Despite the government’s push for a digital India, the use of physical currency has not gone down. According to a top NPCI official, the amount of cash in circulation will decline only when one-third of the population begins adopting digital payment options. To recall, the Unified Payments Interface (UPI), which started the nation’s revolution in online payments, was created by NCPI, a government agency.
At an event, Dilip Asbe, Managing Director and Chief Executive Officer of National Payments Corporation of India (NPCI), stated that now 250 million individuals, or roughly a fifth of the population, use services like the Unified Payments Interface (UPI). He further added, “Unless we see one-third of the population on both demand and supply side having the digital payment structure, it is very difficult to start seeing some reduction in cash in circulation.”
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He predicted that the decline in the amount of currency in circulation will occur between 12 and 18 months from now, given the rate of increase. Since official data has shown a rise in digital payments made through platforms like UPI, high Currency in Circulation (CIC) has baffled market observers for a number of months. CIC has increased to over 14 percent of GDP from only 12 percent in 2016 amid the demonetisation.
Given all the efforts and awareness campaigns, India should aim to lower the CIC to the single digits in the next five years, as it is in developed nations where the CIC as a proportion of GDP is in the single digits. More consumers choosing to make payments online would help with this. Asbe mentioned that the RuPay credit cards would be connected to the UPI platform over the next few months.
The Reserve Bank of India (RBI) will receive a request from NPCI to move the policy announcement on the UPI front forward. NPCI is in discussions with SBI Cards, BoB Cards, Axis Bank, and Union Bank of India. UPI transactions, which up until now were tied to savings bank accounts, are mandated to be free, whereas credit card companies are permitted to charge up to 2 percent of a transaction as MDR, which is paid by retailers.