Vivek Koul
India is enthusiastically moving towards a cashless economy but the million dollar question is whether India is ready for it or not? India is predominantly cash-based economy and reversing this mindset is going to be a little slow and tedious process. The infrastructural and payment system in India have been largely fashioned around the concept of cash transactions. The recent demonetisation announcement also highlighted our reliance on cash; it is simply, easy to use and requires no reliance on Internet or a rapidly dwindling smartphone battery. India is at the cusp of a digital revolution with many businesses embracing digital solutions and it is only a matter of time before even the common man goes digital and avoids carrying clunky coins and dirty notes. But, to waive off cash completely at the moment would be akin to sitting on an ivory tower and dictating terms to the larger population. Even Prime Minister Narendra Modi in his first radio address after the demonetisation emphasised that India should first focus on achieving a ‘less-cash’ society, which will then pave the way to build a cashless economy. Above all, digital transactions leave an imprint and help curb black money – a problem that has plagued our country for far too long. It is easily one of the biggest concerns in a rapidly growing country that’s fighting inequality and corruption. This move might not completely wipe out black money or test the will of the elite, but is a sure start to get more people to understand how digital transactions work.
Shortage of cash has also significantly increased the use of digital modes of payment, but the actual shift will only be visible after the cash crunch eases. It is possible that a section of people which has used electronic mode of payment for the first time due to the cash crunch will continue to transact through this medium, but there are still a number of hurdles in making India a cashless economy. First, a large part of the population is still outside the banking net and not in a position to reduce its dependence on cash. According to a 2015 report by PricewaterhouseCoopers, India’s unbanked population was at 233 million. Even for people with access to banking, the ability to use their debit or credit card is limited because there are only about 1.46 million points of sale which accept payments through cards. Second, about 90 per cent of the workforce, which produces nearly half of the output in the country, works in the unorganised sector. It will not be easy for the informal sector to become cashless, and this part of the economy is likely to be affected the most because of the ongoing currency swap. Third, there is a general preference for cash transactions in India. Merchants prefer not to keep records in order to avoid paying taxes and buyers find cash payments more convenient. Although cashless transactions have gone up in recent times, a meaningful transition will depend on a number of things such as awareness, technological developments and government intervention However, a material transition to a cashless economy will depend on a number of factors. First, the availability and quality of telecom network will play an important role. Presently, people face difficulties in making electronic payments even in metro cities because of poor network. Second, as one of the biggest beneficiaries of this transition, banks and related service providers will have to constantly invest in technology in order to improve security and ease of transaction. People will only shift when it’s easier, certain and safe to make cashless transactions. Third, the government will also need to play its part. It will have to find ways to incentivise cashless transactions and discourage cash payments. Implementation of the goods and services tax, for example, should encourage businesses to go cashless. Government should also use this opportunity to revamp the tax administration, as more than taxes, small businesses fear tax inspectors. The government will have to create conditions-not necessarily by creating cash shortages-to push cashless transactions to a threshold level after which the network effect will take over. 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.