employees and citizens, thus ensuring the city is effectively utilising its resources.

"eGov’s SmartCity platform has helped Chennai Streamline their tax collection process, while enabling ease of payments to citizens. As a result tax collections have improved drastically. Our system has enabled Corporation of Chennai to offer citizens the option to go cashless and they have responded with more than a third of the transactions today taking place online"

Says P.R.Krishnamoorthy, Associate Vice-President, Service Delivery at eGovernments Foundation.

eGov is proud to partner with over 325 ULBs across India in their journey to a cashless economy.