Cashless economy is the term that everyone uses to describe the situation where the flow of cash does not exist within the economy. All the transactions take place through electronic channels. Going cashless eases one’s life. It also helps formalize the transactions. Further, it helps to curb corruption. And also, the flow of black money that results in an increase in economic growth.
Now, in the situation of this global coronavirus pandemic. The people of all statures got to know about the benefits of cash-less economic transactions.
Many of us from the events of Lockdowns and till now are afraid to use the currency notes. And we tend to sanitize them as soon as we reach our homes. Because we all fear that this currency may carry the virus, and that’s why we don’t want to use it.
Additionally, in the event of complete lockdown, many of us were unable to withdraw money from banks and ATMs. Due to this problem, we started using UPI and other digital payment options to purchase goods. And further, we understood the importance of these payment methods.
The same thing is happening with everyone around the world. So we all, with corporate and business houses, are shifting towards cashless transactions.
So to help you all understand the efforts Government is taking to make India a Cashless Economy, we have prepared this article. And we think that with this blog, you can assess what our state is doing for us and how we can contribute and improve it. Let’s begin with it.
- Past efforts of Indian Government for making a Cashless Economy.
- Why should India be a Cashless Economy?
- Measures taken by the Indian Government?
- Way Forward.
Past efforts of Indian Government for making a Cashless Economy.
The Finance Minister announced in the Union Budget 2019-20 that TDS @ 2% will get charged on cash withdrawals exceeding Rs.1 crore in a year from the bank account. The motive behind this particular announcement of our government was to discourage businesses’ cash payments transactions.
Additionally, to promote digital transactions among corporate houses. The government announced that companies with an annual turnover of over Rs.50 crore to offer low-cost digital payment modes. Moreover, the state is giving them the benefit of no additional or Merchant Discount Rate charges on them and their customers.
It is an excellent move by the Indian Government to incentivize people to adapt to the emerging cashless economy.
Nearly 90% of all transactions in the Indian economy were dependent on cash before the pandemic. It’s because of the large informal sector that employs 90% of the labor. India cannot become cashless unless this sector adapts to digital payments.
Incentivizing the people alone is not sufficient. The government needs to develop the supporting infrastructures and technologies for India to become a cashless economy.
Why should India be a Cashless Economy?
India should shift to a cashless economy. The reasons for this statement are as follows:
- Cash is expensive: A lot of time and money goes into printing cash. RBI has spent Rs.32.1 billion on printing the currency. Also, there is the cost for the setting up of and maintaining of the ATMs. Furthermore, the paper currencies have shelf-life after which it needs to get replaced.
- Cash is the driver of the shadow economy: Cash is difficult to trace. Illegal activities like tax evasion, black money, etc can also be carried out with cash. In 2007, currency in circulation was almost on par with the bank deposits. However, in the last three years, the currency with Indians was more than the bank deposits by 50%. The amount of black money (unaccounted money) in India is 15-16 lakh crores. It may get used to finance illegal activities like terrorist activities, purchasing votes, smuggling, betting, trafficking, etc.
- Enables financial inclusion and increased tax revenues: A cashless economy makes it necessary for all citizens to have bank accounts. This will ensure a higher financial inclusion rate. It will also guarantee transparency in the transaction of money within the economy – minimizing the possibility of tax evasion exponentially.
Measures taken by the Indian Government?
Demonetisation drive has not curbed the black money. However, it had pushed India towards being a cashless economy. It has become a radical “reform” to transform India into a cashless economy. Paytm witnessed 5 million daily usage post demonetization as opposed to their average transaction of 3 million.
Additionally, Paytm was seeing a 700% increase in its overall traffic. And a 1000% increase in the amount of money added to its account within the first two days of post-demonetization. Further, Ola Money was seeing a 1500% increase in its e-wallet.
Pradhan Mantri Jan Dhan Yojana
One of the biggest financial inclusion initiatives in the world was launched in 2014. Pradhan Mantri Jan Dhan Yojana is a national mission of financial inclusion. It has an integrated approach to bring comprehensive financial inclusion and provide banking services to all households within the country.
This scheme ensures access to a range of financial services like availability of basic savings, bank accounts, access to need-based credit, insurance, and pension. It has played a significant role in the opening of bank accounts for the poor.
Direct Benefit Transfer (DBT)
The Indian Government launched the Direct Benefit Transfer Scheme to provide the benefits of subsidies and other transfers directly in the beneficiaries’ bank accounts. The welfare scheme in which the DBT system is getting used is LPG subsidy, Old Age Pension, Scholarship, MGNREGA, etc. And these all efforts allowed for the penetration of digital banking into rural India.
Unified Payment Interface (UPI)
Unified Payment Interface (UPI) is a system that powers multiple bank accounts into a single mobile application (of any participating banks). It merges several banking features, seamless fund routing, and merchant payments into one hood. And this system is what makes digital transactions a simplified process. Cash-less monthly transactions via UPI have increased from Nil to 754 million in less than 3 years.
The Government of India has launched Digishala, a free Doordarshan DTH channel to educate and inform the people about the various modes of digital payments. It helps people understand UPI, USSD, AEPS, e-wallets, debit, and credit cards. This initiative will help the rural population of India know about these digital payment modes. Further, it will make them shift to becoming a cashless economy.
Unstructured Supplementary Service Data (USSD)
The payment service of *99#, which everyone must have heard of, works on the Unstructured Supplementary Service Data (USSD) channel. It allows mobile banking transactions using the basic feature of mobile phones. Further, there is no need to have a mobile internet data facility for using USSD based mobile banking. And this initiative of the state helps in the financial inclusion of underbanked society in the mainstream banking services.
Aadhar Enabled Payment System (AEPS)
Aadhaar Enabled Payment System (AEPS) is a digital payment model that uses the Unique Identification Number for payment transfers. Additionally, it allows Aadhaar card-holders to perform the financial transaction at PoS centers. By using the Business Correspondent (BC)/Bank Mitra of any bank using the Aadhaar authentication.
Financial Literacy Centres
This was a part of Pradhan Mantri Jan Dhan Yojna. This initiative has provided financial education programs to spread awareness of banking products and benefits.
In this year’s budget, our FM announced earmarking Rs 1,500 crores for a proposed scheme to promote a digital mode of payment. This scheme is to further boost the digital revolution in the country.
Due to these combined initiatives. Further with the increase in internet and technological availability and affordability. The movement of Indian households in both rural and urban sectors is starting to show a shift from 90% cash-based to a larger rate of cashless economy.
- A targeted financial education drive can be undertaken by the government to improve the knowledge of e-transactions to the public, even the illiterate.
- The banks must make sure that the transaction fee is either free or affordable to all.
- The banks must encourage the opening of zero balance accounts to encourage the poor to make use of the bank accounts.
- The government must improve internet connectivity in rural India and other isolated regions.
- Availability of ATMs in rural and suburban areas should be ensured. Just the availability of bank accounts alone cannot address the problem of India being overly dependent on cash.
- SMEs should also start operating cashless. There are a lot of benefits for SMEs if they adopt the digital form of payments. For example, there will always a record if whatever transaction has been made. Companies like TranZact are helping SMEs to adopt digital transformation.
Read More – Digital India: Why Businesses should Go Digital?
With a change in the world, there is a need for development in the economy of India. India has started to aim at a cashless economy. The paperless transaction movement will help the economy in immense ways.