India's less-cash dream is still a decade away?

When on November 08, 2016, demonetisation of high currency notes like Rs 500 and Rs 1000 was announced by Prime Minister Narendra Modi, India suffered a cash crunch which in turn led to rise in usage of point-of-sale (PoS) terminals and mobile payment modes aka digital payments.

However analysts believe that to become significantly less-cash economy, India will need more time.

Suvodeep Rakshit, Upasna Bhardwaj and Madhavi Arora analysts at Kotak Institutional Equities said, “After the initial surge in the volume of electronic payments in November-December, the trend seems to be normalising in January and February.”
 

They said, "The value per transaction fell in November 2016 - January 2017 given that the transaction volume had likely increased towards the lower end of the income spectrum."

Currency in circulation is easing and customers are returning back to the traditional cash usage mode, data show. 

As per data from Reserve Bank of India (RBI), transaction volume from Unified Payment Interface increased to 4.2 million compared to 2 million in December 2016 and 0.3 million in November 2016. However, transaction value from UPI has declined to Rs 16.6 crore in January 2017, from Rs 70 crore in December 2016 and Rs 90 crore in November 2016. 

Transactions through debit and credit card have also started declining. Usage of debit and credit cards in January was at Rs 45,830 crore with 253.1 million transactions, which was lower compared to December 2016's Rs 52,220 crore with 11 million transactions. 

Furthermore, Kotak added, “India lags behind comparable countries in most essential metrics. However, with unwavering commitment to this transition, India can achieve a significantly less-cash economy over the next 5-10 years.”

India's transaction value level is at $ 1.8 trillion which is way down compared to US, China, Germany, Japan and UK. While per capita value is at $1000 which is lowest compared to global peers. 

Kotak report said,"Around 4-7 years likely required for 1 ppt decrease in currency or GDP ratio."

Also, India's population lags behind internet usage. 80% of the population has mobile connections, out of which only 26% have access internet. 

Kotak trio added, "Card-based transactions will also need more investment as POS terminals are woefully short in India compared to other countries where digital payments are at a relatively advanced level. "

India has around 900 people per POS terminal against a comparable average of 100 people globally. 

Recently, India has brought in initiatives like Bharat Interface for Money (BHIM) app and Bharat QR to boost digitalisation. 

Kotak report said, "Expansion of infrastructure, higher penetration of technology and, most importantly, change in social behavior will be essential ingredients for a steady transition towards a less-cash economy."