India may take at least 5 to 10 years to transition to a less-cash economy: Kotak Securities
MUMBAI: Even as the government has taken several initiatives to lower dependence on cash post the high-value note ban, India may take at least five to ten years to become a significantly cash-less economy, says a report by Kotak Securities. But this transition may take lesser time than other less-cash economies given the existing technological advancements.
"India is possibly beginning the transition to a less-cash economy though far from achieving it" said the Kotak report. "Expansion of infrastructure, higher penetration of technology and, most importantly, change in social behaviour will be essential ingredients for a steady transition towards a less-cash economy.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" it added.
Based on the Bank of International Settlements (BIS) data, the absolute value of transactions performs poorly considering the size of the population. India’s per capital non-cash transaction value is only $1000 per person compared to $ 273000 in the USA and $24700 in Australia. " This is symptomatic of a still low penetration level of banking and other financial channels, especially in the rural segment." It has called for an expansion and investment in the digital infrastructure to reach any meaningful global comparison. Besides, mobile and internet penetration also needs to be increased, the Kotak report said.
Low cash to GDP economies such as UK and Sweden have taken decades for the transition. The demonetisation measure pushed India towards digital payments but increasing non-cash payment footprints would depend on the inclusion of rural and urban poor population. A vision document from the RBI highlighted seven ‘A’s required by payment services to transition to a less-cash economy: (1) Accessibility, (2) Availability, (3) Awareness, (4) Acceptability, (5) Affordability, (6) Assurance, and (7) Appropriateness. India’s transition is likely to be faster than the current less-cash economies given existing technological advancements which, if proactively supported, could help in faster transitions.
"India is possibly beginning the transition to a less-cash economy though far from achieving it" said the Kotak report. "Expansion of infrastructure, higher penetration of technology and, most importantly, change in social behaviour will be essential ingredients for a steady transition towards a less-cash economy.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" it added.
Based on the Bank of International Settlements (BIS) data, the absolute value of transactions performs poorly considering the size of the population. India’s per capital non-cash transaction value is only $1000 per person compared to $ 273000 in the USA and $24700 in Australia. " This is symptomatic of a still low penetration level of banking and other financial channels, especially in the rural segment." It has called for an expansion and investment in the digital infrastructure to reach any meaningful global comparison. Besides, mobile and internet penetration also needs to be increased, the Kotak report said.
Low cash to GDP economies such as UK and Sweden have taken decades for the transition. The demonetisation measure pushed India towards digital payments but increasing non-cash payment footprints would depend on the inclusion of rural and urban poor population. A vision document from the RBI highlighted seven ‘A’s required by payment services to transition to a less-cash economy: (1) Accessibility, (2) Availability, (3) Awareness, (4) Acceptability, (5) Affordability, (6) Assurance, and (7) Appropriateness. India’s transition is likely to be faster than the current less-cash economies given existing technological advancements which, if proactively supported, could help in faster transitions.
