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Posted at: Apr 23, 2018, 12:55 AM; last updated: Apr 23, 2018, 12:55 AM (IST)

Money addiction

India’s cash-to-GDP ratio has been quite high compared to other major economies even after demonetisation. India needs transformational changes to resolve the issue of cash crunch, says K Srinivasa Rao
Dry ATMs, long queues and worried customers at banks in some states have once again brought back the memories of demonetisation. Although, the current cash shortage is temporary, there are certain issues that need policy attention to reduce overdependence on the cash. 

Cash in circulation has increased post demonetisation. It was at Rs 17.5 trillion on November 8, 2016, which has gone up to Rs 18.43 trillion on April 6, 2018. Although, some experts are of the view that year-on-year growth of cash in circulation is short of nominal growth of GDP. But in a digital era, are we to supply matching currency to sustain growth? 

Another reason for the cash crunch is the credit growth. It grew at Rs 8.29 trillion during FY-18, higher than the deposit growth (Rs 7.29 trillion). The fear of pending Financial Resolution and Deposit Insurance (FRDI) Bill with its ‘bail-in’ clause has also led to slower growth of deposits in banks. Besides, the seasonal spurt in demand for cash is not a new phenomenon. 

Apart from the demand and supply issue, the current crunch is also because of infrastructure problems. Number of ATMs are shrinking compared to the expansion of economy. According to a World Bank study, the number of ATMs per 1,00,000 populations in India is 21.24, which is much less compared to Brazil (108.820, Russia (168.7), China (81.45) and South Africa (69.29). Several of them are either not loaded with the cash or are out of order. Restoring sanctity of ATMs is essential by fixing responsibility.  

Similarly, the point of sale (PoS) machines needs to be popularised in the hinterland. Despite banks have issued 855 million debit cards and 33 million credit cards, growth of digital payments have slowed down. There is a need to incentivise and promote alternate delivery channels such as internet banking, mobile banking and payments through unified payment interface (UPI). 

Users of social network could become catalysts as they are computer literate. They would help in winning public trust for digital payment options. The intensity of social engagement can bring better transparency and clean public life. The short-term solutions are with government agencies but long-term cultural shift towards a less-cash society rests with public. 

— Dr Rao is the Director of the National Institute of Banking Studies and Corporate Management - NIBSCOM. Views are personal

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