Digital India critical to drive financial inclusion: Amitabh Kant

He added that it will also deliver an increase in jobs

Niti Aayog Chief Executive Officer Amitabh Kant on Wednesday said India needs a transition towards a cashless society and achieving the goal of Digital India will bring more people into the formal financial system.

"Digital payments will pay a critical role in achieving the Digital India vision and in driving financial inclusion," Kant said at the unveiling of global payments technology company Visa Inc report titled 'Accelerating the Growth of Digital Payments in India: A five-year outlook'.

Achieving the goal of Digital India would not only help to bring more people into the formal financial system, but also deliver an increase in jobs, Kant added.

The report released on Wednesday laid out the benefits of transitioning India to a cashless society over the next five years, and also provided a roadmap for it.

According to the study, "The cost of cash places a huge burden on the Indian economy equivalent to 1.7 per cent of gross domestic product (GDP). This high cost of cash stems from large volumes of cash flow in the Indian economy relative to its peers across the globe."

In India in 2015, the number of digital transactions per capita was only 10, compared to 163 in Brazil, 420 in South Korea and 429 in Sweden.

The report points to six factors for high cash usage in India: a high propensity to save in and use cash; a large shadow and remittance based economy; gender imbalance in the use of payments; high cost of acceptance infrastructure; regulatory limitations and insufficient focus on financial literacy.

"India has the opportunity to reduce its cost of cash from 1.7 per cent of GDP to 1.3 per cent of GDP delivering savings of Rs 70,000 crore in the next five years. If India could sustain a reduced cost of cash of 1.3 per cent of GDP until 2025, the total savings could be Rs 4.7 lakh crore with the appropriate policy initiatives in place and followed by effective execution," it said.

"This could be done by making an investment of Rs 59,300 crore of which Rs 58,000 crore would need to be incurred by the government by way of fiscal incentives provided to consumers and merchants, and lowering of import duties on point-of-sale (POS) terminals," the report noted.

The remaining investment would need to be made by banks to expand the acceptance network over the next five years and bringing about 41 million households into the financial system, it added.