Overview — can india become a cashless economy Essay

Being Cashless is not a new concept as it existed long before the concept of money, and it was known as barter system, where goods and services were given in exchange for goods and services. Digital transactions are a bit similar to that of barter system as in both the cases there is no transaction of physical money. Cashless transactions have become possible with the use of debit cards, credit cards, and mobile wallets like Tez, Phone pay, Paytm, online bank account transaction and also through digital currencies such as bitcoin.“Is India ready for cashless economy”- Though cashless transactions have increased these days, right now India cannot completely become a cashless economy considering its high proportion of digital illiteracy and cash transactions. But Indian Government is working towards increasing the share of cashless transactions, which is a good thing for any economy. This paper provides some detail about India’s movement towards cashless economy, it also emphasis on the benefits, issues of going cashless. It also throws light on the steps taken by the Indian government to increase cashless transaction.

Introduction

An economic state where financial transactions are not conducted with cash or physical money is considered as a Cashless economy. The transactions are done digitally between the parties, through an electronic form. India is a land of contradictions and the best example of this would be the existence of two different worlds in the same nation: India and Bharat. While, India is tech and Internet savvy, our Bharat is far behind. It even lacks the basic amenities. While India is talking about bullet trains and hyper-loops, one can still find people earning their livelihood from cycle-rickshaws in ‘Bharat’. Given such a wide spectrum of disparity, the fact that 90% of our workforce is in the unorganized sector, comes as no shock. And amidst all these disparities, Prime Minister Modi announced the demonetization of Rs. 500 and Rs. 1000 notes. The demonetization step has had both positive and negative impacts on the economy. While many see ‘curbing black money’ as the main goal of the demonetization process, they miss out on the most obvious result, which is – financial inclusion and shift towards a cashless economy. Going cashless is also a function of literacy, net connectivity and will take time to scale.India has almost half-a-dozen methods for cashless payments. And yet users can’t leave home without cash. Demonetization accelerated a shift to digital payments, but will take lot more time to become the prime payment option.

Objectives

To study about importance of going cashless economy and its impact on the people in the economy.

Methodology

The data is purely secondary and has been collected from various websites and journals, articles, survey reports as well as published books.

India Is Cash Obsessed Economy

The Indian economy is cash based. So much, that, MNCs like Amazon had to incorporate ‘cash on delivery’, just to be able to tap into the Indian market. The rate of cash to GDP is the highest, i.e. 12.42% in India. In fact, in the year 2015, 78% of all consumer payments were in cash in India, whereas in US, it was 20% and in UK it was 25%. India is the 4th largest user of cash in the world. And in this era of technology, this is not only backward, but also unscientific and ‘un’-economic.

Why Is Moving Towards A Cashless Economy Important?

To put it in a straight forward manner – cashless economies tend to be less corrupt, and have lesser black money. Let’s examine these reasons in detail.

1. Cash is costly

A significant amount of time and effort is expended in shepherding them through the system and finally into the consumer’s hands. RBI has spent Rs.32.1 billion just for printing the currencies that are in circulation. Add to it the costs of setting up and maintaining ATMs. Also, paper currency has a shelf life after which it is renewed. It is said that the direct cost of running a cash based economy is close to 0.25% of India’s GDP.

2. Cash drives a shadow economy

Cash transactions provide anonymity like no other mode of payment. They’re difficult to track. This leads to many evils, like – tax evasion, black money etc. In 2007, currency in circulation was almost equal to bank deposits. But in the last three years, currency with Indians was more than the bank deposits by 50%. As per government data, the size of black money in India is Rs.15-16 lakh crores. This is the unaccounted money and was being used to finance a shadow economy, almost running a parallel government that finances all illegal transactions. Most of it is used for financing terrorist activities, illicit funding for elections, purchasing political decisions, betting, trafficking, and for hijacking democracy.

3. Future rewards: Financial inclusion + Increased tax revenues

A cashless or a digital economy will require all the residents to have a bank account. This will lead to higher financial inclusion rates and will also help build a bridge between Bharat and India. Also, since digital transactions can be easily tracked, the incidences of tax evasion will reduce drastically and in the long term will help the common people in terms of better implementation of government policies.

4. Other advantages

There is no need to worry about cash and going banks and ATM frequently.With a cashless and digitized payment system it has become more efficient and convenient for the masses.
  • this also speeds up the process of the financial transaction;
  • electronic transactions have increased the transparency as all the transactions are recorded electronically;
  • the movement of the money can be tracked which enables to identify the illegal and black money transactions taking place in the country;
  • this can help in removing corruption from the country, especially in India where corruption rate is high;
  • more convenient for businessmen, Digital payments can also reduce the risks of storing cash and fear of money theft.
On one hand where digitalization has made all the financial process easier. But there is a lot more to consider than the ease and convenience.

Moving towards a cashless economy is not an easy task

  1. There are some concerns related to privacy and control as every purchase and transactions are now recorded somewhere and monitored by someone;
  2.  The threat of security has also increased. Your data as such bank account details and passwords can be hacked. Although it comes under the cybercrime, still threats and safety issues exist;
  3. Lack of habit and trust, security and safety standards along with the absence of a fast, reliable dispute resolution system that ensures people don’t abandon cash totally;
  4. Too many confusing options and apps ail cashless payments. People residing in rural areas, elderly people are not use to digital transactions; they find it difficult and complex.
There are many challenges that need to be overcome. The major challenges are as follows:

1. Inadequate infrastructure

  • For a vast country like India, having only 2.3 lakh ATMs and 14 lakh point of sale (PoS) terminals is too low. Countries like Brazil, Australia, France and the UK have PoS terminals three or four times that of India. Also, the ATMs are concentrated in metros, but the number is scarce in the suburban and rural areas;
  • Another challenge is to improve activation of cards on all the channels.

2. Mobile internet penetration is weak in rural India

For settling transactions digitally, an internet connection is needed. But ‘Bharat’ lacks proper connectivity to the Internet in rural areas. In addition to this, low literacy levels make it problematic to push the use of plastic money on a wider scale.The Digital India program is a flagship program 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 the professed role of Digital India.

Steps taken by the Indian government to increase cashless transactions

A) Modi’s six-point formula to achieve this includes:
  • the government has asked all departments to enable electronic payment options such as Bhim-UPI QR code at their cash counters as part of plans to boost digital transactions;
  • cash counters can send an indent to a customer’s phone to enable payment through UPI;
  • campaign to overall merchants through Bhim-UPI as there are only 3.1 million POS terminals in India to cover 60 million merchants;
  • getting more vehicles to adopt FASTag – only 20% of payments received by NHAI are through FASTag;
  • all government utility bills – of power, water or phone should carry a QR code;
  • more push to National Common Mobility Card in metros for common transportation needs.
B) In order to attract the general public and facilitate significant behavioral change among the public towards digital transactions, NITI Aayog had launched two major schemes – Lucky Grahak Yojana for consumers and Digi-Dhan Vyapar Yojana for merchants. 12",72",290 consumers and 70",000 merchants have won prizes for digital payments made through AEPS, USSD, UPI, and RuPay cards as on 22nd March 2017.C) To incentivize the States/UTs for the promotion of digital transactions, it was decided that Central assistance of Rs. 50 crore would be provided to the districts for undertaking Information, Education and Communication (IEC) activities to bring 5 crore Jan Dhan accounts to a digital platform. The fund allocation is based on the proportion of Jan Dhan accounts of all States/UTs. Under the scheme an incentive @ Rs. 10/- is provided for every individual who has transited to digital payment mode and undertaken at least two successful transactions by any of the five digital payment modes viz: UPI, Rupay / Debit / Credit / Prepaid Cards, AEPS, USSD and E-Wallets. NITI Aayog has so far released an amount of Rs 15.06 crore to 533 Districts as the first installment.

World overview

Countries like Denmark and Norway top the adoption of cashless payments, but the clear Scandinavian leader in becoming the first cashless country is Sweden. Let’s look at the countries which are already largely cashless, and how they’ve integrated cashless behavior into their daily lives.

A) Sweden goes cashless

Swedes have taken to cashless payment wholeheartedly. If you visit Sweden, be sure to take your credit card or mobile phone with you. Only 15% of payments involve cash transactions, and it’s rare that a person will be limited to paying with cash. A popular mobile payment app, Swish, used by half of the country’s 10 million population, enables payment transfers to people and businesses. Sometimes it’s even difficult to use cash in Sweden. Drivers of Swedish buses no longer accept coins or banknotes. The ubiquitous use of debit and credit cards by Swedes has led many stores to no longer accept cash. Storeowners believe the removal of cash lowers the risk of robberies. It also saves them valuable time dealing with cash, which many banks have stopped accepting. Banks have also stopped dispensing cash and removed their ATMs. Contactless is a common payment method in countries across Europe.

B) China is mad about QR codes

Another contender for the first cashless country in the world is in China. Home to the world’s largest cashless market and unlike Scandinavia the Chinese scene is dominated by scan able QR codes. The Chinese have largely skipped mass credit card adoption and have instead embraced QR codes. The main players are Alibaba’s Alipay, and WeChat, owned by Tencent, and has also been taken up by China UnionPay, who was the main providers of debit cards before the mass adoption of mobile payment. Everywhere you go in China you will see QR codes: supermarkets, amusement parks, temple donations, and market vendors all ask for payment this way. Even traditional New Year’s gifts, which include a monetary gift, now contain digital payments instead of cash. The benefits for the smaller players count. For taxi drivers, it means avoiding robbery or receiving counterfeit notes. For street vendors it means they don’t have to carry or give change. And the QR code trend is spreading. In Japan and Finland, where lots of Chinese travel, have started accepting QR codes.

C) UK is all about contactless

In the UK, credit/debit cards, contactless and online payments have taken over cash payments. Increasing the British population reports they never carrying cash and they don’t appear to need to either. Travel around the UK and you’ll see the sign for contactless, referred to by locals as tap and go, everywhere. But it’s not only online shopping, big purchases and bills that are cashless. The British use their cards for anything they can, including micropayments like coffee or a bag of chips. Mobile payments are also becoming increasingly common, and surprisingly are seen being used more often in pubs, bars and restaurants, places where cash was traditionally used.

Suggestions

  • providing computer literacy in schools in rural and urban areas;
  • computer training facilities to illiterate and poor people in remote areas;
  • spreading awareness about digitalization and its importance;
  • broadband/Internet Connectivity to every household and person",companies like BSNL and VSNL need to improve the quality and reach of broadband through fiber optic, DSL and even Cable/Satellite medium, and also help cellular companies to improve speed and decrease cost of mobile data connectivity;
  • digitize and modernize the judicial system so that they can use technology to resolve cases faster and improve efficiency;
  • all the smart cities must have complete free WIFI access everywhere (Wifi blanket);
  • in the area of every polling booth in the country, set up an e-library where computers, e-books, internet and other information can be accessed by any citizen of India;
  • each police station should have a digital security and crime expert team. Digital crime is on increase.

Conclusion

A digitally connected India can help in improving the social and economic condition of people through the development of non-agricultural economic activities apart from providing access to education, health and financial services. However, it is important to note that ICT alone cannot directly lead to the overall development of the nation. The overall growth and development can be realized through supporting and enhancing elements such as literacy, basic infrastructure, overall business environment, regulatory environment, etc.This is because to implement a cashless society to have a bank account, smartphones/ computers are necessary. And we all are aware that all the poor don’t have a bank account and if they have they don’t have smartphones or computers. Whereas with the senior citizens they don’t hold the power and knowledge of engaging in digital transactions. Cashless payments are also good for business owners, who are provided with a more streamlined way of handling transactions. The loss of cash might seem sad to some, and scary to others, but Indians is excited for this future and are happy that we’re already helping this phenomenon become a reality.

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