The biggest enemy for us is cash: Visa’s T.R. Ramachandran

New Delhi: India needs to take many steps to encourage digital payments and discourage the use of cash in transactions, said T.R. Ramachandran, group country manager, India and South Asia at Visa. In an interview coinciding with the launch of a report by Visa titled Accelerating the growth of digital payments in India-A five year outlook, Ramachandran talks about the challenges and the solutions to enable India’s transition to a cashless economy. Edited excerpts:

What are the highlights of the report?

The report has actually tried to do three things. Firstly, actual numbers are used to quantify the cost of cash expressed as a percentage of GDP and then the breakdown of this cost is being done. Secondly, we have tried to look at what are the possible reasons for this cost of cash and lastly we have tried to look at those areas where work is needed to reduce this cost of cash. The report has set a directional target to reduce the cost of cash from 1.7% to 1.3% in the next five years. This reduction can lead to savings of Rs4.7 trillion.

There are significant inclusions and exclusions in this calculation. We looked at cost of cash from the perspective of households, banks, small and medium enterprises, merchants and the central bank. Two areas were not explicitly computed—one is the foregone revenues of shadow economy constituting 19% of GDP and having an imputed cost of 3.2%. The other being cost of government to government and government to citizen transactions. However, we have put this in the recommendations that perhaps the government can go for e-procurement like the UK has done.

What do you think are the challenges in reducing this cost of cash from 1.7% to 1.3% of GDP?

There are six challenges—firstly, our ability to save and spend in cash. For example, all the transactions in the agriculture supply chain (farmers to mandis) and consumer savings are in cash. Secondly, the nature of the economy which consists of informal labour market and huge remittances in India also promote the use of cash. Then there is a problem of gender imbalance in India, generally in terms of using finance. The other three key challenges are high cost of acceptance infrastructure, last mile connectivity due to this and the unintended consequences of price capping being done under regulatory aspect such as the capping of merchant discount rate (MDR) for debit transactions. The consumers are not affected but this takes the money out of the banking system to somewhere else.

Won’t removing the caps on such transaction charges discourage the use of such modes of payment and actually act as a counter to the whole aim of promoting digital payments?

Regulations is not just about price capping. It is deep in our Indian cultural psyche that cash has to be free which it is not; there is cost of transmission, logistics and dispatch.

Another solution suggested in the report was fiscal incentives given to merchants and consumers to move towards a cashless economy. But this has not found much favour with the government as of now.

There is a committee appointed by government which is looking into this framework. The report also talks about the increase in money being tax visible (from 39% in 2004 to 76% in 2014). The incentives can be given in three ways—there can be a cap of 20% of one’s digital transactions which must be tax exempted. Merchants can be given sales tax rebates and digitized receipts can be used to take part in lotteries. Yes, the government does not want to lose revenues, it’s a touchy topic, hence we have only looked at the mathematical aspect of it.

We should also look at the fiscal disincentives. The velocity of cash in the economy must reduce. I think the Rs3 lakh cap on cash transactions proposed by SIT (special investigation team on black money) is a step in that direction. But it is still very high. It can be much lower.

Do you think the introduction of the Unified Payments Interface (UPI) help towards whole transition towards a cashless economy?

Yes, UPI will contribute significantly to this. The biggest enemy for us is cash. Anything which progresses the case of digital payments is extraordinarily good. There should be energizing of innovations. Innovation comes when there is a level-playing field and open competitive market which the RBI has enabled because in a closed market, competition cannot foster.

Safety of electronic transactions also remains a major concern for users…

Absolutely. That has to be addressed. There are areas where we all need to collaborate. We are very happy to collaborate with NPCI (National Payments Corporation of India) or MasterCard in the areas of security, customer convenience, financial literacy and technology. There must be inter-operable technology standards so that the customer should feel very little difference. Security, convenience and inter-operability are the three legs on which the digital payments rests on and all three conditions have to be met.