In India, Cashless Is King Now

Hargovind Sachdev Discusses the Magic of Digital Economy in India?

“The more cashless our society becomes, the more our moral compass improves.”

India is on a path-breaking threshold of becoming one of the largest digital economies in the world. Unified Payments Interface (UPI) transactions grew 58% by volume to 9.96 billion, and in terms of rupee, the amount grew from Rs 10.63 lakh crore in July 2022 to Rs 15.34 lakh?crore in July 2023, up by 44%. At a CAGR of 50%, the Indian digital payments market has reached 411 billion transactions. UPI is estimated to record 1 billion daily transactions by FY 2027. Indians with UPI-loaded mobile phones in empty pockets are cashless kings now.

A cashless economy is a system where financial transactions are conducted electronically rather than using physical currency. The transactions occur via cards, payment wallets and digital modes, replacing traditional payment modes of cash. The money flow is facilitated via digital means, mobile and net banking without using cash.

A cashless economy is a relatively new concept in India; it has emerged recently, and despite initial challenges, it has witnessed high acceptance due to the following features:

Convenience

Electronic payment methods offer greater comfort, such as credit/debit cards, mobile wallets, and online banking. People make transactions without needing physical cash, making payments faster and easier. The cashless systems ensure payments anytime and anywhere. There is no need to go through the hassle of visiting the bank to initiate a remittance transaction. A simple NEFT or IMPS from a phone does the job.

Transparency?

Digital transactions bring transparency and accountability to the monetary system. Digitising monetary transactions helps banks recognise customers and track money flow. This helps to reduce financial fraud and crimes such as tax evasion and counterfeit money in the economy.

Reduced cash-related crimes

Physical cash is susceptible to theft, counterfeit, and illegal activities such as money laundering and tax evasion. Digital transactions curtail black money practices that negatively impact the country's growth. A transparent digital system reduces the flow of black money and illegal transactions.

Ease of international transactions

Initiatives to regulate digital payments have eased international transactions for people living within and outside the country.

Reduced cost of currency production

As the country shifts to digital payments, production costs for currency reduce significantly, eliminating additional payouts required by the government. This also eases the statutory burden for the RBI as the regulatory authority.

Financial Inclusion: A cashless economy offers greater financial inclusion in regions lacking banking infrastructure. Mobile banking and digital payment platforms provide access to financial services for people who need easy access to traditional banking.

Transparency and Accountability: Digital transactions leave a digital record, making tracking financial flows and transactions easier. This can help reduce corruption, improve tax collection, and increase transparency in economic activities.

Economic Efficiency: Cash transactions involve costs related to printing, transportation, and management of physical currency. These costs are reduced in a cashless economy, potentially leading to increased economic efficiency.

More accessible Monetary Policy: Central banks like the RBI can implement monetary policies more effectively in a cashless economy. They can control interest rates and money supply more precisely when transactions are conducted digitally, as they better understand the money flow.

Data-Driven Insights: Digital transactions generate vast amounts of data, which can be analysed to gain insights into consumer behaviour, spending patterns, and economic trends. Businesses and governments can use this data for informed decisions.

The potential drawbacks of a Cashless economy are:

Digital Divide: Only some have access to the technology needed for digital transactions, potentially excluding population segments from the economy.

Privacy Concerns: Digital transactions can raise concerns about privacy and data security. Electronic payment systems could be vulnerable to hacking and data breaches.

Dependency on Technology: A cashless economy highly depends on technology and reliable internet connectivity. System failures or cyberattacks disrupt the entire financial system.

Loss of Anonymity: Cash transactions offer anonymity that might be lost in a digital economy, potentially affecting personal privacy.

Financial Exclusion: Senior citizens and individuals uncomfortable with technology find adapting to a cashless system challenging.

Monopolistic Power: The dominance of a few sizeable digital payment providers could lead to monopolistic control over financial transactions and data.

The fact that a cashless economy is "better" depends on factors, including the context, societal values, technological infrastructure, and individual preferences. It's essential to weigh the drawbacks before moving towards an entirely cashless system.?

Many countries are working on balancing electronic and physical payment forms for inclusive growth. Indian banks are also rendering hybrid Phygital services, physically delivering digital products to customers visiting the bank. India has achieved significant progress towards going digital. The government must undertake widespread digital education drives to support digital banking awareness. This will strengthen e-transactions and virtual money.

Digital banking must be firewalled from online fraud. The transaction fees must be controlled to ensure people switch to digital-based transactions in their day-to-day lives.?

Becoming a cashless economy has specific challenges and concerns that do not outweigh the positive points. With the right strategies and implementation, India can become a leading cashless economy because Indian citizens carrying UPI-loaded mobiles in empty pockets are cashless kings.

Rightly said, “There will be a time when physical money will just cease to exist”.