New Delhi: Electronic payments in November 2015 have once again surpassed paper clearances, such as drafts and cheques, proving once again that the government’s plan to incentivise such transactions in the upcoming budget will work out well.

Such a trend reversal, according to central bank data, happened first in September 2015. In November, a total of 632,587 crore was transferred through electronic fund transfer compared to 617,845 crore through paper clearances.

The Union finance ministry had in June 2015 floated a draft proposal to shift money transactions from cash-dominated ones to non-cash through incentives. In the Union budget next month, the government is all set to put in place such incentive structures for people who use electronic methods to make or accept payments.

“They will come into effect from April," said a government official in the finance ministry, requesting anonymity.

Incentivising cashless transactions was one of the suggestions from banks and financial institutions at pre-budget meeting with finance minister Arun Jaitley on Tuesday.

The structure of incentives could be of various kinds, said another person who advises the government on digital payment initiatives. “Say if a person receives 100 through direct benefit transfer, he/she would be able to purchase or avail services worth 102 if electronic methods of payment are used. But if she cashes out, it will be just 100," said the second person, who too did not want to be named.

All government departments are expected to facilitate electronic transactions for all payments and receipts by 31 March, which will further boost e-payments through banking channels.

The value of notes and coins in circulation as a percentage of gross domestic product in India is 12.04%, compared with 3.93% in Brazil, 5.32% in Mexico, and 3.72% in South Africa, according to a 2014 survey Cost of Cash in India by MasterCard Inc. and The Fletcher School’s Institute for Business in the Global Context.

The total cost of storing, transporting and processing physical cash in India is 21,000 crore a year, the report said. It is this area that mobile wallet firms, such as Paytm and MobiKwik are trying to cash in on by offering services to convert physical cash into digital currency.

Cash, as a percentage of total consumer payments in India, is around 98%, compared with 55% in the US and 48% in the UK, according to an October 2015 report by Payments Council of India, a body formed in 2013 under the Internet and Mobile Association of India to promote the digital payment industry, and consulting firm PricewaterhouseCoopers Pvt. Ltd.

Though cashless transactions are on the rise, the ticket size of such payments remains small when compared to paper-based payments. For November, a total of 99.82 million electronic transactions took place compared with 81.37 million paper-based settlements. This has been a consistent trend, as per Reserve Bank of India (RBI) data.

Commercial banks, meanwhile, have beefed up their marketing initiatives to promote digital channel transactions.

“This is going to be a sustainable trend. All the banks are trying to ensue that the digital channels are efficient and accessible from various platforms to bring convenience. Digital payments are much safer than cheques which could get misplaced or signatures may not match. We are even following up with corporates to adopt digital channels," said Arundhati Bhattacharya, chairperson of State Bank of India.

The government is also trying to put in place an e-payment acceptance structure in rural areas. For this, the finance minister on Monday met various government department secretaries and asked them to ensure that money under the direct benefit transfer scheme goes directly to beneficiary accounts.

“There is research to show that electronic transactions have increased in tier II and III towns. Also, there are caps on ATM withdrawals, which affect consumer behaviour. These could also be the reason for increased digital transactions," said Krishnan Dharmarajan, an executive director at Centre for Digital Financial Inclusion, a New Delhi-based think tank.

Close