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Moving from Cash to Cashless: Challenges and Opportunities for India

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Abstract

In a first of its kind study, we estimate the amount and potential for cashless payments made by households in India. Through an extensive household survey across 8 cities (4 metros) involving 3066 households, we estimate the extent to which households make non cash expenditure. We also identify the bottlenecks which prevents households to make non cash payments. Our key results are; • 1.38% of all household expenses are done via non cash instruments (2.92% in urban and 0.55% in rural). • Approximately 7% (12% in urban and 3% in rural) households make cashless transactions in one or more items. • For urban India, more than half the households who make cashless transactions spend 5% or more through cashless and almost a quarter of the cashless households spend more than 10% through cashless. • For urban India, approximately 80% of the households make cashless transactions in only one item • If the households have an incentive to keep records of financial transactions, they will have higher chances of incurring non-cash expenditures. • Supply side constraint (that is unwillingness by the seller to accept such payments) is the biggest deterrence to cashless payments Thereafter, we develop a predictive model of cashless payments. The results put together gives us an important policy direction towards what can enable increase in cashless payments. We employ logistic regression to identify factors that help us to understand what makes a household go cashless (in terms of Socio Economics, payment frequency and network effect), what factors explain the ‘perceived constraints’ by the households (income status etc). We then clearly spell out te role of the policy makers and Goverment in promoting cashless instruments. JEL Classification: G18, G29, O53 Keywords: Cashless transactions, household survey, network effect, predictive modeling
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... Cash facilitates drug trafficking, human trafficking, extortion, money laundering and illegal immigration (Bappaditya Mukhopadhyay, 2014). In the cashless or less cash economy, these will choke and results in increased tax collections of government. ...
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Full-text available
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