10/11/2022 - Economy

KEY POINTS

·        Policymakers trying to transition India to a less-cash economy have been confounded by a peculiar phenomenon  currency in circulation growing right alongside rising digital adoption.

·        With the mushrooming of mobile wallets, QR-based apps and the Unified Payments Interface (UPI), the volume of digital transactions leapfrogged, as per RBI data.

·        But CIC (currency in circulation) as a proportion of GDP has been rising too. After hovering at 11-12 per cent until FY20, it hit 14 per cent in FY21 and remained at 13 per cent in FY22.

·        The lower need for cash can mainly be traced to the widespread adoption of UPI.

·        As SBI notes, should UPI manage to materially reduce the need for the public to deal in cash, this could usher in many advantages to the economy.

·        Substitution of anonymous cash payments with digital ones also allows for greater traceability of transactions for the taxman looking to widen the tax base.

·        Should the demand for paper currency diminish, banks would save on the logistics costs involved in safely storing and transporting paper currency and regularly refilling their ATMs.

·        But despite affluent consumers embracing them in a big way, digital payments are still far from ubiquitous.

·        Policymakers may need to address two stumbling blocks to further the reach of digital payments.

·        Banks and other ecosystem participants also need to make adequate investments in backend infrastructure to keep up with burgeoning transaction volumes.

·        On this score, it is imperative that RBI and the Centre quickly arrive at an understanding on the issue of charging for UPI services.

Please review

Pls review