Cashless economy has become a buzzword after the Modi’s Government announcement of demonetization exercise on Nov. 8th to curb black money from Indian economy.
Cashless doesn’t mean ‘without cash economy’ rather it means least or less cash into economy. It is a step towards the digital economy because it ensures that the digital fingerprints of all the transactions are available.
India has one of the highest ratios of cash to GDP in the world. Last year, 78% of all consumers’ payments in India were made by cash, whereas in the developed world like US /UK, only 20 to 25 % payments were made that way. According to a 2014 study by Tufts University, The cash operations cost of the Reserve Bank of India (RBI) and commercial banks is about Rs. 21, 000 crore annually. Cash economy facilitates the black money, fake money, money laundering, drug trading, tax evasion, no transparency, corruption, etc. Certainly, cash economy has its benefits such as it empowers unbanked families, easy transaction, acts as a store of value, no transaction fee, and no records of big data and provides safety from hackers and online transacting companies. In the present era, the benefits are losing relevance and cashless is a way for honest, transparent, safe and secure society. In such scenario cashless economy is a boon for Indian economy.
Moving from a cash economy to less cash economy is not an easy move. It requires many pre- requites such as, technological literacy, technological developments and policy measures through government intervention; availability, quality and strong telecom network, constant investment of banks and related service providers in technology, ease and certainty of cashless transactions, availability of user interface in regional languages across devices, expansion and easy adoption of the system of digital payments.
However, it is not easy to make India a cashless economy. According to a 2015 report by PricewaterhouseCoopers, India’s unbanked population was at 233 million, only 1.46 million points of sale, which accept payments through cards, no practice of keeping records, about 90% of the workforce, which produces nearly half of the output in the country, works in the unorganized sector. It will not be easy for the informal sector to become cashless. Above all 73 percent of Indians or 912 million do not have Internet access; smartphone usage rate among adults is 17 percent; average page load time on mobile is 5.5 seconds, China 2.6 seconds; 856 PoS machines per million Indians and 70 percent of the PoS terminals are installed only in India’s 15 largest cities. The PoS machine rate was 4,000 per million people in China and Russia.
Though, Indian economy is preparing itself for cashless economy. Nandan Nilekani, in an interview to a newspaper, termed this as “a defining point in India moving to cashless”. The Indian ecosystem is ready with better mobile network penetration, mobile technology, smart phone penetration across all sections of society, awareness among all age groups, Aadhaar linkages, array of service providers (banks/NBFC, Cooperative banks, payments banks, kiosk, post offices, banking correspondents, etc.), options of various payment, includes cards (Debit, Credit and pre-paid cards), Digital-wallets/E-wallets, internet banking, Aadhaar Enabled Payment System, USSD (Unstructured Supplementary Service Data), Unified Payments Interface (UPI), banking apps etc. are available.
According to a report by Google India and The Boston Consulting Group, by year 2020 nearly $500 billion worth of transactions in India will happen digitally, using online wallets and other digital-payment systems, 10 times the level currently. It expects cash-based consumer payments to fall to 40% to 45% by 2025 and by 2020, the number of smartphone users in the country will likely be 520 million, and the number of internet users 650 million, twice the number currently.
It is equally important that the government will also need to play its own part. Gov. should identify best global practices; incentivize cashless transactions and discourage cash payments; make laws and environment, which facilitates and encourage digital payments to ensure that movement towards cashless take a speed and acceptance across all sections of society. The government will have to create conditions not necessarily by creating cash shortages but to push cashless transactions to a threshold level after which the network effect will take over such as recent announcement of the Finance Ministry that more than Rs. 5000 Gov. payment will be done digitally.
India may not become a cashless economy in the foreseeable future, but it needs to reduce its unusually high dependence on cash to bring in much needed transparency and efficiency in the system. Strong political will coupled with the enablers in the ecosystem will definitely take India towards cashless economy.
About the Author:
Assistant Professor – Institute of Management
JK Lakshmipat University, Jaipur