Cashless Economy: Is Society ready for transformation?

According to the website of cashless India, the Digital India programme is a flagship programme of the Government of India with a vision to transform India into a digitally empowered society and knowledge economy. “Faceless, Paperless, Cashless” is one of professed roles of Digital India.

 

The ambitious mission of government of India to drive India towards a cashless economy was boosted with the announcement of demonetization on November 8, 2016.

 

What is a cashless economy?
A system where no physical cash is in circulation is a cashless system. Payments are made through credit and debit cards, bank electronic fund transfers or virtual wallets.

 

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Benefits:

  • Cost Reduction: cashless system brings down the cost associated with printing, storing and transporting of cash.
  • Risk Reduction: The risk of money getting stolen or lost is minimal. Even if the card is stolen or lost it is easy to block a credit/debit card or a mobile wallet remotely. It is also a safer and easier spending option while travelling.
  • Convenient: The ease of conducting financial transactions is probably the biggest motivator to go digital. With the advent of digital modes, one can avoid queue for ATMs, transact 24*7 and save time. Additionally for service providers, with the emergence of e-KYC, it is no longer necessary to know your customer physically as the payments model has overcome limitations related to physical presence.
  • Tracking spends: Spending done via mobile or computer applications can be easily tracked with a simple click. This allows users to keep a track of all their spending and manage their budget effectively.
  • Increase in tax base: Traders, small businesses, shopkeepers, and consumers regularly use cash as a means to avoid paying service tax, sales tax, etc.  However, in a cashless economy where all transactions will be done through organized channel, through banks and financial institutions, they can be monitored by the government and proper actions could be taken against the evaders. This will result in more transparent transactions which in turn lead to fall in corruption in the economy of the country.
  • Containment of parallel economy: In a cashless economy it is easier to track the black money and illicit transactions unlike cash based economy in which money does not come into the banking system. In case of digital transactions it is easy to track and monitor suspicious transactions as all the records are available with the banks.  
  • Financial Inclusion: At present, India’s low-income households access credit through informal systems, through relatives or private lenders. Forcing them to shift to cashless payment platforms instantly formalizes this world of informality and include them in formal economy.
  • Discounts: A lot of ecommerce websites offer huge incentives in terms of discounts, cash back, loyalty points to the customers for making digital transactions for shopping online.

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Yes, India is ready for a cashless economy.

  • According to TRAI, as on 30 September 2016, 82 out of 100 citizens in India owned a mobile phone. The evolution of the telecom ecosystem, with significant reduction in call and data rates, along with the prices of smart phones, is propelling the shift to a cashless economy.
  • The government of India is working dedicatedly to push India towards a cashless economy. With major initiatives such as demonetization, Direct Benefit Transfers, BHIM and many more. The intent is to streamline the economy and curb corruption.
  •  The government approved for a proposal, under which there would be no charge for BHIM, UPI, and debit card transactions up to ₹2000.
  • Government also ran a DigiDhan campaign where 16 lakh lucky winners (users and merchants) were rewarded with prizes ranging from Rs 1000 to 1 crore.
  • Further to incentivize behavior change and bring down the cost of digital payments, referral and cash back schemes have also been launched for BHIM where users and merchants receive cash back. Also, initiatives like USSD and the *99# service have ensured that non-Smartphone users are also on board the cashless wave.
  • Demonetization has given an impetus to e-wallet services. According to a report “Securing the cashless economy”, by Pwc, India witnessed
  • 3X increase in the download of a leading mobile wallet app within 2 days of the demonetization announcement.
  • 1 million: Number of newly saved credit and debit cards within two days of demonetization announcement.
  • 100%: Day-on-day growth in customer enrolment with leading mobile wallets after demonetization.
  • 30%: Increase in app usage and 50% increase in the download of wallets backed by leading banks.

The above mentioned data clearly represent a shift towards a cashless economy.

  • The smart phone revolution has led to the emergence of e-commerce, m-commerce and other services, including app-based cab aggregators, who encourage digital payments for use of various services. The value added services such as cash back, bill payment facilities, loyalty points, rewards and ease of use have resulted in surge of such digital platforms. These developments have given rise to a modern payment model.

Hurdles in making India a cashless economy

  • More than 60% of Indian population belongs to rural region. Almost a quarter of the rural populace doesn’t have mobile phones and a large percentage of them are computer illiterate. They are not comfortable using computers or mobile phones for transactions and rely on other people for help. This sometimes leads to misuse of the accounts and siphoning of funds, so majority of rural mass prefer cash over digital modes.
  • About 90% of the Indian labor market is informal. Majority being employed in agriculture and manufacturing sector where daily wage is prevalent. Under such circumstances the informal labor market is heavily cash dependant.
  • India is a country where 90% of transactions are paid for in cash because cash facilitates making transactions anonymous, helping conceal activities from the government in a way that might help agents avoid laws, regulations and taxes. Transition from a 90% cash based economy to a
  • Security is another big concern regarding cashless transactions. The Indian Computer Emergency Response Team (CERT-In) has reported a surge in the number of incidents till October 2016 with close to 39,730 security incidents. Indians are wary of digital modes due to cyber security incidents such as phishing, scanning, website intrusions, defacements and virus code.
  • Though several companies have come up with inexpensive smart phones still they are not affordable for most of the people in the country. Unless Indian government provides necessary subsidy or affordable solutions cashless economy would be a farfetched dream.
  • Digital India suffers from the threat of thefts and hacking of digital money instruments. The ATM cards, Debit/Credit cards, Net Banking solutions and even the transaction websites of the financial institutions and banks are hacked by the mischievous people who withdraw money by making clones and changing the passwords. This has to be taken care of before proceeding on digital India mission..

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