HEADING TOWARDS A CASHLESS ECONOMY
A Cashless Economy is an economy in which all types of transactions are carried out through digital means. It includes e-banking (Mobile banking or banking through computers), debit and credit cards,card-swipe or point of sales (POS) machines and digital wallets.
Indian economy is growing at the rate of 7% per year, but it largely depends on cash transactions. India’s cash to GDP ratio is 12 percent which is highest. Before demonetization, cash was used as the medium of transaction in 95 percent cases. Also, most of the consumers didn’t have formal bank accounts back then. Demonetization of high denomination notes and giving space to private sector finance to increase are playing as major instruments in migration from cash to digital transactions or cashless economy. Indian government also set up Wattal Committee to analyse and set out the path for a cashless Indian society.
The major roadblock in the path of cashless economy is the informal sector. The informal or unorganized sector mostly depends on cash for their day to day transactions. They don’t have financial or digital literacy. In order to fight this roadblock government began the largest scheme to open bank accounts , even at zero balance , called “PradhanMantri Jan DhanYojana”. The scheme witnessed record opening of bank accounts. Eventually, these steps have not only paved way for direct benefit transfer to accounts of beneficiaries but have also managed leakages to an extent.
Government has taken various steps like:
-Digital purchase of fuel through credit cards, mobile wallets or e-wallets, discount of 0.75%
-Free accident insurance worth rupees 10 lakh on account of online ticket buyers
-On purchase of new LIC policies online via its site, 8% discount is offered.
-Government has also introduced various technologies like BHIM (Bharat Interface for Money) app to transact between each other as well as with other merchants.
A sovereign digital revolution in India will also result in a victory over the menace of hoarded black money. Electronic transactions will enable more transparency in the system. They could be even tracked more easily. It will also result in better and efficient indirect tax collection. Small businessmen, shopkeepers, traders use cash so as to avoid VAT, sales tax. Digital economy will fight this tax avoidance and a sharp increase in indirect taxation will be showed for sure. This will in turn help in proper growth and development of economy.
While we are heading towards the digital or cashless economy it is very important to see or study the perils of the same. We need to have a very strong cyber security infrastructure to secure electronic transactions and prevent data breaches. In addition to initiatives taken by government or RBI, Companies are also participating in combating of cybercrimes. Microsoft opened full scale cyber security Center called Cyber security Engagement center (CSEC) in India.This centre monitors how viruses are spreading , from where cyber attacks are originating and helping customers to tap pool of security specialists
A prerequisite for a cashless economy is financial inclusion, which is much more than having bank accounts. Along with it mobile wallets or E wallets are available on smartphones while more than 55 percent Indians still use feature phones. Another impediment is inida’s failure to increase the accessibility to banks within formal banking system. Still there are many villages where banking system is absent in totality.
Other challenges in the path of digital economy are:
-ATM use is mainly for cash withdrawals and not for settling online transactions
-Limited availability of point of sale terminals. (POS machines)
-Mobile Internet penetration remains weak in rural India.
-Though bank accounts have been opened through Jan DhanYojana, most of them are lying unoperational with zero balance.
-The low literacy rates in rural India along with lack of infrastructure
- In India, there are approx. 350 million internet users. The internet penetration rate is just 27% which is very low ,It has to be at least 67% which is global median for better prospects.
-Since, Indian market ismostly dominated by small retailers, therefore they don’t have enough resources to invest in electronic payment infrastructure
Steps for adopting cashless economy with ease:
-The Jan DhanAadhaar Mobile (JAM) can encourage digital transaction culture amongst people. A large number of government direct benefit transfers are made through JAM mode.
- Government should assure basic necessities in rural areas and focus on developing infrastructure for digital transactions.
-Financial literacy is a must for bringing more and more people to the digital platform.
-Linking of all welfare activities with bank accounts is a much required step.
-Targeted financial education programs can improve financial skills and Credit Management, and increase account ownership.
-financial inclusion is a very strategic requirement.
-To expand digital payment infrastructure in rural areas, the Central Government through NABARD will extend financial support to eligible banks for development of 2 POS devices each in 1 lakh villages with population of less than 10,000.
“Faceless, Paperless, Cashless” is one of professed role of Digital India. Hence, all the stakeholders must come forward to adopt the technological changes and begin a cashless economy and society, which would be more transparent. Mass awareness campaign must be encouraged so that citizens especially in rural and semi urban areas don’t shy away in using digital payments as well as other products and services offered by Digital India initiative.