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CASHLESS ECONOMY




Cashless Economy : Terms and Challenges

*What is a Cashless Economy?

   It 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.

   Cashless transactions can be done through UPI, USSD(*99#), e-wallet, cards, POS, Aadhar enabled payment system, Netbanking, etc.

 


Advantages of a cashless economy
Ø Curb generation of Black money.
Ø Increased efficiency in welfare programmes as money is wired directly into the accounts of recipients.
Ø Circulation of Fake Currency notes can be curbed.
Ø Helps in reducing corruption.
Ø Efficiency gain as transaction costs will come down in the long run.
Ø Would strangulate the grey economy(informal economy), prevent money laundering.
Ø Increase tax base which would result in greater revenue available to fund the welfare programmes.
Ø Digital transactions are convenient, improves market efficiency and bring in better transparency, scalability and accountability.

*  Challenges to cashless economy

           Lack of adequate infrastructure, inefficient banking systems, poor digital infrastructure, poor internet connectivity, lack of robust digital payment interface and poor penetration of PoS terminals.

         Lack of access to banking to a large part of population.  

           Digital and Financial Literacy: Citizens are not aware of the financial and digital instruments available and how to transact using them.

    Cyber Security: Digital infrastructure is highly vulnerable to cyber-attacks, cyber frauds, phishing and identity theft.

     Habit of Indian economy handling cash as a convenience.

    Urban – Rural Divide: Urban centres enjoy more facilities and high speed internet while rural areas are deprived of such facilities.

*India’s scenario

  Less than 5% of all payments happen electronically.

  Indian economy primarily driven by the use of cash and informal sector

            Principal purpose for cards in an Indian context is a means to   
withdraw cash.

 Over 85% (in volume) and 94% (in value) of all debit card usage   
is at ATMs for the purpose of withdrawing cash.

   India’s cash to GDP ratio — an indicator of the amount of cash being used in the economy - is around 12 to 13%, much higher than major economies including the US, the UK and Euro.



*Way Ahead

Ø Invest in building financial and digital infrastructure.
Ø Effective implementation of existing initiatives like Jan Dhan Yojana.
Ø Improve financial and digital literacy by making people aware of electronic payments system.
Ø Put in place all necessary cyber security measures.
Ø Put in place robust payments mechanism to settle digital transactions.
Ø Giving incentives such as service tax waiver when credit cards or other forms of digital payments are used.
Ø Improve Internet connectivity.
India should learn from developed countries like Belgium where cash payments of over €3,000 are banned. Developing country like Kenya is also an example where mobile money has spread much faster and deeper than in India.


*Government Initiatives

Ø UPI(Unified Payments Interface) launched by National Payments Corporation of India (NPCI)
Ø Licensing of Payment banks.
Ø Government is promoting mobile wallets.
Ø Government has also withdrawn surcharge, service charge on cards and digital payments.
Ø Launch of BHIM APP.
Ø   Demonetization.
Ø Reduction of MDR charges for debit cards by RBI.
Ø Credit/debit card transactions up to Rs 2,000 will be exempt from service tax.

Thus, as cash gets used for fewer and fewer transactions, it will become easier for authorities to crack down on tax evasion, corruption, etc. The best way to eliminate black money is to get rid of the money.
While the recent initiatives by the government are laudable, India has a long road to travel in her journey towards a cashless economy
                                                                                             Article by
                                                                                      Mr. SANJIT RAJ
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