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How ‘Cashless’ is our economy? Demonetization & Financial Inclusion

The nation is currently gripped under the ‘demonetization’ process. There are still lengthy lines at branch and ATM counters. Everyday GOI is coming up with some new rules either to restrict Jugaad (lowering exchange limit) or alleviate a few specific issues (higher limits given for weddings and agriculture). The enormity of the challenge is primarily the high density of cash in our economy and it becomes much more acute in the rural sector where most payments are all in cash whether retail/ wholesale.

So it will be interesting to highlight a few data points on how ‘cashless’ (better say how strong is our cash economy). These data points are primarily drawn from various public news articles, opinion columns or specialized reports by different management consulting firms on Indian economy. Without much adieu, here are a few snippets:

  1. 85%: %age of cash transactions in all Payments transactions
  2. 12%: India Cash to GDP ratio
  3. 2%: Overall electronic mode of payments
  4. 94%: Debit card usage in ATMs for withdrawing cash (by value)
  5. 10%: Payments by cards at Retail stores in malls
  6. 60%: Cash on Delivery mode in overall e-commerce transactions

And why it becomes more acute for Rural economy? Here are a few stats (this is slightly dated) but is ok to get a hangover:

  1. 50%: Rural banking penetration
  2. 10%: Active no frill accounts
  3. 45-50%: Zero balance Jan Dhan accounts
  4. 13%: Rural population with a debit card
  5. 0.43%: Rural population doing cashless transactions
  6. 15%: Villages availing ‘electronic benefit transfer facility’
  7. 0-1%: %age of 1 Million POS in rural outlets

Consider this, at 12%, India’s cash to GDP ratio is nearly 4 times that of Brazil, Mexico or South Africa.

This explains why rural hinterland, the agricultural markets…the so called ‘informal economy’ is in tatters in these last 10-11 days of demonetization.

As an outcome, at least I can see higher adoption of wallets/ Paytm by a few kirana stores near to my place. But this is a metro, I hope that, as a lesson, learnt and what GOI also expects, is that more & more people in rural areas also adopts the digital payments channels. The Jan Dhan Yojana was in the right spirit, but it will take much more than that to make this shift actually happen. Demonetization will give a shock/push but to sustain its effect, hopefully the upcoming payments bank, small finance banks, different Telco led wallet companies, or Payu/PaytM wallets are able to penetrate more into these sectors and also GOI/ local representative bodies gives adequate effort in providing right education/ guidance to these set of people to ensure wider adoption & usage as well.

Next 2 years will be critical to observe any success coming out of it. If it happens, it will be a great moment for the Indian economy.


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