The major advantages of a cashless economy and the challenges India will face to become a cashless economy.
What is a cashless economy?
A cashless economy is one in which all the transactions are done using cards or online.
Cashless economy and India
Indians traditionally prefer to save and spend in cash. In 2015, 78% of all consumer payments in India were made by cash, whereas 20% to 25% of consumer payments were made that way in developed countries like U.S.A. and U.K. Another example is Belgium, where 93% of consumer spending is cashless, highest in the world, and according to 2013 MasterCard report – has banned cash payments of over 3000 Euros.
The benefits of having a cashless economy
While no system in the world is perfect, but a cashless economy does offer quite a lot of benefits over the traditional cash payment method.
- No need to carry cash.
- Black money generation will be stopped.
- Fake currency notes will be a thing of the past.
- Reduced instances of tax avoidance, since the entire transaction history of an individual is available.
- A lot of black money gets invested in real estate which inflates the prices of real estate market, going cashless would control the prices.
- In the financial year 2015, RBI spent as much as Rs 27 billion on just currency issuance and management; if we go cashless this could be avoided.
- Hygiene is another important factor, when currency notes are exchanged.
- Greater efficiency in welfare programs, as money is wired directly into the accounts of the recipients.
- More transparency in business operations and money transfers.
- A Moody’s report pegged the impact of electronic transactions to 0.8% increase in GDP for emerging markets and 0.3% increase for developed markets because of increased velocity of money.
The challenges that India faces
- Through Jan Dhan Yojana many bank accounts were opened, but most of them remain un-operational.
- Internet availability, speed and reliability required for transactions.
- Small retailers, which dominate the seller’s market, do not have the resources to invest in cashless infrastructure.
- The general perception of people is that for small amounts (say less that Rs 50) they would prefer to pay in cash.
- Quite a lot of Indians still not comfortable using card everywhere.
- Indian banks are making it difficult for digital wallets issued by private sector companies to be used on the respective bank websites.
- Many small to medium size businesses who want to avoid tax, prefer cash payment.
- Many Indian politicians and bureaucrats, i.e. quite a lot the policy makers, are themselves sitting on piles on black money.
- Quite a lot of landlords collect their monthly rent in cash.
- How do we make cashless transactions possible in the Indian villages?
The versatile Octopus card
The Octopus card is a reusable contact-less stored value smart card for making electronic payments in online or offline systems in Hong Kong. It was launched in September 1997 to collect fares for the territory's mass transit system.
The Octopus card has also grown to be used for payment in many retail shops in Hong Kong, from convenience stores, supermarkets, fast-food restaurants, on-street parking meters, car parks, to other point-of-sale applications such as service stations and vending machines. According to Octopus Cards Limited, these cards are used by 95% of the population of Hong Kong aged 16 to 65, generating over 12 million daily transactions.
The road ahead for India
The best way to get rid of black money is to get rid of money, but nothing in India is simple. But with a strong political will things can definitely change, although the changes would take place slowly. The entire process may take a couple of decades, but it will certainly make the Indian economy more robust and bring the much needed transparency into the system.
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