Improving payment system efficiency in India: Next steps

Efficiency in payment systems brings about many benefits for a country’s economy and its people. Many studies have indicated that a saving of 1 per cent of GDP is possible by improving payment system efficiency and moving physical payments to electronic payments. In India, this represents a huge opportunity. Many improvements have happened in India in terms of payment systems. Large value payments have comfortably moved to Real Time Gross Settlement. In the retail payment area, however, physical payments are still predominant — although all retail electronic payment options, such as NEFT, ECS, credit and debit cards, are growing. India needs to focus on reducing the volume of physical cheques and increasing electronic payments to achieve greater payment system efficiency. This paper is an attempt to study the payment use statistics of 2003–04 to 2008–09, analyse the trend and suggest a few approaches to improve the efficiency of Indian payment systems by reducing the use of cheques and increasing the use of electronic payment systems. Innovation, convenience, strong legal systems and incentives are the significant factors in improving efficiency. A few suggestions in those areas — including bringing in more than 155,000 branches of India Post and over 168,000 branches of cooperative credit institutions across India within the payment system framework, and accelerated adoption of mobile banking — are provided.