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.

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.

Yes, India is ready for 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..