Cashless Economy in India - A Subject to debate

The word “CASHLESS ECONOMY” has been on everyone’s mind since 8th November 2016, the day Government of India implemented Demonetization. The 500 and 1000 notes were declared banned. A new set of notes were then introduced but with some delays. In the gap between the note ban and the arrival of new notes, one payment method started to shine. E-wallets and cashless transactions were now spreading. United Payments Interface or UPI was launched. This connected bank accounts to your mobile number and enabled users to have bank-to-bank transfers at their fingertips. It was launched in 2016 by the National Payments Corporation of India and is also recognized as a mode of payment by the RBI. Some say it’s a “Eureka moment” for all the people of the country in the form of a savior from the ‘EVIL NUISANCE” of corruption and “Black Money”. It was later on during the Covid-19 pandemic that helped fuel a massive shift towards digital transactions in India — in tune with the Honorable Prime minister’s vision of a “Digital India”. 

One must wonder what a cashless economy is! In layman’s terms, an economy in which dealings of cash are less and transactions mainly take place on credit cards, debit cards, e-wallets, or any digital payments. This is a cost-effective method and will also help control surplus inflation caused by the overprinting of money for flow in the economy. It will also help in the rapid development of the aforementioned “Digital India” which is a program launched by the government of India in 2015.

Merits of Cashless Economy:

  • Considerable increase in the tax base, as most, if not all transactions in the economy could now be traced by the government.
  • Electronic payments help businesses to boost their customer base even in a far geographic location and hence will result in increased revenue.
  • Substantially constrain the parallel economy, particularly in illicit activities.
  • The generation of counterfeit currency is reduced owing to the increase in Electronic transactions.
  • Persuasion of people to convert their savings into consumption and/or investment, thereby providing a boost to GDP and employment.
  • Reduction in pickpocketing and robbery of cash.
  • Precise monitoring of one’s payment transactions and payment history by himself to plan and execute monthly/yearly living expenses.

Demerits of Cashless Economy:

  • Loop-holes in the infrastructure and technology to maintain a proper Digital Payment Economy.
  • Lack of education in the rural parts of the country is a major hindrance in the execution and implementation of Electronic Transactions.
  • There are some places still which accept only cash and do not accept cards. Making a purchase at such locations with a card is not possible. An example of this is the Small retailers in India who still deal only in cash as they cannot afford to invest in digital infrastructure.
  • If you lose your debit/credit card, it takes some time to get a new one.
  • Ditto for very poor people, many of whom don’t have access to the banking system; this will only make them more dependent, in fact exclusively dependent, on government handouts.
  • Illegal immigrants would be out of a job very quickly thus creating the risk of substantial social unrest as it may result in higher crime rates like theft, extortion, and fraud.

Digital payments


Types Of Cashless Payment Mode:

  • Plastic Money: The term that is mostly used for hard plastic cards. They come in the form of various cash cards, prepaid cards, store cards, credit cards and debit cards. Out of all the other cards, debit and credit cards are used the most. However, people prefer debit cards because they are considered safer. With credit cards, there is a risk of overspending. Both debit and credit cards can be used to make online and over-the-counter purchases.
  • UPI Application: Our mobile numbers are registered with our banks and linked to our account, and that’s the basis of the Unified Payment Interface (UPI) functionality. This mode helps in sending or receiving money without entering bank-related info.
  • Mobile Wallets: In this, you need to load money into your e-wallet, and use it wherever it is accepted. The most popular mobile wallet is Paytm.
  • NEFT & RTGS: National Electronic Fund Transfer and Real-Time Gross Settlement are electronic payment systems that help in seamless fund transfer between two bank accounts. Both facilities are maintained by the RBI (Reserve Bank of India) and can be used to transfer money within India.
  • IMPS: IMPS or Immediate Payment Service, is a service initiated by the National Payments Corporation of India (NPCI) where users need to register for both mobile and internet banking. One can send or receive 24*7, instantly and with no cut-off time. It’s done using receivers like - MMID (Mobile Money Identifier), IFSC code or bank account number.
  • USSD: Unstructured Supplementary Service Data is a cashless option that works without internet access. It’s a kind of mobile banking facility where you dial *99# to use the service. It uses MMID with a mobile number or IFSC code with the account number to complete the transaction.
  • QR Codes: It's an extension of the mobile wallet service. One needs to simply scan the code of the merchant to complete the transaction. There needs to be a smart device, a camera and a scanning facility.
  • Net Banking: It’s an alternative to using a debit or credit card. Users need to login into a net banking account for approving a payment.

With the majority of transactions in India still cash-reliant, ‘Cashless India’ is still a distant dream.

From data procured from popular websites like Inside IIM, Quora.com, LinkedIn, ResearchGate, Business Today, etc., it is evident that India isn’t well prepared yet for a Cashless Economy, though they consider the fact that India is developing its wing of Digitalization in the best possible direction.  Below is a graphical statistical representation of the same -

volume of cashless transactionsIndia Cashless Economy

To sum it up, India is not ready to be cashless according to the below-mentioned data proposed by different studies from the above-mentioned websites or web links. Demonetization couldn't scoop out black money as expected, but the cash crunch taught many the usage of digital payment and the ease of making payments through them. It sows the seed of what we call the beginning of a Digital Age. Online payment is the only way to curb black money and catch income tax violators and defaulters. With an increase in Tax Collections, the government can invest more to improve infrastructure. We are in the digital world; a sluggish stride would leave us behind. More efforts, paving us to use more plastic money should be taken, making the system fully secure and rewarding through incentives would go along to promote it.

India's Currency

Source: Washington Post

Cash is still the king: Despite so much drama, India is still lagging in the cashless economy race. Cash is still a king in India. According to Rahul Chari, the co-founder and CTO of PhonePe, India is still nascent as far as being cashless is concerned. Please refer to the above graph to understand the current currency circulation situation in India. 

Adoption rate: From an adoption and penetration perspective, there is still a long way to go. The Indian market is still cash-heavy. Digital payment mode has only penetrated the Urban cities.

Internet Connection: The internet connection in India is very sporadic. 4G is still not available everywhere. Many digital payment companies like PhonePe, G Pay, etc. are trying to figure out payment alternatives for 2G networks, but that may take some time. 

Public Distrust: If we understood one thing about Sweden’s cashless society experience, it is the “trust of people over the government, banks, and payment app companies”. Many Indian citizens still distrust cashless payment modes. There are a growing number of fraud cases where people call and SMS people as customer care representatives to get delicate information regarding their bank account and extract money out of people’s accounts.

Digital Illiteracy: A recent report by the Digital Empowerment Foundation indicates that 30% of our population lacks basic literacy and thrice that for digital literacy. The gap in illiteracy is much more if you consider the rural and urban places in the country. Even the economic ability to possess a digital device, let alone having a bank account is a struggle for many people who live below the poverty line (which comprises 22% of the total population). 

Unnecessary charges on online transactions: Banks and merchants charge 1-2% on the total amount of transactions when they offer an online payment facility. This cost of making the transaction increases the burden on the customer.

A limited number of bank accounts: Around 191 million Indians over the age of 15 are still without bank accounts. Most of the time it is just one account per family, which limits the number of cards people can have per family.

Political Unrest: In recent times states like Jammu and Kashmir, North-eastern states, etc face a crackdown due to political reasons and the first thing that gets blocked is the internet.  Ins such circumstances cashless transactions like usage of the card, e-wallet, or UPI becomes impossible.

Facts: -

‘Sweden’ is closest to achieving a cashless society. Cash transactions in Sweden constitute only 3%.

  • M-Pesa created a revolution in ‘Kenya’. The usage of M-Pesa is so high that even salaries are credited through it. Cash transactions have decreased drastically in Kenya.
  • South Korea gives tax incentives for cashless transactions and could increase the share of non-cash transactions.

By – Shreya Chowdhury

Second Prize in Blog Competition, organized by the International School Of Management Studies.

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