Even before Delhiites were forced to spend hours queueing up for the ATM, obtaining cash was a costly proposition. In 2014, the people of Delhi spent six million hours and over nine crore rupees just to obtain physical cash, according to a study published by Institute for Business in Global Context at Tufts University.
“The cost of obtaining cash in Delhi is about 10-15% higher [than it was in 2014]”, says Raghavendra Srivastava of Impetus Research, the market research agency that worked on the study. The rest of India spends about one-third the time and money spent by the residents in the capital.
The study, Cost of Cash in India, was part of a series of reports that sought to understand the costs associated with physical cash in economies around the world. For India, the total cost to the economy was over Rs. 200 billion, while for United States, it was over Rs. 12 trillion.
“We have studied the cost of cash in over 70 countries around the world and India scores among the highest in terms of the costs to the consumers,” says Bhaskar Chakravorti, senior associate dean at IBGC and co-author of the study.
There are various components to this cost of cash. The cost to consumers includes ATM fees as well as the opportunity cost of the time spent collecting cash. The cost to businesses includes the money spent in handling, securing and transporting the cash. The cost to banks and other financial institutions is due to operating and maintaining ATMs. Finally, the cost to government is due to the foregone tax revenue as well as the cost of printing money.
In India, cash is particularly costly because it is so common. The value of notes and coins in circulation as a percentage of GDP in India is over 12 percent, while it is less than 4 percent in both Brazil and South Africa, according to Chakravorti.
Even young people, who tend to be relatively tech-savvy, still deal mostly in cash. Only about one-third of Indians above the age of 15 have ever used a bank account, while less than one-tenth have used any kind of non-cash payment instrument like a debit card or a mobile wallet, Chakravorty says.
Yet the post-demonetisation surge in popularity of mobile wallets and conversations about digital money may point towards a “less-cash” India in future.
“The need of the hour is an enabling ecosystem and change in consumer habits,” says Dhananjay Bapat, Associate Professor at National Institute of Bank Management. “While moving to electronic, there is strong need to create robust electronic payments platform which is not vulnerable to frauds.”
Yet digital money is fraught with risks as well. Whereas physical cash leads to vulnerabilities of tax evasion, black money and fake currency, digital money is at risk from data leaks and identity theft online. Last month, for instance, India saw its biggest such data breach that put at risk 3.2 million debit cards. For India, the costs associated with data breaches are rising as well.
If both physical and digital cash have their costs, then what is the point of tackling the costs of cash and advocating for a “less-cash” or a cashless society?
“The loss through tax avoidance is enabled by a primarily cash economy,” says Chakravorti. Other than the direct costs to consumers and businesses, there are certain indirect costs as well. Easy availability of cash leads to corruption, which in turn hurts India’s attractiveness for investors and businesses.