Cashless economy: Perils & opportunities

A man displays the new 2000 Indian rupee banknotes after withdrawing them from State Bank of India in Agartala, India November 11, 2016. REUTERS/Jayanta Dey
The demonetisation of Rs 1,000 and Rs 500 notes intended to be a big-bang reform to weed out black money, counterfeit currency and terrorist financing turned out to be a big disruption with contraction in various sectors. The Indian economy seems to be on a slippery slope right now whatever the spin doctors may claim. Many experts also claim that the Reserve Bank of India’s institutional identity has been damaged in the process and its role is under threat.
As per the AIMO, representing three lakh MSMEs engaged in manufacturing and exports, there are a 60% drop in employment and a 55 per cent loss in revenue. India’s GDP is likely to grow at a much slower pace than expected due to a slowdown in the manufacturing and service sector post demonetisation as per an HSBC report.
The Government’s goal is now to turn India into a “cashless economy”. But the big question is whether the country is prepared to shift from a cash economy to a cashless one at all to begin with. Is “cashless” or “less cash” the right option for India? Cash is popular as it is easy to use and universally acceptable.
In remote rural areas, 53% of the population does not have bank accounts, with many not having even ID cards. We can thus strive for only a “less cash” than “cashless” economy.
A digital payment solution requires end-point interface, secure authentication, funding settlement, delivery and MIS. All these are embedded in currency but are delivered in steps in e-payment solution, wallets, mobile banking and POS machines.
According to M Yunus, founder of the Grameen Bank, cashless economy is a boon. Incentives need to be given to make it successful as the rural and unorganized sector is brought into the banking fold.


In the opinion of French economist Jean Tirole, cashless economy is a good thing but it should be ensured that the poor who rely heavily on cash do not suffer. Even the President of India has urged that we have to be extra careful to alleviate the sufferings of the poor using only cash for their daily needs.
As per former UIDAI Chairman Nandan Nilekani, infrastructure required to enable a billion people to transact digitally is in place. Aadhaar-enabled systems are set to revolutionize the digital economy. As per the CEO of the NITI Aayog, plastic cards will become redundant in another three years.
The Government recently launched a new App named Bhim which has been downloaded 10 million times. There has been rapid growth of digital transactions in terms of numbers and value through various means after November 2016.
The Government has come up with a slew of precautionary measures for any untoward incident affecting online financial systems.
For instance, CERT-In, a nodal agency in dealing with cyber threats, is setting up a centre to deal with such problems. The RBI on its part has also issued instructions to all banks to take preventive measures. Banks are required to report any cyber-related incidents to the CERT-In immediately.
The digital push has precipitated the need for ramping up cyber safety and online transactions since such incidents are showing a steady increase every month. Considering the size of India, the level of its education, facilities and infrastructure, cashless economy is a utopian idea. The Government needs to incentivize the use of digital instruments to push for a less cash economy.



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