In this article we will explain what Cashless economy is, what are the major advantages of cashless economy and what challenges India will face in moving towards a cashless economy.
India continues to be driven by the use of cash; less than 5% of all payments happen electronically however the finance minister, in 2016 budget speech, talked about the idea of making India a cashless society, with the aim of curbing the flow of black money.
Even the RBI has also recently unveiled unveiled a document — “Payments and Settlement Systems in India: Vision 2018” — setting out a plan to encourage electronic payments and to enable India to move towards a cashless society or economy in the medium and long term.
An increased use of credit cards instead of cash would primarily enable a more detailed record of all the transactions which take place in the society, allowing more transparency in business operations and money transfers.
This will eventually have the following chain effect:
Though it will take time for moving towards a complete cashless economy, efforts should be made to convert urban areas as cashless areas. As 70% of India’s GDP comes from urban areas if government can convert that into cashless it will be a huge gain. Therefore different trajectories need to be planned for migration to cashless for those having bank account and for those not having.
Very important for prelims as it is the world’s first interoperable payment acceptance solution. See b2b for details.
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Remember these tit-bits for Prelims.
The steps taken by Ministry of Petroleum and Natural Gas to encourage consumers for use of digital payment methods at various petrol pumps in the country to promote cashless transactions:
Not very important. Just know in case you need to write in support in mains.
Stories from nations where “digital lending” evolved:
Measures that should be taken:
India stands on the cusp of a digital lending revolution. Ensuring that this lending is done responsibly can ensure the fruits of this revolution are realized. Note down the pros and cons of digital lending for a mains answer.
Government should focus on removing regulatory hurdles to the spread of technology in the financial sector. This approach will do more for moving India to a predominantly cashless economy. What’s more, it can be done without raising fresh taxes.
This gives a new perspective on how to approach digital payments. This can be a direct mains question too.
Note4students: These recommendations can be prelims tit-bits or can also be quoted in questions pertaining to digital/ less-cash economy.
A small but important information that can be asked in Prelims exam.
Potential of Aadhaar:
Three constraints of Aadhaar:
Access to informational networks:
The constraints illustrated here reveal that the current Aadhaar-based system does not protect the poor from the backlash of demonetisation. As a result, the poor are still unshielded from the consequences of cashlessness, which is now causing denial of primary and life-saving facilities. Digitality is hence to be combined with other means to help those who bear the most severe burden of demonetisation.
Further, this problem is not confined to India only. Generally, those with lack of access to technology are left behind in any kind of globalisation trend which is technology centered. Example is women and rural population being left out of digitisation net.
The International Telecommunications Unit (ITU) calculates an ICT (information and communications technology) Development Index (IDI) for 175 countries. India is ranked 138 worldwide, behind nations such as Gabon, Nigeria and Zimbabwe, which rank significantly lower on economic and human development.
1. USSD, is a protocol used by GSM cellular telephones to communicate with the service provider’s computers. USSD can be used for WAP browsing, prepaid callback service, mobile-money services, location-based content services etc.
2. More information on the lottery schemes mentioned in the news can be found in the Cashless Society story here.
Click here for the RBI’s response some weeks ago to the Payments Regulatory Board.
Committee recommendations, and their names and purpose are important for both prelims and mains.
1. Common Service Centres – are a strategic cornerstone of the Digital India programme. They are the access points for delivery of various electronic services to villages in India. It is an initiative of the Dept of Electronics & IT (DeitY), Ministry of Communications and IT, Govt of India. CSC e-Governance Services India Limited is a Special Purpose Vehicle (CSC SPV) incorporated under the Companies Act, 1956 by DeitY to monitor the implementation of the CSC Scheme.
The govt had revamped its scheme for CSCs by rebranding it as CSC 2.0. Under the new programme, at least one CSC was envisaged in each of the 2.5 lakh gram panchayats for delivery of various electronic services to citizens across rural India.
2. Near-field communication (NFC) is a set of communication protocols that enable two electronic devices, one of which is usually a portable device such as a smartphone, to establish communication by bringing them within 4 cm of each other.
This news is mainly important due to the govt schemes mentioned. Questions based on it can come in prelims. They can also be used as examples of innovative measures to promote digital payments.
Programme’s such as Digi Dhan Abhiyan are important from prelims perspective. The use of TV channels to educate people can be used in mains answer writing also.
The channel and website were launched as a part of the ‘Digi Dhan Abhiyan’. It is a campaign conceptualized by the IT ministry to enable every citizen, small trader and merchant to adopt digital payments in their every day financial transactions.
The news itself is of minor importance, but you can use this as part of an answer on how the govt is promoting the cashless economy.
Quick question: Who is the head of the Niti Aayog? It is not the CEO, rather it is the Chairperson, PM Narendra Modi.
The Govt has constituted a committee to enable 100% conversion of govt – citizen transactions to the digital platform. It is headed by Mr. Amitabh Kant, and will identify and operationalize user-friendly digital payment options in all sectors of the economy. The attempt is to establish and monitor an implementation framework with strict timelines to ensure that nearly 80% of the transaction in India moves to the digital-only platform. The committee will also implement an action plan on advocacy, awareness and handholding efforts among public, micro enterprises and other stakeholders.
Journey to fight black money:
A cashless economy:
Demonitisation is the biggest financial initiative of the Government. A question in Mains cannot be ruled out. Make your notes!
G20 Brisbane Summit agenda: European leaders expressed their desire to support the recovery as the global economy moves beyond the global financial crisis
G20 2016 Summit: in Hangzhou, China.
G20 2017 Summit: will be held in Hamburg, Germany
Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015: The Bill will apply to Indian residents and seeks to replace the Income Tax (IT) Act, 1961 for the taxation of foreign income. It penalizes the concealment of foreign income, and provides for criminal liability for attempting to evade tax in relation to foreign income. A flat rate of 30% tax would apply to undisclosed foreign income or assets of the previous assessment year
Benami Transaction Bill, 2015: seeks to amend the Benami Transactions Act, 1988. The Bill seeks to: (i) amend the definition of benami transactions, (ii) establish adjudicating authorities and an Appellate Tribunal to deal with benami transactions, and (iii) specify the penalty for entering into benami transactions
In the context of the demonetisation drive and consequent push for a cashless society, make a note of these specific practical challenges. Language issue is a major obstacle as you can see.
How different is the Unified Payment Interface(UPI) from mobile wallets?
Unified Payment Interface (UPI) is a payment technology developed by National Payment Corporation of India (NPCI) under guidance of Reserve Bank of India.
All govt. committees are important for both prelims and mains perspective.
We have summarised this op-ed in 4 major buckets – threat, new security measures, intro to cyber threat and steps to control. Most of this would now seem intuitive to you. Make note on the PCI DSS certification. What do you know about RUPAY’s security? What is NPCIL doing about Cyber threats?
Earlier this month, the government released a draft proposal that, if accepted, will see income tax benefits for consumers, who predominantly use electronic transactions for payments.
What else? Key Issues to be addressed:
Banks should make an effort to really know their customers — their backgrounds, stated activities or profession, their signature style of operation and digital footprint in the case of online transactions, etc.
This would allow a bank to draw up a robust customer profile and put up a red flag if there is any exception to the norm.