Sounding a note of caution on government's digital push, the Economic Survey today said that digitalisation is "not a panacea" and cash is not all bad and stressed the need to forge a balance between both forms of payments.
The Survey, tabled by Finance Minister Arun Jaitley in Parliament, said the transition to digitalisation should be gradual after taking full account of the digitally deprived.
"In the medium term, the impetus provided to digitalisation must continue. Digitalisation is not a panacea, nor is cash all bad. Public policy must balance benefits and costs of both forms of payments.
"...The transition to digitalisation must be gradual, take full account of the digitally deprived, respect rather than dictate choice and be inclusive rather than controlled," it said.
The Survey also emphasised that success of digitalisation would depend considerably on interoperability of the payments system, and advised banks to facilitate and "not thwart" inter-operability.
"The success of digitalisation will depend considerably on the inter-operability of the payments system. The Unified Payments Interface (UPI) created by National Payments Corporation of India (NPCI) is the technology platform that will be the basis for ensuring interoperability," it said.
The Survey further said: "But to ensure this, individual banks should facilitate not thwart interoperability."
In a bid to curb corruption, the government has been pushing for greater adoption of digital payment mechanisms like debit/credit cards and mobile wallets in the country. Estimates suggest that cash accounts for about 78 per cent of all consumer payments.
"By facilitating inter-operability (between payment systems), it will unleash the power of mobile phones in achieving digitalisation of payments and financial inclusion, and making the 'M' an integral part of the government's flagship 'Jan Dhan, Aadhaar, Mobile' (JAM) initiative," it said.
Based on data provided by NPCI, the Survey noted that the 'decline rates of transactions' for Aadhaar-enabled payments as of mid-January 2016 were nearly 56 per cent in case of transactions involving different banks. This is almost double that for transactions that involve the same issuing and remitting bank, it added.
It said a plausible reason for this differential could be that larger banks are declining transactions involving smaller remitting banks, while ensuring that transactions involving themselves are honoured.
"There could be valid reasons for this. But such problems will need to be addressed, since payments banks, telecommunications companies, and small banks are in the vanguard of financial inclusion. So their access to the UPI platform will be critical for advancing digitalisation, especially for the poor," it said.
