It seems like Demonetization had a twofold agenda – to reduce the circulation of black money and usher the growth of a cashless economy. By turning off the tap that drove the cash-driven market and without new notes in the banks, people were pushed to find another way to get about their daily lives, i.e., digital transactions.
However, the fact remains that India’s economy relies heavily on hard cash. Before the demonetization, more than 95% of transactions were cash-based, less than 15% of vendors had card swipe machines, more than half the country did not have a bank account and cash on delivery was the preferred choice.
In a country where the physical currency is given more priority over plastic money, the question arises – Is India Ready for a Cashless Economy?
So What Exactly is a Cashless Economy?
A cashless economy involves all transactions being carried out electronically by means of Debit and Credit cards, mobile wallets and e-payments; with a minimal circulation of physical currency.
Advantages of a Cashless Economy in India
- Transactions are traceable and taxable.
- Reduction in black money circulation and overall crime rate by maintaining accurate transaction records.
- Reduction in the cost to print, manage, store and transport physical currency.
- Removes the risk of storing and carrying a huge amount of cash to settle large transactions.
- Incentives offered by the government to encourage digital payments – discounts on fuel, railway, and toll, free PoS machines in villages, and reduction in charges levied by banks on cashless transactions, among others.
What are The Challenges Faced?
There is no doubt that the government has taken many measures to implement a cashless economy in India, and the change is visible in the way urban cities are transacting today. However, can the same be said for the entire country?
Because although we might already consider ourselves ‘digital natives’, the fact remains that – approx. more than 65% of the total population live in rural areas; only 17% of people in India have access to smartphones; only 27% of the population have access to the internet and approx. 40% of the people are outside the formal banking sector.
- Not all vendors accept card payments if the amount is too small and the interoperability issue could create a problem wherein only specific cards are accepted at certain establishments.
- Finances will mainly be connected to the phone, therefore, losing it or letting the battery drain could get problematic.
- Unreliable internet connectivity, network range, bank charges, etc. make people skeptical about digital transactions.
- We are still shooting in the dark when it comes to cyberspace welfare, and with cyber-attacks becoming increasingly common, digital transactions can get risky. While some companies have increased their cyber security budget, many are still clueless about the monetary damages caused by cyber-attacks. People are also cynical about putting personal information online that can be prone to online risk and identity theft.
What The Union Budget 2017 – 2018 Promised?
- BHIM app, a UPI based payment app that has more advanced features than the mobile wallets in our country will have two more schemes to benefit users.
- Service tax on digital payments for transactions up to 2000 will be removed.
- Strengthen cyber security by setting up a computer emergency response team for our financial sector.
- Develop the internet infrastructure in the rural areas by providing high-speed broadband connectivity to more 1-lakh gram panchayats.
- 100% rural electrification by 2018
- Banks will introduce 10 lakh PoS terminals & 20 lakh Aahdaar-based PoS terminals and will further strengthen the grievance handling system focusing more on rural and semi-urban areas.
Can India Truly Be a Cashless Economy?
If the government upholds the promise made in the recent budget, India stands a chance to progress towards a cashless economy with investment in infrastructure, electrification, and cyber security.
In a country where sentiments have a stronger hold than reason, the progression towards a cashless economy can be achieved only after the socio-economic upliftment, which also calls for a changing of mindsets as well as skill sets through education.
While the cashless economy cannot be entirely implemented in the ‘here and now’, there is still scope for it in the future; as India has the potential but lacks the immediate resources and many systematic changes are required to lay the groundwork for a cashless economy.