Everyone is facing huge problem when it comes to shortage of Rs 500 and Rs 1000 notes.
Why do we have to face this problem?
Is it by default or by design? Is our government doing the right thing?
Is cashless economy going to benefit this country? Or it is just for rich and poor have to suffer.
We debate all this and many other things in following article.
What is a Cashless Economy?
In a cashless economy most of the transaction will be done by digital means like e banking, debit and credit cards, PoS (point of sales) machines, digital wallets etc.
In simpler words no liquid money or paper currency will be used by the people in a given country.
In a cashless economy the third party will be in possession of your money.
He will allow you to transact that money whenever it is needed. If it is not needed then the third party can use that money.
Third party can be a government or any other public or private sector bank.
Why this Debate Now?
It is almost a month since Modi government banned Rs 500 and Rs 1000 note.
In the beginning people thought that this is a great idea and the country will become corruption free. But as the time passes people are getting weary about the ban.
Huge problems and pain that they have to go through each day, do they worth it?
Is the cashless economy the way forward? Both sides, people who favor cashless economy and people who don’t are putting their arguments forward.
So this is the right time for the country to have a debate whether cashless economy is good or bad for the country.
Pros of a Cashless Economy
Let us start with advantages of cashless economy.
Positive Impact on Society
We are seeing the impact of cashless economy on the society when it comes to crime rates.
According to Union defense minister after demonetization the crime rates in Mumbai has dropped to half.
Not just Mumbai but Delhi is seeing a substantial decline in crimes related to financial motive.
Bank robbery, burglary, extortion etc are declining because of demonetization.
Attack on Parallel Economy
This is one of the most important reasons why a cashless society is must.
People who hoard money under their bed (also known as black money), people who launder money bypassing banking channels, terrorist who need money to finance their terror etc will run out of business now.
Size of Parallel economy will reduce substantially.
Digital economy will help to enhance our current banking system. There will be increased access to credit for people who did not fall in any banking network.
Financial inclusion will automatically reduce poverty.
Increase the Tax Net
All the transactions that are done can be monitored and traced back to a given individual.
If officials from tax department smell something fishy then they can trace the money transaction back to the individual.
Hence it will be really difficult for someone to evade tax. Increasing tax net is very important for any government.
Boost in Consumption
There would be no incentive for people keeping money in the bank. So they would love to spend on things that they like.
It will help to boost consumption that is really good for any economy. More jobs will be created and income level of people will rise.
Security and Convenience
Last but not the least is security and convenience. You don’t have to carry a wallet with money in it.
You just use your mobile phone or credit card for transaction. It is very hassle free and already going on in urban areas of the country.
Cons of a Cashless Economy
Well we also have to look other side of the picture.
Security – Cyber Attack, Fraud and Power Outages
Cashless economy can be a nightmare when it comes to security. All your transactions will be done digitally.
You will be prone to cyber attacks like hacking. Hackers can hack your sensitive information like password, credit card number etc and leave your account with no money.
Even your personal computer is compromised. You can save yourself from fraud but it is very difficult to save from a cyber attack.
Finally if there is a power outage especially in India which is very regular then entire system will be affected for long time.
Have to Trust Government or Third party
As I said earlier there is no money in your hand. All the money is digital so either they are in control of banks or government or any other third party.
You have to trust government or bank blindly because everything is under their possession. This is could be scary because if tomorrow something happens you will be left with no hard cash.
Reduced Liquidity means Bad for Certain Sectors
There are certain sectors which depend upon high level of transaction.
Sectors like Real Estate, jewelry, retail industry, restaurants and eating joints, cement and other SME will be affected badly because of cashless society.
It means a lot people who are employed by these sectors are also going to be affected.
Really Bad for Poor
This is the real point and will be debating this in great details in following paragraph. Here I just want to say cashless economy is really going to hurt poor.
Rich Vs Poor Debate
The whole debate about cashless economy revolves around rich versus poor.
Here we are not talking about Sweden or Denmark but India.
Still people in this country struggle to meet their basic needs like food, cloth and shelter.
Over half of the population does not fall in any banking network. They still have to depend upon hard cash for meeting their basic needs.
Recently over 80 people have died because of demonetization. You can imagine the impact if country decides to go completely cashless.
Poor people have to suffer a lot because they will not be covered.
On the other hand people living in urban areas will benefit because the cashless economy is for them.
Government has to be inclusive and include all sections of society before they go for a cashless economy.
Otherwise poor which is more than 50% of the country will reject cashless economy and government has to suffer set back in coming elections.
So you can conclude by saying cashless economy is good if it is inclusive otherwise it is really bad.
How Far are We From Becoming a Cashless Society?: A Ground Reality
Before we dream of becoming a cashless economy we have to face many realities. Here are some of them.
1. Half of the Population Does not Fall in Any Banking System
As I said earlier 50% of Indians are not covered by any banking system so how you can think of cashless economy.
2. Limit Internet Penetration
In India there are over 350 million internet users. The internet penetration rate is just 27% which is very low compared to countries like Nigeria, Kenya, and Indonesia etc.
It has to be at least 67% which is global median.
3. Limited Smartphone Penetration
Only 17% of Indians use smartphones which is very low if you want to become a cashless economy.
4. Limited Smartphone with Broadband Subscription
Only 15% of Indians have internet on their smartphone. So it will be only 154 million people with broadband on their smartphones.
5. Internet Speed
The internet loading speed is very slow. The average page load time in India is 5.5 seconds whereas in China is just 2.6 seconds.
6. Limited PoS Machines
PoS machines (Point of sales) are must for any cashless transactions. However in India there are only 1.46 million PoS machines. It means only 856 machines per million people which is very low compared to China where it is 4000 machines per million people.
After reading above 6 points you will conclude India lacks infrastructure for a cashless economy. So it is going to be long time when India thinks of becoming a cashless economy.
Where Government and Society Stands on Cashless Economy?
Government is taking measures to increase liquidity into the system so that people face less inconvenience.
Recently RBI launched Unified Payments Interface which makes digital transaction very simple.
Government is also trying to improve overall infrastructure so that more and more people can come into banking net and internet.
Society has also to play its part. They have to understand the importance of cashless economy and appreciate measures taken by the government.