India as a Cashless Economy – Advantages and Disadvantages


What is a cashless economy?

A cashless economy is a situation in which the flow of cash within an economy doesn’t actually exist and all the transactions take place digitally through internet banking, debit and credit cards and apps like paytm, freecharge etc.
following advantages are expected to accrue:

(i) Carrying high amount of cash is always a security hazard. For other modes like credit/ debit cards, in the event of loss or robbery, one can block the card. It may also reduce pickpocketing and highway robbery.
(ii) It is not necessary to be physically present to conduct cashless transaction. There is also no limitation on timing of transaction as it can be done at any time and from anywhere.
(iii) The electronic payment will help the entrepreneur to increase their customer base and breach the geographical limitations.
(iv) Increasing share of cashless will improve government revenue as online transaction lead a trail of events which can be traced to find out tax evasion if any.
(v) Since the cashless transactions are more visible, it will help in curbing the clack money.
(vi) If subsidy or wages for the welfare schemes like MNREGA are paid online through bank transfer instead of cash, it would also help in plugging the leakages and help in ensuring that subsidies are better targeted.
(vii) As the people increasingly started using cashless transactions, it will help in increasing the tax base. It will be easy for the public as well to explain the tax authorities their past expenditure.
(viii) Being cashless also inculcates budget discipline.
(ix) It will also be easy to ward off the borrowers if you are cashless.
(x) Cashless transactions do away with the need of change. One can pay in exact amount even in fraction of rupee or paisa through card payment or online transaction.
(xi) Problem of counterfeit currency will also be reduced in online transactions.
(x) One can also trace the funding of terror activities as online transactions leave a trail.
(xi) There is high cost of printing currency notes. Switching to cashless transactions will decrease this cost.


(i) The biggest fear is the risk of identity theft. One can also become a victim of phishing trap.
(ii) Since mobile phone had become an important element of cashless economy, loss of phone may become a double whammy as many financial details can be retrieved from it.
(iii) If we take into account the proportion of non-tech-savvy population, the practical implementation of cashless economy will take enormous efforts.
(iv) With a literacy level of 74.04%, India is likely to face the obvious hurdles on its way to achieve a total digitalisation of its transactions. 
(v) With the recent hack of 32 lakh Rupay & Visa debit cards, there is a doubt in cyber security of Indian Banking. Before going for completely cashless economy, India needs to strengthen its cyber security first.
(vi) Network connectivity issues must be resolved before dreaming about a cashless society.
 (vii) The internet cost in India is still substantially high.
(vii) These are additional charges that are levied by the vendors when they offer an online payment facility.
(viii) A cashless society needs a proper infrastructure. The banks need to be fully equipped to handle the surge in e-transactions. Infrastructure is also needed in terms of opening more accounts in the banks.

Despite its drawbacks, the cashless system is indeed an improvement over the traditional cash based system. However, none of the advanced economy has fully replaced the cash as it is practically not possible but reducing the amount of cash and increasing the cashless transactions will definitely improve the transparency in business transactions and therefore is good for the country and economy. In fact, a cashless society is a welcome idea but not without preparation.

Thursday, 06th Jul 2017, 12:16:26 PM

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