A cashless economy is a type of economy where all types of monetary transactions are done through digital means like – debit/credit cards, e-wallets, internet banking, electronic fund transfer, mobile payments, and other evolving payment channels. When such an economy thrives, there is little or no scope for hard cash to flow in the economy.
In India nearly 90 per cent of all transactions are in cash. This is due to the large informal sector, which employs more than 90 per cent of the workforce.
Status of Cashless Economy in India
Government of India is committed to expand digital transactions in the Indian economy, and thereby enhance the quality and strength of the financial sector, as well as ease of living for citizens. Digital payment transactions have significantly increased as a result of coordinated efforts of the Government as a whole, along with all stake holders concerned, from 2,071 crore transactions in FY 2017-18 to 8,840 crore transactions in FY 2021-22 (Source: RBI, NPCI and banks).
During last five years, various easy and convenient modes of digital payments, including Bharat Interface for Money-Unified Payments Interface (BHIM-UPI), Immediate Payment Service (IMPS), and National Electronic Toll Collection (NETC) have registered substantial growth and have transformed digital payment ecosystem by increasing person-to-person (P2P) as well as person-to-merchant (P2M) payments. BHIM UPI has emerged as the preferred payment mode of the citizens and has recorded 803.6 crore digital payment transactions with a value of ₹ 12.98 lakh crore in January 2023.
Global Reach of UPI
- Given the wide adoption of UPI in India, it has also received considerable attention globally as many countries have desired to collaborate with UPI. In this regard, NPCI’s subsidiary — NPCI International Payment Ltd (NIPL) — was launched in 2020 to roll out Rupay Card Scheme and UPI in the international market.
- Bhutan and Nepal became the first to deploy India’s UPI-QR code and UPI in their countries. NIPL also partnered with the Monetary Authority of Singapore in September 2021 and UAE’s NEOPAY and Lulu Financial Holdings. UPI-based transactions are already operative in these four countries.
- The growth of Digital Payments in India and the availability of various easy and convenient digital payment solutions have facilitated ease of living for citizens, financial inclusion, and growth of business and economy.
Benefits of Cashless Payments
- Instant and convenient mode of payment: Unlike cash, money can be instantaneously transferred to the beneficiary account using digital modes like BHIM-UPI and IMPS. Moreover, using the BHIM-UPI mode, one can effect a digital transaction via mobile phone using mobile number or easy-to-remember virtual payment address (email-like address). BHIM-UPI has enabled access to multiple Bank accounts in a single mobile app, facilitating ease of payments.
- Enhanced financial inclusion: Digital payments offer anytime, anywhere access to accounts, thus making it easy for citizens to receive payments in their accounts and to also make payments using their phone. Recently launched UPI 123PAYenables feature phone users to make digital transactions through UPI in assisted voice mode, facilitating digital transactions and financial inclusion in rural areas.
- Increased transparency in the government system: Earlier cash payments were subject to “leakage” (payments that do not reach the recipient in full) and “ghost” (fake) recipients, particularly in the context of social security benefits by government transfers. Now, benefits are directly transferred to the target beneficiary (direct benefit transfer) account through digital modes of payments.
- Improved speed and timely delivery: In contrast to a cash payment that travels at the speed of its carrier, digital payments can be virtually instantaneous, regardless of whether the sender and receiver are in the same town, district or country.
- Bharat Bill Payment System: Bharat Bill Payment System (BBPS) provides an interoperable and easily accessible bill payment service to consumers via multiple channels like Internet banking, mobile banking, mobile apps, BHIM-UPI etc. Citizens can make easy bill payments anytime, anywhere through BBPS.
- Control of Black Money and check for Anti-money laundry: Even transactions can be done through e-banking but it can be traced while it is very difficult to trace the transactions in cash. There are certain checks also for depositing and withdrawing money through bank accounts. Hence, it will definitely control black money and money laundering in the days to come. According to the Bank of Italy, India’s share in the global tax haven industry is between $152-181 billion, which is equivalent to Rs. 10 lakh crore.
- Safe and secure: Recipients of cash payments not only often have to travel considerable distances to receive their payments but are also particularly vulnerable to theft. Digital payments across India are secure as multiple levels of authentication are required for making transactions.
Limitations of Cashless economy
- Cyber Security Issues: Another mounting challenge in digital payments is cyber security issues, with the magnitude with which digital transaction-taking place after demonetization the risk of online fraud, leakage International of confidential information, cyber-crimes, malware and virus attacks has been raising. This is the biggest concern to deal with in order to popularize digital payments.
- High Cash Dependency: India has a high cash penetration in almost all of its transactions that happen as B2C transactions. Total cash flow in the market accounts for 12.04% of the GDP, which is among the highest in developing countries.
- Lack of infrastructure: Lack of adequate infrastructure is a major hurdle in setting up a cashless economy. Inefficient banking systems, poor digital infrastructure, poor internet connectivity. The remote areas are still not having the banks at their doorstep. There are still few ATM center in the remote areas. In India, only 48.7% population has access of internet and among these only 26% uses digital payment services.
- Low Literacy Rate:
A low literacy rate hinders the accessibility of banking services. Citizens should not only know how to read and write but also possess basic ICT literacy to fully enjoy the benefits of e-payments.
- Lack of awareness: Citizens especially older people are not familiar with digital modes of payment. They need more time to adapt to digital media. Many citizens question the safety of their balance in their mobile wallet accounts. Most of us are also accustomed to traditional cash transactions and have resistance to shifting to digital payments.
Steps taken by Government
- In November,2016, Demonetization was rolled out in nation. It promotes the digital transaction in economy . after demonetization cash to GDP ratio came down to 9%.
- The Digital India Programme is the flagship programme launched by the Government of India with a vision to transfer India into a digitally empowered society and knowledge economy. “Faceless, Paperless, Cashless” is one of the professed role of Digital India.
- as part of the Digital India Mission, the government has been encouraging the use of digital payment methods to traverse national highways using FASTag.
- The Unified Payments Interface (UPI)-the payment system that allows mobile-enabled money transfer between bank accounts is also a step towards the digitalization of the economy.
- UPI is launched by NPCI with a vision of a cashless society. It provides interoperability to multiple payment platforms.
- NETC system enables the customer to make electronic payments at NETC-enabled toll plazas on the highway without stopping at the toll, using Radio Frequency Identification technology.
- Many banks have launched UPI apps, the Bharat Interface for Money (Bhim), the common app that can be used by anyone who has a bank account with a linked mobile number. Bhim provides a Smartphone front-end to make bank-to-bank payments.
- In 2019, the government of India launched e-RUPI.The e-voucher kind of method called e-RUPI can be redeemed without a card or the internet, which is one of the crucial steps taken towards financial inclusion.
- The government has launched Direct Benefit transfer with a view to direct transfer social scheme amounts in the account of the beneficiary. It promotes the digitization of rural India.
- Centre has constituted a committee headed by the CEO of NITI AAYOG Amitabh Kant to identify the various issues that affect digital transactions.
- Ratan Watal committee on digital payment was constituted in 2016. The recommendations are:
- The Committee has recommended a medium-term strategy for accelerating the growth of Digital Payments in India.
- The strategy must be backed with a regulatory regime which is conducive to bridging the Digital divide by promoting competition, interoperability and open access in payments.