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A Study Of Economic Implications Of Cashless Economy In India

As technology advances, the adoption of the advancements and other organizational forms have been normalized and driven by a collective sense of what the future is and will be. Hereafter, India can be widely predicted to be cashless, but what truly is a cashless economy?

Transactions that aren't heavily dependent on physical money such as notes, coins, or other monetary expenses in an economy but are aided through e- economic services such as credit cards, debit cards, prepaid payment instruments, etc., forms a cashless economy[1]. Through the Digital India platform, the cashless economy in the Government of India has been amplified and extended. To truly understand the implications of a cashless economy, some questions are to be pondered upon.

Why is a cashless economy important? Whom does it benefit? How does it function? What are the various forms of cashless economy, common problems and solutions etc. and most importantly, how does this impact India? This research paper shall promote awareness of this issue and address questions and state solutions.

Introduction
Cash has always been and will always be in demand in various sectors, whether that's agriculture and allied industries, biotechnology, automobiles, cement, transportation, business, banking etc. Still, a cashless economy is essential to boost the country's economy and makes commerce easier, more efficient and faster.

This doesn't entail wiping out cash in total but a mere alternative solution to reduce corruption and black money. With cashless India comes its problems such as cybercrimes, lack of awareness and online fraud. [2]The primary responsibility for introducing a cashless economy came after the popularity of demonetization.

Digital knowledge is crucial for India's development, and hence it can be said that the primary focus is on rural India. Due to many privacy concerns, people are afraid to move from a cashed economy to a cashless one as they find it an unknown territory.

Types Of Cashless Modes And Payments

  • Mobile Wallet:
    A virtual wallet on a mobile phone used to make online or offline payments. Cash can be stored in the mobile wallet, and this money can be transferred using a credit/debit card or Net banking.
     
  • Plastic Money:
    These are used to make online or point of sale purchases. These include prepaid cards, credit cards and debit cards.
     
  • Net banking is an online transfer of funds from one bank account to another bank account, credit card, or a third party. After logging into the bank account, money can be transferred via National electronic fund transfer [NEFT], real-time gross settlement [RGTS] or immediate payment service [IMPS].
     
In India, the cashless economy is promoted through various applications that provide easy fund transfer and payment methods through[3] Bharat Interface for Money [BHIM], BharatQR and Unified Payment Interface [UPI].

All modes of cashless transfer of funds are referred to as prepaid payment instruments. These can be smart cards, magnetic stripe cards, net accounts, net wallets, mobile wallets etc. and are classified into:
Open Wallets:
These allow buying goods and services and can only be jointly launched in association with a bank.

Semi-Open wallets:
Cash cannot be withdrawn or taken back from these wallets, and hence a customer has to spend what he loads into the wallet. Examples can be Airtel money or Ola money.

Closed wallets:
E-commerce companies use secured wallets wherein a certain amount of money is locked with a merchant in case of cancellation of any product bought. A popular example can be Amazon, BookMyShow etc.

Semi-closed wallets allow buying goods and services from listed vendors to perform financial services such as Paytm, Phonepe etc.

Positive Economic Effects Of A Cashless Economy In India

A cashless economy reduces the chance of black money entering the system and completely decrease nefarious activities. Cash-based economy usually facilitates easy abetment of criminal activities such as money laundering, terrorism, extortion etc. All the Fake currency notes can be curbed. In a cashless society, paying tax cannot be avoided, and this violation can be greatly reduced. This increased tax value causes increased revenue for the state, which can be further used for welfare programmes.

Apart from the above advantages, digital transactions cause transparency, accountability, and market efficiency as it reduces the risk of carrying and transporting huge amounts of cash. The data transfers happening through cashless transactions can help the government plan for future expenses such as housing, energy management etc., from the pattern of data transmission.

One of the major advantages of a cashless economy in India is the cost of printing money which is reduced. Data from a Right to Information answer by the RBI in 2012 shows that it costs Rs. 2.50 to print each Rs. 500 denomination note, and Rs. 3.17 to print an Rs. 1,000 note[4]. From April 1994 to June 2016, the currency has shown a yearly growth rate of 17%, while the share of bank currency has remained around 5%.2

It was estimated that, for 2009-2010, RBI incurred an annual cost of INR 2800 Crores for printing currency notes (Das and Agarwal 2010). As per the new declaration of demonetization by Modi, it has cost the nation an additional burden of 12000 Crore on the exchequer.

Challenges Faced Whilst Transitioning Into A Cashless Society

  • Lack of adequate infrastructure:
    There are inefficient banking systems, poor digital infrastructure, poor internet, lack of digital payment interface and PoS terminals that need to be overcome. All of the above are prerequisites to transition into a cashless economy
  • There must be financial inclusion. Every person must have access to banking facilities and hold a bank account.
  • There must be digital and financial literacy, and everyone must be aware of the digital instruments.
  • There needs to be a cut in the urban-rural divide as bridging this gap considering the presence of bank branches, AM's etc. will help enable a cashless economy.

Is India Truly Ready For A Cashless Economy?

There has been an exponential growth in debit cards, over 600 million in number, which is a direct consequence of the financial inclusion drive that led to the opening of over 170 million bank accounts.

India's cash to GDP ratio indicates how much cash is being used in the economy. The ratio is around 13% [5], much higher than major economies including the US, UK and Euro but below Japan being 18%. Given below is a graph that compares the GDP ratio's between the various countries for the significance of the research.

Cashless Economy In India And Government Initiatives

The first government initiative was demonetization in November 2016. At the time of demonetization,[6] the ratio of cash to GDP was 12%. After demonetization, the ratio came down to 9%.[7] Paytm had a surge of 2 million extra users post this initiative. It also saw a 700 % increase in traffic and a 1000% increase in the amount of money added in the first two days post demonetization.

National Payment Corporation of India has launched a unified Payments Interface to further the vision of a less-cash society. There are three key players: payment service providers, banks providing underlying accounts, and NPCI, which acts as the central switch by ensuring Virtual Payment address resolution affecting transactions through the immediate payment services.

The Government of India launched a Direct Benefit Transfer [DBT] to transfer the benefits and subsidies of various social welfare schemes directly linked to beneficiaries' bank account. This caused the impact and penetration of digital banking into rural India.

A NITI Aayog Committee has been set up and headed by CEO Amitabh Kant to formulate strategies to expedite transforming India to be cashless. The committee is responsible for establishing and monitoring an implementation framework and ensuring that 80% of India moves to a digital platform and oversees the measures between the government and citizens to ensure cheaper cash-based transactions.

Pradhan Mantri Jan Dhan Yojana [8]is one of India's biggest financial inclusion initiatives, having a national mission of integration and comprehensive financial inclusion providing banking services to all households within the country.

What Is The Ratan Watal Panel?

Ratan Watal is the former finance secretary, and he constituted this Panel to suggest ways to shift India towards a cashless economy. Some recommendations made by the Panel to be considered for the economic growth of the country is mentioned. Firstly, there must be a separate and more independent payment regulator within the RBI Framework.

A revision must be done to the Payments and Settlements Act to include clauses on consumer protection, data security and privacy. Funds can be created to promote digital transactions, and Aadhar can be used for primary identification. One of the most important recommendations was that non-banking payment service providers must directly access the payment systems.

The Way Forward
The way forward is crystal clear:
  • There must be financial and digital infrastructure, and it must be implemented and executed such that the entire population benefits from it and not just a section of society.

  • A digital literacy campaign must be accompanied to improve access to and awareness of electronic payments.

  • The government must put all the cybersecurity measures in place so that people feel safe and secure in transitioning to a cashless economy. Cybercrime units must be arranged to deal with the issues that arise due to the same problem.

  • Buyers and sellers both should be aware of the benefits of cashless transactions.

  • The advent of modern technologies such as Artificial Intelligence, blockchain technology, Internet banking and smartphone helped the entire financial ecosystem. The current IT infrastructure and security needs to be examined and looked at for frauds toward digital transactions. There needs to be a stable banking system for a new transformation in the banking sector. It is necessary to control frauds through anti-fraud regulations that police the system.

  • Cryptocurrency can be a means to a cashless economy [9]though it has not been legalized yet in India. The number of Crypto users hit around 106 million post-pandemic. With crypto wallets, anyone can transfer their crypto internationally without maintaining a minimum balance in their account as long as they have an internet connection.

Conclusion
The future of cashless India is promising as the response of the country people and the support given is a clear indication that the government's move of Digital India is likely to succeed. This will, in turn, increase the GDP of the country. It is better to say that India has to go for a less-cash economy rather than a cashless economy. The march towards a less-cash economy leads to a cashless economy in the country.

Bibliography:
  1. The cashless economy in India, Ajit Roy (Book)
  2. Hosp, J. (2021). Crypto is the next step toward a cashless society. [online] Cointelegraph. Available at: https://cointelegraph.com/news/crypto-is-the-next-step-toward-a-cashless-society.
  3. Pmjdy.gov.in. (2021). Pradhan Mantri Jan-Dhan Yojana | Department of Financial Services | Ministry of Finance. [online] Available at: https://pmjdy.gov.in/.
  4. Jain, J., Ramesh, D., Babu, C. and Student (2018). IMPACT OF DEMONETIZATION ON CASHLESS ECONOMY WITH REFERENCE TO INDIA. [online] 6(1), pp.2320-2882. Available at: https://www.ijcrt.org/papers/IJCRT1802609.pdf.
  5. PTI (2016). Going cashless: Rising currency-GDP ratio key impediment. [online] The Economic Times. Available at: https://economictimes.indiatimes.com/news/economy/indicators/going-cashless-rising-currency-gdp-ratio-key-impediment/articleshow/55648619.cms?from=mdr.
  6. Cashless Transaction in India: A Study. (n.d.). [online] IJSDR1902011 International Journal of Scientific Development and Research. Available at: https://www.ijsdr.org/papers/IJSDR1902011.pdf.
  7. Proquest.com. (2018). Moving Towards Cashless India - ProQuest. [online] Available at: https://www.proquest.com/openview/9ab309249e106d73eb01d528fd2e873d/1?pq-origsite=gscholar&cbl=2046061.
  8. AGGARWAL, Kartik; MALIK, Sushant; MISHRA, Dharmesh K.; PAUL, Dipen (2021). Moving from Cash to Cashless Economy: Toward Digital India. The Journal of Asian Finance, Economics and Business, [online] 8(4), pp.43-54. Available at: https://www.koreascience.or.kr/article/JAKO202109554061272.view?orgId=kodisa.

End-Notes:
  1. Proquest.com. (2018). Moving Towards Cashless India - ProQuest. [online] Available at: https://www.proquest.com/openview/9ab309249e106d73eb01d528fd2e873d/1?pq-origsite=gscholar&cbl=2046061.
  2. AGGARWAL, Kartik; MALIK, Sushant; MISHRA, Dharmesh K.;PAUL, Dipen (2021). Moving from Cash to Cashless Economy: Toward Digital India. The Journal of Asian Finance, Economics and Business, [online] 8(4), pp.43�54. Available at: https://www.koreascience.or.kr/article/JAKO202109554061272.view?orgId=kodisa.
  3. Cashlessindia.gov.in. (2021). Cashless India. [online] Available at: http://cashlessindia.gov.in/digital_payment_methods.html.
  4. Cashless Transaction in India: A Study. (n.d.). [online] IJSDR1902011 International Journal of Scientific Development and Research. Available at: https://www.ijsdr.org/papers/IJSDR1902011.pdf.
  5. PTI (2016). Going cashless: Rising currency-GDP ratio key impediment. [online] The Economic Times. Available at: https://economictimes.indiatimes.com/news/economy/indicators/going-cashless-rising-currency-gdp-ratio-key-impediment/articleshow/55648619.cms?from=mdr.
  6. Jain, J., Ramesh, D., Babu, C. and Student (2018). IMPACT OF DEMONETIZATION ON CASHLESS ECONOMY WITH REFERENCE TO INDIA. [online] 6(1), pp.2320-2882. Available at: https://www.ijcrt.org/papers/IJCRT1802609.pdf.
  7. Pmjdy.gov.in. (2021). Pradhan Mantri Jan-Dhan Yojana | Department of Financial Services | Ministry of Finance. [online] Available at: https://pmjdy.gov.in/
  8. Hosp, J. (2021). Crypto is the next step toward a cashless society. [online] Cointelegraph. Available at: https://cointelegraph.com/news/crypto-is-the-next-step-toward-a-cashless-society.

    Award Winning Article Is Written By: Ms.Divyasri Jaganathan
    Awarded certificate of Excellence
    Authentication No: FB204119730969-10-0222

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