Is India ready for a Cashless Economy?

It has been said that Cashless Economy may be the purest form of democracy the world has known. Online payment has seen an extensive growth due to Digital India campaign and Demonetisation. India is gearing up for its biggest reveloution post independence as mutiple Digital payment gateways /modes are available on different platforms such as Banking cards,USSD, AEPs, UPI, Mobile wallets, Banks prepaid cards, Internet Banking, Mobile Banking, and Micro ATMs etc.

These are the following favourable and unfavorable conditions that the cashless economy will impose on the life of one billion people.

1. Risk Reduction- An individual does not need to carry cash with him or her everywhere which in turn reduces the chances of theft from wallet, inconvenience due to carrying cash, risk of receiving counterfeit currency and so on. The crime rate of physical theft in India is one of the highest- going cashless will extinguish that threat completeley.

2. Tax evasion

Empirical studies show a clear correlation between card payments and less Value Added Tax (VAT) evasion. The improved traceability of cashless payments makes it much more difficult for tax evaders to conceal earnings. Implementing effective policies aimed at curbing tax evasion is a challenge. Public opinion is rarely warm to such attempts. The Indian government tries to tackle the problem through the introduction of biometric payment systems by the year 2020. They have since collected biometric data of 1.1 billion people. With biometrics data tracking each payment, the government hopes to eradicate tax evasion soon.

3. Rise of Online Payment Modes and other E wallet apps

India’s digital payments industry is expected to grow by ten times to $500 billion by 2020, up from current estimates of $40–50 billion, according to a report by advisory firm IMAP. Demonetisation has paved the way for the future of digital transactions in India. Point of sales (PoS) transactions have crossed the Rs 70,000 crore mark through the use of banking cards. Prepaid instruments, like m-Wallet, PPI cards, paper vouchers and mobile banking are leading the way. The popular mobile wallet operator Paytm alone clocked 68-million transactions via UPI in February, accounting for almost 40 percent of the total UPI transactions in the country. UPI or Unified Payments Interface is an instant real-time payment system developed by National Payments Corporation of India facilitating inter-bank transactions between 2 mobile phones. For more information check out cashless.gov.in

4. 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.

The country has 350 million internet users that are still working with a speed of 512 kbps which is much lower than the global average speeds ranging above 5 Mbps. India’s average internet connection speed is 2.8Mbps.Average page load time in India is 5.5 seconds compared to China’s 2.6 seconds.

Wireless medium suffers from a major crunch in bandwidth which cannot solve the problem of poor connectivity.

5. Huge mass of Uneducated Population

According to the 2011 census, India has a literacy rate of 73 per cent. The country has come a long way from the 12 per cent literacy rate since its Independence in 1947 but according to UNESCO, it still is home to the biggest population of illiterate adults in the world.

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.

6. 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.The lack of an adept checking-mechanism for the modern banking technologies is an obvious deterrent towards a safe cash-less econonmy.

Cash is set to lose currency in India, as an explosion in smartphone usage drives a digital payments boom.

By year 2020, nearly $500 billion worth of transactions in India will be executed digitally, using online payment modes and other digital-payment systems. We are open to your views and comments.

Do you think India is ready for a Cashless Economy?