India on the path of Cashless Economy - to achieve vission of Digital India IAS Target

Cashless Economy

22 Feb 2020

Category : Economical Issue

Topic: Cashless Economy

Government of India launched a new mission �Cashless India�, to alleviate the dependency of Indian economy on cash and to bring pile of stashed black money lying unused in the banking system. The country embarked upon this transition to a cashless economy when the government took the sweeping step of demonetization of older currency notes of Rs 500 and Rs 1000 on November 08, 2016. This move was actually to target the fake currency circulating in Indian market and the black money that somehow run-off the radar of tax authorities.
After demonetization severe shortage of currency in Banks and long queues outside ATMs, gradually people switched over digital transactions, one of the prime requirements under cashless India. If the government succeeds in providing secure and rapid digital payment process to the customers and merchant or traders establishments across the country, then the dream of India becoming a fully cashless economy will turn up.

Pros of cashless India

  • Cashless transaction avoids any problem to carry cash
  • It is in keeping with the worldwide shift. People need not carry any cash in numerous countries around the world as most of the payment done electronically.
  • Digital transactions let us view history of our payment at one go which relief you to manage your budget easily.
  • Since cashless transactions can be detected and they invite payment of taxes, wherever pertinent, thus ruling out use of black money.
  • As tax collection becomes easy through the cashless method, it faster the pace of economic development, making it simple for the government to layout on health care, education, employment, infrastructure and the overall prosperity of the public.
  • Increased tax collections lower and clarify the structure of tax.
  • Devolving of monetary benefits to the needy through bank transfer rules out their exploitation by the exploitative middle men.
  • Cashless transfer deal a body blow to fake currency or distribution of black money through Hawala channels. Further, it cuts the supply of unaccounted hard cash used in funding of sinner, criminal and terrorist activities.
  • It helps the government to save considerable costs in printing and flow of currency notes.
  • Augmented liquidity of currency with the banks makes them reduce their interest rates puts the massive amounts of cash deposited with them to some productive use.
  • Digital or cashless economy will surely help to implement our current banking system. There will be increased access to credit for people who didn�t cover in any banking network. Financial inclusion will automatically decrease poverty somewhere.
  • All the transactions or payment that are done can be detect back to a given individual. If officials from tax department smell something fishy then they can detect the money dealing back to the individual. Hence, it will be truely tough for someone to escape tax.
  • There would be no incentive or reason for people stocking money in the bank. So they would love to expenditure on things that they like. This will automatically boost up the consumption that is good for Indian economy. More jobs will be produce and income level of people will grow.

Challenges of Cashless Economy

Security Cashless economy can be a horror when it comes to security. All your payment or transactions will be done digitally. You may be a victim or sufferer to cyber - strikes like hacking. Hackers can hack your important and secret information like password, debit card, PAN card, credit card number etc and leave your account with no money. You can protect yourself from cheating but it is difficult to save from a cyber - attack.
Electricity If there is a power outage or blackout primarily in India which is very fequent, then entire system will be affected for long time.
Trust Reliance on Government or Third party means there is no money or currency in your hand. All the money is digital so either they are in leash of banks or government or any other third party. You have to trust government or bank because everything is under their control. This is could be terrible because if today or tomorrow something happens you will be left with no money orhard cash.
Liquidity issue  Diminished Liquidity means Bad for certain sectors. There are some sectors which totally depend upon high level of transaction. Sectors like Retail Industry, Real Estate, Restaurants, jewelry,   and eating joints, cement and other SME will be affected severely because of cashless society. It means people who are employed by these sectors are also going to be affected.
Impact on Poor This is the actual point and will be debating in great details that how cashless economy is actually going to affect poor.
Currency dominated Economy High level of cash flow in India amounts to approximately 13% of India�s GDP.
Dominance of cash in economy Around 90 to 95% of transactions takes place in cash. Large size of informal or unorganized sector entities and workers prefer cash-based transactions. They don�t need digital and fintech literacy.
ATM use is specially for cash withdrawals There are large number of ATM, or Credit cards including around 21 crore Rupay cards but 92% of it, ATM cards are used for cash withdrawals. Merely, low level of digital payment using ATM cards and multiple holding of cards in urban and semi-urban areas reflects low rural penetration.
Limited availability of Point of Sale terminals According to RBI, there are around 1.44 million POS (Point of Sale) terminals installed by various banks across location at the end of July 2016. But most of them remain in urban or semi-urban areas.
Mobile Internet penetration remains weak in rural India There is urgently requirement of internet connection to settle transactions digitally. But in India there is bad or poor connectivity in rural/backward areas. Further, a lower literacy level in rural parts of the nation, make it troublesome to push the use of plastic money on a wider scale.

Rich Vs Poor Debate

Even today, people in India struggle to meet their basic needs like food, cloth and shelter. Over half of the population does not fall in any banking network. They are still dependent upon hard cash to fulfill their basic needs. Actually, Over 100 people have died because of demonetization. So, now you can imagine the impact if country decides to go completely cashless. Poor people have to suffer a lot because they have been not covered. On the other side, people living in urban areas will benefit because the cashless economy is mainly for them.
Government should include all sections of society before they go for a cashless economy. Otherwise poor which is more than 50% of the nation unable to be a part of cashless economy and government motive will face challenges ahead.

Steps needed before full cashless economy

  • Banking and ATM coverage in distant areas especially in rural pockets
  • Financial and digital literacy among people across the country
  • Focus on infrastructure like 100% electricity and broadband connectivity too
  • Effective steps to prevent cyber-crime, hacking and other threats
  • Moves to reduce transaction and concealed cost in digital payment
  • Publicity and awareness among people of the benefits of digital payments
  • Steps to stop rumors about cashless economy by vested interests

A part of Digital India program, the concept of cashless economy in India is centered on the vision of transforming the country into a society, which is digitally enabled and endowed by various modes of cashless transactions. Consequently, digital modes like mobile wallets, banks pre-paid cards, UPI, AEPS, credit/debit cards, USSD and Internet banking have gained in currency, leading to cashless India in near future. We have benefits, but challenges also in transforming into cashless economy. So government should work on fixing issues and take steps so that cashless economy embrace marginal people who still out of financial inclusion.