Payments systems may soon phase out cash, cheques

A recent report by Ambit Capital stated that India's black economy is shrinking. Before you celebrate, you must consider that it is estimated to be 20% of GDP at around Rs 30 lakh crore – bigger than the overall economic size of countries such as Thailand and Argentina. Counterfeit money in India which was around Rs 3,200 crore is now estimated at Rs 5,900 crore. It is over 20% of the currency in circulation, and it is estimated that 40% of the Rs 1,000 notes in circulation are fake. The number of fake notes in 2014-15 was estimated at 15.59 crore pieces and this was expected to increase by 10%, or 1.6 crore pieces, in 2015-16. Is the Rs 1,000 note that you received from your shopkeeper or even bank fake? The notes are so good that it is difficult to identify them. It is worrying.

To partly combat this, the National Payments Corporation of India (NCPI), with the backing of the Reserve Bank of India (RBI) is introducing the Unified Payments Interface (UPI) which will initially be linked to 19 banks and give you an opportunity to pay your local bania through your smartphone. The manner you do this is by telling the shopkeeper who will have a financial ID, your virtual identity which is an email ID. The shopkeeper would then generate a bill through the UPI which you'd need to verify or approve using your MPIN. Once done the money would be taken out of your bank account. It works like a debit card – the exception being that it is much faster and does away with the need to have cards swiped on machines. The other benefit is that it can apart from authorising the payment of money receive money too.

While UPI is a positive step, I am a little sceptical on how popular it would be. UPI would require all those using it to have a bank account. The average person who shops prefers to hand over cash. The small shopkeeper too prefers cash. Additionally, as he is unlikely to be declaring his entire income, he may not want every transaction he handles going through his bank account. And even with financial inclusion we have tens of crores of persons who do not have a bank account.

Another initiative is the Bharat Bill Payment System (BPPS), which will offer a bill payment system both online and offline. It will permit bill payments through multiple modes – Net banking, credit cards, debit cards, e-wallets and cash. It is aimed as a facility to pay utility bills and it will permit the payment irrespective of the location of the payer.

I believe that after these get accepted, cheques will slowly be phased out as will cash – though cash will on account of India's huge cache of unaccounted money take many many years before they stop being used as a medium of payment.

The Sensex after initially rising fell towards the end of the week and closed 200 points lower than last week. There were global issues. Industrial production in India had fallen. There was also concern that the Reserve Bank Governor may move, after his term is over, to academia. If however we look at company performances, there have been significant improvements. Even though the Sensex has fallen, the market prices of several companies has risen. With the Sensex at under 27000, this is an excellent time to buy into good companies – companies that have the potential to grow and companies that are in the evergreen space. This is endorsed by the fact that the advertising spend of many companies are rising. So is their expenditure. The key is to be choosy.

The writer is MD, Cortlandt Rand, and an author