India has essentially been a cash economy. 86% of our transactions are in cash and 95% of our personal expenses are also in cash and India spends about 1.7% of GDP in printing money and about 3.5 billion dollars are spent each year on circulating them. So, the question is for a developing nation like ours will a cashless economy be a step in the right direction or will it be counteractive?
Cashless economy is where physical notes and coins don’t exist as a means of transaction (in theory), but in practice no nation has truly become cashless. Economies are driving towards creating a mechanism where the adoption of digital payments as against cash increases. After the advent of demonetization, the central government is largely advocating for online and card-based transactions in the country to achieve its target of largely becoming a cashless economy under their flagship programme ‘Digital India’.
Advantages of A Cashless Economy
One of the main merits of it from an individual’s perspective would be that it does away with the hassle of carrying cash. The ecosystem is managed seamlessly without resorting to standing in long ques for depositing cash at bank branch or ATM or needing change etc.
From a business perspective, if all payments are digitalized, with the help of integrated softwares, one can automate the accounting process.
From an economy perspective, it does away with the issue of black money which includes tax evasion etc. as everything is being transacted through a regulated channel.
The visibility of these transactions and the data collection it involves can help government plan for forthcoming expenditures such as housing, energy management etc. all the while it reduces the problem of counterfeit currency.
Disadvantages of A Cashless Economy
Lack of Trust
Major concern when there’s no money in one’s hand is dependency on a third party (whether it’s the government or a private bank). The fear of not having hard cash to fall back on in case the technology fails or glitches needs to be considered.
A primary concern is also increased susceptibility to cyber-attacks, hacking of accounts etc.
Absence of awareness
Limited knowledge and financial illiteracy despite the increase in use of smart phones in rural areas where most citizens still reside is a massive issue.
What are the hurdles that India needs to overcome?
In order to create a vast system of digital payments, there is huge amounts of investment to be made. Some innovations include Axis Bank, Mastercard and Worldline’s Soft PoS where by downloading an application turns one’s mobile phone into a card accepting device.
Secondly the cost of transaction involved in digital payment which includes cost of issuing a card, cost of using it as well as the merchant where the digital payment method is used needs to be considered as this is what keeps the ecosystem alive.
Despite the drawbacks and challenges, the cashless way of payment is indeed an upgrade with increased transparency which is beneficial to micro and macro units of our economy. Indian government’s efforts to further the cause and for being one of the progressive regulators has been recognized globally. UPI is the biggest example, with 2.8 billion transactions, it has surpassed every target the government envisaged. Adoption of these methods has helped push through and it’s safe to say that India is moving far and beyond to build a technologically advanced and seamless economy.