“We want to have one mission and target: Take the nation forward – Digitally and Economically” —Shri Narendra Modi
In today’s term, a cashless society is described as an economic state whereby financial transactions are not conducted with money in physical form (banknotes or coins) but rather through the transfer of digital information. Advocates saw the potential in digital transactions as it allows for quicker transactions regardless of location and not limited by time which empowers individuals with access to financial services. This prompted small businesses and basic trades to occur in developing areas where banking infrastructures and robust regulations were lacking. Digital payments allow for full traceability of transactions, pointing tax regulators in the right direction to crackdown on tax evasion, security forces to track terrorism funding, money laundering, corruption, and many other financial crimes. Going cashless also helps in reducing cost towards maintaining the circulation of paper currency and allowing the government to have better control over the flow of money when in times of crisis intervening to implement damage control initiatives. India continues to be driven by the use of cash; less than 5% of all payments happen electronically however the finance minister, in 2016 budget speech, talked about the idea of making India a cashless society, with the aim of curbing the flow of black money.
Even the RBI has also recently unveiled a document — “Payments and Settlement Systems in India: Vision 2018” — setting out a plan to encourage electronic payments and to enable India to move towards a cashless society or economy in the medium and long term.
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. The paper under study tries to throw light on the rising trend of digital transactions in India being carried out in various cashless modes over the last few years but simultaneously being ourselves making alert of the negative impact of going cashless thereby showing downside of digital India. As the people of India are showing amazing response towards move of digitalization, it is the big indicator of prosperous future for India to be cashless India. So the need of an hour is to spot the weaknesses involved in cashless transactions and work out on them to achieve the vision of Prime Minister Modi’s Digital India.
What is a cashless economy and where does India stand?
• Cashless economy is one in which all the transactions are done using cards or digital means. The circulation of physical currency is minimal.
• India uses too much cash for transactions. The ratio of cash to gross domestic product is one of the highest in the world—12.42% in 2014, compared with 9.47% in China or 4% in Brazil.
• Less than 5% of all payments happen electronically
• The number of currency notes in circulation is also far higher than in other large economies. India had 76.47 billion currency notes in circulation in 2015-16 compared with 34.5 billion in the US.
• Some studies show that cash dominates even in malls, which are visited by people who are likely to have credit cards, so it is no surprise that cash dominates in other markets as well.
A Definition Of Cashless Economy:
Cashless – “operated or performed without using coins or banknotes for money transactions but instead using credit cards or electronic transfer of fund”. The term is characterized by the exchange of funds by cheque, debit or credit card, or electronic methods rather than the use of cash.’
The RBI and the Government are making several efforts to reduce the use of cash in the economy by promoting the digital/payment devices including prepaid instruments and cards. RBI’s effort to encourage these new variety of payment and settlement facilities aims to achieve the goal of a ‘less cash’ society. Here, the term less cash society or cashless transaction economy indicate reducing the use of physical cash for payments. Instead of cash, digital payments are made to settle the payments.
Cashless transaction economy doesn’t mean shortage of cash rather it indicates a culture of people settling transactions digitally. In a modern economy, money moves electronically. Hence the spread of digital payment culture along with the expansion of infrastructure facilities is needed to achieve the goal.
On November 8th, government withdrawned Rs 500 and Rs 1000 notes- two highest denominations in circulation. Main objectives were to fight counterfeit money and black money. The action has given tremendous boost to cashless transactions as card based and digital payments were not hindered when all high denomination cash transactions suffered because of absence of high denomination currencies.
B Historical Background Of This Study:
The history of the need to make transactions easier can be traced back to the days of trade by barter, where goods were exchange for goods. Because of the tedious nature of the trade by barter system, various forms of the means of exchange were sought for. These, later became money, and they made economic transactions less problematic and faster. Since then, various forms of money were introduced as means for exchange. These ranged from cowries to pennies (coins) and then paper money. Even with the introduction of paper money, lots have been done (since independence) to minimize the cost of producing such monies and maximize their economic potentials. This led to the amendments in both the sizes and quality of the physical money. In the early 2010, financial sector witnessed a growing chorus of voices calling for a shift from cash-based economy to cash-less economy. The move soon becomes a top priority for government, NGOs and companies focused on expanding financial access to the underserved. Recent statistics showed that nearly 2.5 billion people do not have access to formal financial services. Without basic payments and saving accounts, money is often kept in cash under the mattress then moved around from person to person, drastically increasing the risk of theft or loss. One cannot deny the fact that even a task as simple as paying bills can be unsafe, costly and time-consuming. The implications of this financial exclusion are significant and far-reaching, reinforcing the cycle of poverty and slowing economic progress.
Cashless economy is an economic system in which transactions are not done predominantly in exchange for actual cash. Simply put, it is an economic setting in which goods and services are bought and paid for through electronic media. Information Technology plays an important role in bringing about sustainability of the policy. It stated that the future of all business, particularly those in the service industry lies in information technology. In fact, information technology has been changing the way companies compete. Banks are companies engaged in banking business. Their future is, therefore, linked to the pervasive influence of information technology.
Information technology is more than computers. It encompasses the data that a business creates and uses as well as a wide spectrum of increasing convergent and linked technologies that process such data. Information technology thus relates to the application of technical processes in the communication of data. It is beyond doubt that information technology can help reduce transaction costs for banks, which will translate to lower prices for services to customers. Information technology for banks takes different forms. The forms include:
1. Computerization of customers’ accounts and account information storage and retrieval;
2. Deposit and withdrawal through Automated Teller Machines (ATMs); and
3. Networking to facilitate access to accounts from any branch of the bank.
C Cashless Future Is The Real Goal Of India’s Demonetization Move:
The biggest problem with India suddenly removing 86% of its currency from circulation without having an adequate supply of new notes ready to take their place is that fact that India is more reliant on cash than almost any other country on earth. Suddenly, hundreds of millions of people were left without the means to engage economically, to buy the things they wanted and needed, and myriad businesses were left without a readily available mechanism to receive payment for their goods, to buy supplies, or pay their staff.
India’s demonetization scheme was a unilateral initiative that was planned in secret — in a back room of Prime Minister Modi’s home, in fact — by a small group of insiders tied-in with the upper echelons of India’s government. The strategy was to instantly nullify all 500 and 1,000 rupee banknotes, the most common currency denominations in the country, and then eventually replace them with newly designed, more secure 500 and 2,000 rupee notes. This endeavor instantaneously became policy when the prime minister announced it via a surprise television address at 10:15 PM on November 8.
One of Modi’s main brands is that of a corruption fighter, and his demonetization initiative was rushed into effect in an attempt to catch the black market off guard — which could potentially lead to a big payday for the central bank if large amounts of illicit cash wasn’t redeemed. That plan flopped, as almost all of the recalled notes were officially accounted for one way or another.
But this surprise demonetization also did something else: it pushed millions of new users onto the country’s digital economic grid by virtual fiat. Not even the banks were notified in advance of Modi’s plan, and, even with strict exchange limits that prohibited people from exchanging over $60 worth of rupees at a time, they simply didn’t have enough of the newly designed banknotes on-hand to distribute to the masses looking to redeem their canceled notes. Rather than being a 50 day transition, as the Indian government projected, it is looking as if it will take four months to a year before the country’s currency supply is restored.