MUMBAI: The Reserve Bank of India and commercial banks annually spend around Rs 21,000 crore ($3.5 billion) in currency operations costs while citizens of Delhi alone spend Rs 9.1 crore and 60 lakh hours in collecting cash. The scale of this burden is unique to India considering that it is among the most cash-intensive economies in the world with a cash-to-GDP ratio of 12%, almost four times as much as other markets such as Brazil (3.93%), Mexico (5.3%) and South Africa (3.73%).There are many reasons why India has to pay such a high price for its payments. One is the need to frequently reissue notes due to poor handling — low-value notes have to be replaced in less than a year. The other reason is the need to frequently upgrade security features and replace old notes. There is a huge cost in pulling old notes out of circulation and replacing them. India also has unique issues in logistics and in some places the currency notes have to be transported by helicopter.A report on ‘Cost of Cash in India’ commissioned by MasterCard and brought out by the Institute For Business In The Global Context has highlighted how much of a drag the overdependence on currency for payment is turning out to be. One reason for the increased dependence on cash is the lack of access to banking with a third of the population over 15 years not having used a bank account.The report also highlights that although mobile banking has picked up, it is not yet being used for payments. There has been a jump in electronic payments since 2007 with its share increasing from 2.6% to 6.8%. This is largely due to the development of non-cash payment systems such as the Real Time Gross Settlement (RTGS), National Electronic Funds Transfer (NEFT) and National Electronic Clearing System (NECS). But the report says that growth in these segments has typically benefited the commercial sector more than retail clients.The value of transactions through ATMs has grown six-fold from Rs 3 lakh crore in 2007 to about Rs 18 lakh crore in 2012, according to the report. However, when the ATM transactions are weighted for population, India continues to fare poorly even when compared to lesser developed markets such as Kenya, Niger or Egypt. According to RBI data, in 2013, 15,400 crore banknotes were issued globally, of which the maximum banknotes, 5,400 crore, were issued by China and almost 2,000 crore by India. The global projections for the next three years have been worked out at 16,000 crore, 16,600 crore and 17,300 crore banknotes, for the world, China and India, respectively.“The steps taken by RBI over the years strive to make the idea of financial inclusion a reality. Innovations in the electronic payments space not only deliver greater transparency but more importantly, they simplify transactions, enhance security, increase efficiency and have the potential to dramatically reduce costs,” said Vikas Varma, area head, south Asia, MasterCard.The report also busts the conventional wisdom which assumes that cash is free. Citing the example of Delhi, the report says that residents spend 60 lakh hours and Rs 9.1 crore ($1.5 million) to obtain cash. Compared to this, Hyderabad, which is smaller, spends 17 lakh hours and Rs 3.2 crore ($0.5 million) to do the same, which corresponds to fees and transport costs about twice as high as Delhi on a per capita basis.