Cashless Economy is a buzz word today. TIDES Academy discusses this important Current Affairs topic for UPSC Exams to give you some insights. Before discussing if India is ready for a cashless Economy, let us understand the concept of cashless economy.
What is Cashless Economy?
Cashless Economy can be defined as a situation in which the flow of cash within an economy is non-existent and all transactions must be through electronic channels such as direct debit, credit cards, debit cards, electronic clearing, and payment systems such as Immediate Payment Service (IMPS), National Electronic Funds Transfer (NEFT) and Real-Time Gross Settlement (RTGS) in India.
‘Digital India’ program with moto “Faceless, Paperless, Cashless” became a flagship program of the NDA government as soon as it came to power in 2014. The government undertook several steps to drive India towards a cashless economy, including the announcement of demonetization in November 2016. Online payment has seen an extensive growth due to Digital India campaign and Demonetisation.
Benefits of Cashless Economy
- Cost Reduction – Cashless systems bring down the cost of transactions since all transactions are done digitally. A large amount of money is saved by the government which otherwise would have to be spent on printing, storing and transporting currency.
- Risk Reduction – Risk of theft or loss of money is minimal since individuals do not need to carry cash with them. People carry cards for digital transactions. Even if the cards are stolen or lost they can be immediately blocked without any loss of money.
- Convenience – Ease of conducting financial transactions is the biggest advantage and motivator to shift to digital transactions. Individuals do not need to carry huge amounts of cash, transactions can be done 24×7, even cash if required is available through ATMs on demand.
- Tracking Spends – All digital transactions are recorded and can be tracked. It offers convenience for users to manage their finances better.
- Increase in Tax Base – Since all transactions can be tracked, it brings transparency in all financial transactions. This enables government to curb corruption and track tax evaders.
- Containment of Parallel Economy – Since, in a cashless economy all transactions are dne through organized channels, through banks and financial institutions unlike the cash based economy, it is easier to track black money and corrupt financial practices.
Challenges to the Cashless Economy in India
- Illiteracy – A huge chunk of population, especially in rural India is still illiterate. Without the basic knowledge to read and write, introducing a cashless economy is more of a distant reality for this population. Despite government’s thorough attempt at inclusive banking, the lack of basic education discourages the use of technology.
- Unorganized Labour Market – About 90% of the Indian labor market is informal. Majority being employed in agriculture and manufacturing sector where daily wage is prevalent. Under such circumstances the informal labor market is heavily cash dependant.
- Inadequate Internet connectivity – Broadband connections are still a rare phenomenon in Indian cities but it’s an even rarer facility in small towns or villages. Wireless medium suffers from a major crunch in bandwidth which cannot solve the problem of poor connectivity. This is a major hurdle in successful implementation of cashless technology.
- Cyber Security – The absence of robust cyber security laws in India is a major threat to the country’s dream of a cash-less economy. Instances like the massive security breach of 32 lakh debit cards, just months before demonetisation, is a strong indication that the country is yet to develop an efficient cyber-security system.
Is India ready for the Cashless Economy?
With government’s huge push in different sectors India is getting ready for the Cashless Economy at a very fast pace. Low cost of mobile telephone and data is increasing telecom customer base exponentially. Significant steps by government like demonetization, Direct Benefit Transfers, BHIM and UPI are encouraging steps towards Cashless Economy.
Being one of the fastest growing economies in the world, India seems to be at the forefront of economic innovations. Over time, via technological advancements and Government support, it can be concluded that India is gearing up for a digitally enabled cashless economy – and it will happen much sooner than what is anticipated, and that too on a significant scale.
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