In India, cash to GDP ratio is 12%-13% which is indicative that people still in India are using cash. This is much higher than the US and UK. At the time of demonetization, our GDP got remarkably dipped however, now it is increasing as a good indication for our economy. According to a Boston Consulting study, the digital payment market will acquire atleast 15% of GDP by 2020. According to them, the Indian digital market is trying to reach $500 billion by 2020. The non-cash transactions will also reach 40% of total transactions.
Read More: Characteristics of Digital Payment
Now consumers use credit, debit, and prepaid cards through all kinds of devices from mobiles, desktops, laptops to watches. According to Moody’s Analytics, with a 1% increase in cards, GDP increases by 0.04%. Card penetration is very high in any developed country which is almost 42% and it is 16% in developing countries like India.
Higher efficiency in the financial system: In digital payments, many parties are present besides two main parties’ merchants and consumers. Those parties are like third-party integrators, FinTech companies, Governments, regulatory bodies, developers, manufacturers, etc. Cost of currency will increase as well. Even more, jobs are created in the digital payment system. Money is circulated smoothly. Cost of business also gets reduced.
Government is getting more tax revenues. In the last 5 years, digital payments added more than $600 billion in GDP in the world. Further, it reduces transfer/processing fees, increases processing/transaction time, offers multiple payment options and gives immediate notification on all transactions on customers’ account. In this way, digital payments make the financial system more efficient and convenient.
Reason for Boosting GDP:
Through digital payments, people will not be able to evade tax. Availability of holding hard cash at home will decrease and there will be a proper circulation of cash. An automatically generated bill will adjust tax with the price of the products.
Digital payments keep records of the transactions. Checking of digital transactions is easy for the Government. Service quality can be improved in this way. Corruption in every system is obstructing the economic growth of our country.
Circulation of Money:
If people hold money in hand then there will be a shortage of money in the market. So, the inflation rate will increase. With digital payments, people don’t need hard cash for buying products.
Lower Funding to Terrorists:
Through digital payments, the governing body will be able to keep transparency and accountability of the transactions. So, corrupt people will not be able to give funding to terrorists. The government doesn’t need to invest more money in security and defense system.
Reduced Banking Rate:
Even banks are reducing rates for lending in the short and medium term. This is encouraging people to buy necessary things for their family.
Government is trying to implement user-friendly digital payment options in all sector of the economy. The strategy of the Indian Government is to transform India into a cashless economy. According to SBI, the present size of digital banking is 1.2 Lakh Crores.
They are targeting to increase to 3 Lakh Crores. Adoption of cashless policy will enhance the growth of financial stability in the country, thereby bringing about business, price and economic stabilization. Digital payment brings innovation in financial technology. It is solving problems in the financial sector of the fast-growing economy. Thus, digital payment is helping economic development through the cashless economy.