NEW DELHI: Payments technology company Visa has estimated that the cost of using cash puts a burden of 1.7 per cent of GDP on the Indian economy with households taking the maximum hit through foregone interest income.
The absence of access to banking and traditional spending habits have deterred households from keeping cash in bank accounts and using non-cash tools such as cards and electronic payment. A study released by the Visa pointed to several factors holding up the growth of a digital payments system, including the informal labour market and a large shadow economy, which was estimated at around 19 per cent of the GDP in 2014-15 and would reduce only marginally to around 18 per cent by 2018-19.
“Some sectors are cash-intensive despite relatively large transaction values, primarily because of the attitude of Indian households towards savings and tax compliances,” the report released on Wednesday said. High cash savings, a gender imbalance in use of digital payments, regulatory limitation and high cost of infrastructure were identified as the other factors impeding efforts to reduce the use of cash.
In fact, reducing the size of the cash economy has been a major focus area of the government too with special emphasis on cracking down on black money. While the government has asked its agencies to do away with transaction charges for using digital payment tools or cards, it has so far failed to move ahead with other measures.
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Drawing upon the experience in other countries, Visa has suggested several steps including tax concessions of up to Rs 2,000 a year to those who use plastic or digital payment tools. In addition, it has proposed tax concessions to SMEs to discourage the use of cash, and all the fiscal concessions could add up to around Rs 12,000 crore a year for five years. It has also suggested the development of a fund to promote the use of digital payments, something that the RBI announced in the monetary policy on Tuesday .
Visa has estimated that the steps could help reduce the cost of cash to 1.3% of GDP in two years.