Are we ready for this?

Cashless Economy, India’s Far-fetched Dream

With rules changing every now and then, and with the government’s evident unpreparedness, is it a dream worth chasing?

As reported by Indian Express on November 26, Nobel Laureate Prof Amartya Sen termed the move as ‘despotic action’ which shows the ‘authoritarian nature of the government’

First of all, the demonetisation death toll has crossed 50, and can’t be considered collateral damage for the greater good. With people (not the ones hoarding black money) losing lives waiting in queues, being denied treatment at hospitals to committing suicide, everything seems wrong with the government’s ambition of developing a cashless economy.

Here’s a few facts and figure to explain why Cashless economy seems to be a distant dream.

According to World Bank report on financial inclusion, even though India saw a strong growth in account penetration between 2011 and 2014, from 35% to 53%. Translated into absolute numbers, this growth means that 175 million in India became account holders. But, India also has a dormancy (accounts without any transaction in the last 12 months) rate of 43 percent.

Some supporting the move are also talking about the Prime Minister’s introduction of Pradhan Mantri Jan Dhan Yojana — scheme comprehensive financial inclusion, with the goal of opening a bank account for every household. However, the scheme received strong criticism for for expanding the public sector’s role in banking — more than 97 percent of the new accounts are at public banks. 72% of these accounts recorded a zero balance, which could be because of the reason that the accounts were not set up for an explicit purpose, such as to receive wages or government transfer payments. So this does not ensure a smooth transition to cashless economy.

Plastic money, digital transactions, e-wallets, the RBI has been harping on these for long now, but the reality is only 39 percent of all account holders in India own a debit or automated teller machine (ATM) card, and using an account might be inconvenient and time-consuming if every transaction requires using a bank teller.

South Africa tops the list for the highest share of adults who reported using an account to make or receive payments within the BRICS country. However, adding to the low account penetration of 53%, India also accounts for a mere 15% of adults reportedly using accounts to receive of make payments.

To top it all, India is also home to 21 percent of the world’s unbanked adults and about two-thirds of South Asia’s.