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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.

  • What is a cashless economy?
  • Benefits of Cashless economy
  • Challenges in making India a cashless economy
  • Steps taken by RBI and Government to discourage use of cash
  • What else needs to be done?


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.

What is a cashless economy and where does India stand?

  • A cashless economy is one in which all the transactions are done using cards or digital means. The circulation of physical currency is minimal.
  • India uses too much cash for transactions. The ratio of cash to gross domestic product is one of the highest in the world—12.42% in 2014, compared with 9.47% in China or 4% in Brazil.
  • Less than 5% of all payments happen electronically
  • The number of currency notes in circulation is also far higher than in other large economies. India had 76.47 billion currency notes in circulation in 2012-13 compared with 34.5 billion in the US.
  • Some studies show that cash dominates even in malls, which are visited by people who are likely to have credit cards, so it is no surprise that cash dominates in other markets as well.


Benefits of Cashless economy

  • Reduced instances of tax avoidance because it is financial institutions based economy where transaction trails are left.
  • It will curb generation of black money
  • Will reduce real estate prices because of curbs on black money as most of black money is invested in Real estate prices which inflates the prices of Real estate markets
  • In Financial year 2015, RBI spent Rs 27 billion on just the activity of currency issuance and management. This could be avoided if we become cashless society.
  • It will pave way for universal availability of banking services to all as no physical infrastructure is needed other than digital.
  • There will be greater efficiency in welfare programmes as money is wired directly into the accounts of recipients. Thus once money is transferred directly into a beneficiary’s bank account, the entire process becomes transparent. Payments can be easily traced and collected, and corruption will automatically drop, so people will no longer have to pay to collect what is rightfully theirs.
  • There will be efficiency gains as transaction costs across the economy should also come down.
  • 1 in 7 notes is supposed to be fake, which has a huge negative impact on economy, by going cashless, that can be avoided.
  • Hygiene – Soiled, tobacco stained notes full of germs are a norm in India. There are many such incidents in our life where we knowingly or unknowingly give and take germs in the form of rupee notes. This could be avoided if we move towards Cashless economy.
  • In a cashless economy there will be no problem of soiled notes or counterfeit currency
  • Reduced costs of operating ATMs.
  • Speed and satisfaction of operations for customers, no delays and queues, no interactions with bank staff required.
  • A Moody’s report pegged the impact of electronic transactions to 0.8% increase in GDP for emerging markets and 0.3% increase for developed markets because of increased velocity of money

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:

  1. Improvement in credit access and financial inclusion, which will benefit the growth of SMEs in the medium/long run.
  2. Reduce tax avoidance and money laundering thanks to the higher traceability of all the transactions.
  3. The increased use of credit cards will definitely reduce the amount of cash that people will carry and as a consequence, reduce the risk and the cost associated with that.

Challenges in making India a cashless economy

  • Availability of internet connection and financial literacy.
  • Though bank accounts have been opened through Jan Dhan Yojana, most of them are lying un operational. Unless people start operating bank accounts cashless economy is not possible.
  • There is also vested interest in not moving towards cashless economy.
  • India is dominated by small retailers. They don’t have enough resources to invest in electronic payment infrastructure.
  • The perception of consumers also sometimes acts a barrier. The benefit of cashless transactions is not evident to even those who have credit cards. Cash, on the other hand, is perceived to be the fastest way of transacting for 82% of credit card users. It is universally believed that having cash helps you negotiate better.
  • Most card and cash users fear that they will be charged more if they use cards. Further, non-users of credit cards are not aware of the benefits of credit cards.
  • Indian banks are making it difficult for digital wallets issued by private sector companies to be used on the respective bank websites. It could be restrictions on using bank accounts to refill digital wallets or a lack of access to payment gateways. Regulators will have to take a tough stand against such rent-seeking behaviour by the banks.

Steps taken by RBI and Government to discourage use of cash

  • Licensing of Payment banks
  • Government is also promoting mobile wallets.Mobile wallet allows users to instantly send money, pay bills, recharge mobiles, book movie tickets, send physical and e-gifts both online and offline. Recently, the RBI had issued certain guidelines that allow the users to increase their limit to Rs 1,00,000 based on a certain KYC verification
  • Promotion of e-commerce by liberalizing the FDI norms for this sector.
  • Government has also launched UPI which will make Electronic transaction much simpler and faster.
  • Government has also withdrawn surcharge, service charge on cards and digital payments

What else needs to be done?

  • Open Bank accounts and ensure they are operationalized.
  • Abolishment of government fees on credit card transactions; reduction of interchange fee on card transactions; increase in taxes on ATM withdrawals.
  • Tax rebates for consumers and for merchants who adopt electronic payments.
  • Making Electronic payment infrastructure completely safe and secure so that incidents of Cyber crimes could be minimized and people develop faith in electronic payment system.
  • Create a culture of saving and faith in financial system among the rural poor.
  • The Reserve Bank of India too will have to come to terms with a few issues, from figuring out what digital payments across borders means for its capital controls to how the new modes of payment affect key monetary variables such as the velocity of money.
  • RBI will also have to shed some of its conservatism, part of which is because it has often seen itself as the protector of banking interests rather than overall financial development.
  • The regulators also need to keep a sharp eye on any potential restrictive practices that banks may indulge in to maintain their current dominance over the lucrative payments business.

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.


Any doubts?

  1. Renjith Nair

    This topiccan be read alsofrom this website. https://www.iassolution.com

  2. Abhirami Abhi Jr.

    cashless economy objectives

  3. Abhi Sinha

    I found this article really helpful as it helps me in completing my SUPW project.

  4. Ajay Rebel

    how to use cash less transactions?

  5. Nikhil Raj B R

    Cashless society is not possible until we bring awareness in rural and poor people..
    But being cashless society is a good one for countries like india..

  6. Arvind Singh Phulad

    what about rural demography

  7. Abhilash Khajuria

    Its a very good system if properly implemented but Whole India need to accept this payment system .

  8. Abhilash Khajuria

    Bear with me please but i don’t think its going to work properly in India. These type of systems can be used when every body is under one roof. Here in India some people are well educated while others are thumb users. How can we use this system. Also it keeps track of a person’s spending isn’t it an attack on the privacy of a person’s life. We live in a country where some people don’t even know how to use mobile phone. People don’t have food to eat , forget about credit cards. Beggars , where will they go ?. how will they get money to eat food .
    I am not saying that this system is bad but totally using this system and eliminating cash system will be a disaster.
    This system should be like of net banking . It should be at the discretion of the account holder whether to use this payment option or not. It should not be made mandatory . It will create chaos.
    First we are not fully equipped with required technology to use this system .
    Unified system means that everyone should accept this payment system from a shopping mall to a cobbler , only then this system can prevail in our country otherwise its of no importance it will be like net banking . Yes it will make payment hassle free but at the same time it will create confusion. People will need to be alert what they are spending how much they are spending. They need to keep track of everything. It will prompt people to spend more as it will be easy for them to make easy payment.
    Corruption can be reduced by other means. If upsc gives more preference to ethics type of paper rather then old age art questions may be we can select some honest people. First of all remove reservation because that is the biggest corruption in this country.
    To be honest i am 50-50 in favor of this system . It should not be mandatory .

  9. Root

    Updated with CD Explains & Questions

  10. Vatsal Thakkar

    I would like to bring a completely different and quite down to earth concept of cashless economy. And that is 100% possible in India with its diverse cultural backgrounds, various business practices and many different ways of cash transactions.

    Before introducing the system, I would like to present a scenario of typical mumbaikar lady. Just imagine a case; while going for shopping; she is taking a best bus from her home to reach nearest Mumbai Metro station and after reaching her destination station, she hires an autorickshow to reach the nearest mall where she finds her desired outlet of Shopper’s Stop. After finishing shopping she had some refreshments at McDonald in the same mall. now, she chooses to take a taxi to back home and calls for the phone taxi. On her way home, she also stops to buy her daily needs at her favorite grocery shop near to her home.

    Now, let’s have a look how she paid for all her bills? She used her BEST payment card for the bus fare, and similarly Mumbai Metro card for her metro ride, and paid cash to autowala after reaching the mall. She made her payment through Shopper’s Stop’s payment card for her purchases and used her credit card to pay to McDonald and since she didn’t have enough cash left for her daily needs purchase, she is using her mobile money option for the payment to Taxi and again producing cash for the payment to grocery shop near to her home.

    She therefore has to carry minimum of 4 Smart Cards – BEST, Mumbai Metro, Shopper’s Stop and her Bank Credit Card, despite carrying all these cards she also needs a cash and a smart phone with data connection to make payments.!!! This is how, cashless economy is not much popular in India. Even in a city like Mumbai, where a common thelawala knows about technology and can use a smart phone and smart cards, we do not have any user friendly network to introduce Cashless Economy.

    Now, I will present a case of typical Hong Kong citizen She is living in Sha Tin in New Territories and today afternoon she has to see her friend at Tsim Sha Tsui in Kowloon area of Hong Kong. She has to take MTR metro, but, she needs to take local bus to reach metro station. Well, she boarded the bus and instead of paying by coins, she just touched he Octopus card at the receiver on the bus. She again used her Octopus card to board the train, and after reaching Tsim Sha Tsui, met her friend and both went to nearest restaurant to have some snacks and coffee, her friend paid bills through her Octopus card. When Meeting was over, this lady remembers to buy something for her needs back at home, but she needs to go to Central station where she can find the outlet of Park-n-Shop of her choice. She now chooses to go by water transport to save time and money; she walked up to nearest ferry station; again used her Octopus card to board the ferry and made her purchases at Park-n-Shop again through Octopus card. Now, she took a taxi to the nearest MTR Metro station and paid taxi fare by Octopus card. But, it was denied when she tried to board the train at the Central Station because of the low balance. So, she just walked up to the “value loading machine” at the station’s arena and load her Octopus Card through her bank’s Debit Card. When she finally reached near to her home after boarding MTR and bus; she was tired and needed to have some iced tea to drink, she simply stopped at the 9-11 store and got the Iced Tea and paid by Octopus again..!! Not only that, her Metro rides were discounted in comparison to single journey ticket, her Park-n-Shop purchases were also discounted because she paid by Octopus card and in addition she collected lot many Loyalty points as per Octopus loyalty program.

    Life is so easy there in Hong Kong. Why not in India??

    It is 100% possible in India as per existing RBI policy and its guideline for PPIs (Prepaid Payment Instruments) operated by NBFCs. We need a versatile payment card which can be used at any of our desired outlets as well as all possible passenger transports. We need a smart card without requirements of Bank account. The card which anyone can avail after producing simple KYC (know your customer) documents, and can register on the system in matter of just few minutes, and can use this card for all required payments within a matter of minutes after registration. The card should be used at any outlets including a panwala, autorickshaw, barber shop, vegetable shop, laundry shop or a grocery shop.

    Now, imagine, most of the unaccounted money is not in middle or upper channels, but, it is moving in lower channels.

    What if, these vendors also use such versatile card for payment collection and operator make the settlement through banking transaction, all money will be accountable and all transactions could be traceable. Financial corruption and parallel economy can be controlled.

    What if, your all small and medium civic services payments are also done through such smart card, then there is no cash transaction at government offices, it may help curbing the corruption as well.

    What is the benefit to consumer/ user? He/she is not now carrying bulky wallet; No need to fight over change, crumpled currency notes or coins; now no one has to receive chocolates in lieu of change at Super Markets. You don’t even need a smart phone or a data network to use this payment system. Its easiest to use as well, just touch or get it near to the receiver and your payment is done.

    Merchants don’t need a separate data line or not to wait for servers to respond. All transaction data is stored in the receiver and can be collected at any point of time..!! Its easy to reload also, it can be reloaded at any outlet or even at the value loading machines or even on-line in exchange of either cash or credit/debit cards or even net-banking!! Receivers comes with 8-12 hours battery back-up, so no need to have constant power supply to operate. No need for wired or wireless network, its stand alone device to load / receive money.

    Along with all other ways of cashless economy, India strongly needs such instrument to popularize cashless economy in country.

    I am much hopeful for that..!!

    1. Sanil Pathak

      You were so bang on with your innovative ideas and logical thinking. But I could say , something is incongruous between cashless economy and India. As a matter of fact, India’s overall transactions are happening via cash at a rate of 86.4percent i.e paper currency is circulation and contributing 86percent of the overall economic activity. This couldn’t be brought down at a 0percent level, which u r looking for, in a quick succession. Why? Because “TRUST”. We have still a population over 25percent who are illeterate. Further, 60percent of population is dwelling in rural areas. You have compared India with Hong Kong, I don’t think the comparison was legitimate. There are a lot of differences between them. Anyway we move further, you must aware of infrastructure in India as far as rural sector is concerned. We have been taught through our parents that how u should hold a spoon while feeding, but, they themselves have a fear of using touchscreen phone. You are looking an optimistic person that is commendable. But we have numerous restraints to reach out there.

    2. Vab Rastogi

      Great thinking Vatsal !! you are very right 🙂

    3. manish bansal

      What are you talking about ? How can you not need data network while settling transactions? How can by just simply touching a card to an offline machine will be going to transfer money from payer to payee. Cards only contain information of your bank account which just simply includes your account number and bank details. It does not contain the information like your balance. So wen you first go to the loading machine to load up your so called verdatile card with money from your bank account, it will only make changes on some central server that so and so money has been transferred from bank account to the card. That machine will not be going to write down the same on your card as those machines only have readers not writers. even if by God’s innovation banks start providing writers in the loading machines, it will become vary easy to hack such cards and load up money without any loading machine. Further at merchant’s site also, data connectivity will be required to check if that card is actually having any balance by enquiring payer’s account. I think your solutions seems to be completely fictitious.

    4. Satyajeet Panchal

      Very nicely written…

    5. saran vs

      Excellent write up….

    6. Vatsal Thakkar

      Just to add to this:

      Security: I believe that such type of card can be used by anyone so it is not much secured. Yes, it is as secured as cash in your wallet OR as unsecured as cash in your wallet. But, certainly, no one can hack your card, and after all its your money and you have to protect it. However, protecting a single card loaded with lots of cash is easier to protect than many more currency notes.

      There are many indirect benefits also, like, saving time and energy for payments and counting collecting change; no need for currency notes — no need to print it anymore!! Its wiered but true that we are abusing our notes up to the level of making it an instrument to spread even many disease..!!

      It can be used by practically any person anywhere, without any fear of being cheated or looted. And in addition you are not paying any extra charges (as in the case of Credit Cards). No one can withdraw cash from this card (not even a user) so, there are little chances of malpractices. Because, all other transactions are stored and traceable. Moreover, any one who try to steal such card, can use it only up to the limit of the remaining balance on the card!! It more secure compare to Banking cards!!

      And that’s why I am hopeful that this instrument is more relevant to Indian society than all currently prevailing instruments.

  11. Udit Agarwal

    Going cashless would mean that our monies would be on the servers and we perform transactions without the physical cash. For this the minimum requirements are a bank account, a device, electricity and connectivity. Jan dhan has given us accounts,alright, but in India, even in urban areas, load shedding is commonplace, and mobile networks weak and broken. Rural areas are just beginning to get a feel of both these utilities.
    Without the basic infra, a cashless society seems far fetched. Public awareness, acceptability and response to this development are all secondary. For now, we’re only good enough for cashless transactions, and not a cashless society.

    Jan dhan ke sath deendayal upadhyay gram jyoti yojana and national optical fiber network plan also need to be successful to think about going cashless.

    1. Amardeep Singh

      genuine points you have raised . These are the real challenges for us to achieve the dream .

  12. R Mohite

    125,00,00,000/- people x 100 rupees each person. =12500,00,00,000/- twelve thousand five hundred crore rupees raised by just 100 rupees on each person. so think that how much money can raised if we go cashless and we do only e payment.

    1. Kunal Puri

      You are genious.. What all this has to do with cashless economy?

  13. R Mohite

    to be fair with every indian. we have to start e payment on each n every thing. like we recharge our mobile balance. we gave money to mobile shopkeeper then he top up our mobile recharge from his mobile number. that means he transfer balance by mobile numbers. this is how simple it is. we buy anything we just transfer balance by mobile numbers. yes we can also do this by applications used on smartphones. FOR
    MORE PLZ NOTE THAT Just less than 3% of Indian population bears the total income tax burden of the country that will sum up to 35 million tax payers.
    It must be noted that out of 35 million people, 89 % taxpayers are between the tax slab of 0-5 lakhs.
    Comparatively, USA has more than 40% (138 million) taxpayers out of its 308 million population.
    There are three categories of tax payers in India — those earning between Rs 2 lakh to Rs 5 lakh fall in the 10 per cent tax bracket, while those earning between Rs 5 lakh to Rs 10 lakh are paying 20 % taxes currently.
    The bulk of the taxes, however comes from high earners whose income exceed Rs 10 lakh limit. They are taxed at 30 per cent.
    Individuals (42,800 to be precise), whose taxable income is over Rs 1 crore, are liable to pay an additional surcharge of 10 per cent from this year.
    That’s not all. Wealthy Indians (wealth exceeding Rs 30 lakh) are also required to pay wealth tax of 1 per cent.

  14. R Mohite

    if it will happen then india will be most rich country in the world. like an example In india we have public works department (PWD) for each district ,taluka level. assume that 1 district have 10 taluka . each taluka pwd division is doing road works , building works. let assume that every division spend maximum 10 crore rupees on public works as road, government building, etc. etc. on that works pwd officers (executive engineer, deputy engineer, senior engineer, accountant, n more other staff.) take bribe as 10% percentage on each work done by the contractors. this is thumb rule of PWD department. it is from the top to bottom of that system. if one division spend 10 crores rupees on public works that means these pwd officers take 1 crore rupees as bribe. this is all cash money which is only taken by government servants. this is all corruption. for yearly how much money spend by indian government from that 10% money is balck money which was used by corrupted people.
    assume india spend 1000 crore rupees on pwd division that means as 10 % of that fig. 100 crore rupees were bribe from these corrupted people. thats why we cant get quality works of road n all. we pay taxes just for these government people who only take bribe. they paid by high salary + after retirement pension + bribe. so is it fair?

  15. Abhimanyu Kumar

    the term cashless society means the society in which most of the transactions are made through card and online.cashless society will be an effective weapon to curb corruption and money laundring.both the above evils are persisting in india so india should try to have a cashless society.India has made several steps towards it;for example
    the govt.programme of digital india,incentives of the RBI to the online payment,net neutralisation etc.thus we observe that india is taking some concrete steps towards cashless society;so after 4-5 years we can see india as cashless society..

  16. Devesh Tiwari

    Sweden has entered into Self destructive mode ! With high risk of online security and poor privacy we can’t afford to kick country’s overall economy into cashless system! In short all I can say about this move is ” Thoda Jada ho gya :p ” .

  17. Devesh Tiwari

    in a country where Internet penetration is just 5-6% , you cant expect full cashless economy atleast for 5-6 Decade.

    1. Havilah Sweety

      That’s the good point

  18. Amit Bhardwaj

    A cashless society? Let see how it unfolds..

    A large like really large chunk of citizens is out of the banking/insurance net.
    Internet/mobile penetration far from the level that is required for cashless society.
    There are concerns about the safety of e-transactions and they are not unfounded.
    Requires huge cash-flows for infrastructure development bur e-commerce still out of the purview of FDI
    A generation still prefers to deal in hard cash and it shall be difficult to get them on board and switch to e-cash

    1. Satyajeet Panchal

      I don’t think a generation which prefers to deal in hard cash is a major as we have huge number of young Indians using internet and ready to do E cash transaction but there is a lack of facilities and safety.

  19. Ajay Rathod

    We have to agree on this subject that india is no maerica where all the transaction happens electronically i.e. cashless. only 5% of all payement menas there is huge challange up ahead to increase cashless usage of money.
    Cashless economy means any transaction is done using electronic money and not by cash itself . and the economy which follows complete cashless transaction is known as cashless ecoomy.
    We can do cashless transaction using elctronic cards online payement,cash cards and recently people using bitcoin as cashless money

  20. Daal Baati

    India-A Cashless Society ?

    Nopes. Not in a decade atleast.

    a) Critical infrastructure bottleneck i.e growth of Internet, E-Gadgets, E-Literacy, Cyber security, E Grievance mechanism is grossly insufficient.

    b) For a country as diverse as India with complex payment system including even more complex stakeholders, it will become a nightmare to implement one cashless society, without getting it fragmented and with being fare to one and all.

    c) In developed nations,though there had emerge even bitcoin culture but the fact is that they are also shying away from going completely digital.

    We can agree to the idea of going digital as its fascinating and holds future in itself. It also promise benefits like a check on corruption, black money, ease of payment etc. But in the end , right now, this idea needs to wait for its time.

    1. Rohit Pande

      Bitcoin to currency is like linux to engineers. Only CS folks adopt that and that too the purist kinds.

      We are talking about easing out banking payments and making the few steps easily available over mobile phones (which you wd agree are reaching to the hinterlands).

      You already have a test case – m-peso in Africa. As Shikhar mentioned in one of his comments – Our smartphone(200M) and feature phone penetration is huge and it’s absolutely the right time for the govt to conduct experiments like these.

      Critical infrastructure will build over time – disruptive technologies will make most in this while.

  21. Yogesh Pant

    A cashless economy is defined as a situation where there is very little flow of cash in the society and thus much of the purchases are done by the electronic media. These media can be debit cards, electronic fund transfer, mobile payments, internet banking etc.
    Government is bringing the RuPay card to every account holder through its financial inclusion schemes. Every new account holder is getting the card for cashless payment. The finance minister has also emphasised on the incentivising of the cashless transactions. He has a point in mind that it will curb the black money. The mandatory mention of the PAN number for large transactions is yet another measure for the same. Obviously the cashless economy will be more accountable towards the flow of money and will bring more people into the banking system.
    But turning an economy where almost all of the transactions in the small cities and in rural areas are done by cash into a cashless economy is an uphill task. It is okay that in metro cities the idea can be implemented but much of our population lives where cash is the only way to pay. Also, it can’t be stated that in metro cities all of the transactions are cashless. Be it malls, shopping complexes or the e-commerce sales, a large chunk of all these get the money in cash.
    Mobile Banking is one area where the country is definitely seeing a surge. But there always have been security issues with that. The payer, provided the option of cash or cashless transaction prefers the former.
    For the concept of a cashless economy to be true in India, the centre, the state as well as the local governments have to work a lot to ensure that:
    First, every person is financially included in the mainstream. Second, there has to be the availability of the option of paying with cashless methods at the grass root level. Third, there is a need to ensure the safety and security of the cashless transactions. The idea of cashless economy itself is great but all these problems and potential threats have to be taken into account.

    1. saran vs

      It is too good. Excellent writing

  22. Sadhwi Srinivas

    While cashless economy for the most part appeals to me, and seems like something that would be more beneficial than harmful even for and perhaps especially in a country like India, I am inclined to play devil’s advocate and bring up the point that going cashless will give the government never-seen-before levels of access and power over its citizens transactions. There is no saying that such power will not be misused. What if tomorrow a poor farmer is denied access to certain transactions based on one powerful person’s opinion of what he has purchased/sold in the past? I can easily imagine this having the opposite to intended effect and increasing corruption related crime in the country – especially targeting the poorer population.

    Am I right in thinking that this is a valid concern? Here’s an article expressing similar concerns about going cashless in the USA context: http://www.cnbc.com/id/101266173

    1. Rohit Pande

      Sort of (a valid concern).

      But at least with the level of transparency that tech offers – we would know who strong armed the funds, right?

      1. Sadhwi Srinivas

        I wouldn’t be too sure that technology cannot be manipulated.

  23. Siddhartha Singh

    @RP- Yeah, There are ways which can be followed to achieve the goal of cashless economy. First of all, lets try to understand the problems which are stopping a lot of people from using electronic transactions. Following problems can be observed-
    1) Poverty = people are unable to buy smartphones or laptops. Having smartphone/laptop is 1st step towards electronic transactions.
    2) Illiteracy or insufficient knowledge of english and internet= Many people possess smartphones but they don’t know how to operate it as english is required for operating internet. They use their phone for watching video and playing games.
    3) Many people don’t know about modern banking and other online services. They don’t know about flipkart, snapdeal and online recharge. They don’t about mobile banking.
    4) Internet speeds are very poor in India. 3G services aren’t available in rural areas and electronic transactions fail on 2G speeds. In present time it is very difficult to book a ticket or recharge online on 2G speed.
    5) Day to day needs of us comprises of milk, sugar, salt, oil, vegetables etc. Indian markets are not advanced enough to provide these things via electronic payments. India is known for its street vendors and they are unable to make their online shopping websites or buy electronic transaction machine.
    6) Many people earn their wage on daily basis. Often they don’t have accounts or empty accounts. How can they buy things by debit cards with empty accounts?
    There are many other problems too. So India needs to address these problems in order to bring cashless-ness. following steps can be helpful-
    1) Increasing internet speeds,
    2) Creating more employment so that people can buy stuffs needed for electronic shopping,
    3) Advancing markets and providing electronic swapping machines to small shopkeepers along with training to operate it,
    4) Spreading awareness about modern online services in simple language so that people can understand it properly,
    5) Simplifying procedures and providing websites in simple local languages too.
    But Cashless economy needs the base of a very advanced society. So first step is too enhance living standards because still so many people are living in worse situations.

  24. Golden Bennett

    The idea that cashless economy is infallible is nothing but a lie. With the abysmal level of cyber security in India, cashless economy may bring more harm than good.

    1. Rohit Pande

      Really? with the abysmal ‘amount’ of money being circulated you think a hacker would waste his time here 🙂

      Why do you think our diplomacy has never been targeted for breach like that in Saudi!

  25. Siddhartha Singh

    In my village more than 50% people don’t have Debit cards. I’m only person in my village who use net banking. My village isn’t the exceptional village of India. It is the reality of most of the villages in India, Especially UP, Bihar, MP, Chhatisgarh, Bengal, Hariyana, Rajasthan, Orissa etc. So how can we think of cashless economy in this situation ? It is bitter truth that India will not be able to transform in cashless economy till next 2-3 decades.

    1. Rohit Pande

      Bitter truth or not – think about it this way – can you help/ suggest solve this problem? Or even better, out of the many problems which your (such) village(s) might have, is it worth solving this problem first?

      A mature answer would lie in understanding the overlapping linkages between this issue and the other. With mobile penetration increasing in rural india (and I hope you won’t deny that) – can we use mobile internet (Internet.org initiatives or otherwise) and make really ease applications to facilitate that.

      Obviously JAM trinity is there and we shall see where that goes and takes us.

      1. Shikhar Sachan

        I don’t think “Cashless economy needs the base of a very advanced society” is a correct statement. Africa had a very successful financial inclusion model – mpeso. Our smartphone(200M) and featurephone penetration is huge and its absolutely the right time for the govt to conduct experiments like these. Our first target should be to get everyone with a phone onboard. Sending money can be as simple as sending an sms and its a fair assumption that phone owners can do that much. Besides curbing black money, going cashless can mean
        1. increased efficiency for banks
        2. better monitoring and targeting of social schemes
        3. more stable money market.

      2. Rohit Pande

        @Sid –

        1. Phone are getting cheaper + they should be subsidised by the govt or the private firms who have (vested) interests.

        2. I think you can go regional with phone’s operational support in terms of language.

        3. Can/ Should be explained in lucid words.

        4. Initiatives like Internet.org (or worse if Idea starts doiing more on IIN!)

        5 & 6. With the JAM trinity this is going to be addressed. Their daily wages would be automatically routed to their accounts to cut losses and leakages & this is precisely the reason we should broadly accept Cashless economy (or hope for)

      3. Siddhartha Singh

        @RP- Yeah, There are ways which can be followed to achieve the goal of cashless economy. First of all, lets try to understand the problems which are stopping a lot of people from using electronic transactions. Following problems can be observed-

        1) Poverty = people are unable to buy smartphones or laptops. Having smartphone/laptop is 1st step towards electronic transactions.
        2) Illiteracy or insufficient knowledge of english and internet= Many people possess smartphones but they don’t know how to operate it as english is required for operating internet. They use their phone for watching video and playing games.
        3) Many people don’t know about modern banking and other online services. They don’t know about flipkart, snapdeal and online recharge. They don’t about mobile banking.
        4) Internet speeds are very poor in India. 3G services aren’t available in rural areas and electronic transactions fail on 2G speeds. In present time it is very difficult to book a ticket or recharge online on 2G speed.
        5) Day to day needs of us comprises of milk, sugar, salt, oil, vegetables etc. Indian markets are not advanced enough to provide these things via electronic payments. India is known for its street vendors and they are unable to make their online shopping websites or buy electronic transaction machine.
        6) Many people earn their wage on daily basis. Often they don’t have accounts or empty accounts. How can they buy things by debit cards with empty accounts?

        There are many other problems too. So India needs to address these problems in order to bring cashless-ness. following steps can be helpful-
        1) Increasing internet speeds,
        2) Creating more employment so that people can buy stuffs needed for electronic shopping,
        3) Advancing markets and providing electronic swapping machines to small shopkeepers along with training to operate it,
        4) Spreading awareness about modern online services in simple language so that people can understand it properly,
        5) Simplifying procedures and providing websites in simple local languages too.

        But Cashless economy needs the base of a very advanced society. So first step is too enhance living standards because still so many people are living in worse situations.

  26. Nishant Yadav

    Another parameter to gauge the readiness – what % of the population is e-literate? What the number is, it is increasing at a rapid rate. With programs like Digital India focussing directly on digital literacy, it should go a long way in making the population ready to embrace e-transactions. The thundering success of e-commerce even in the hinterland is a prime example.

  27. Saurabh Bhatia

    The cost of running a cash based economy are indeed high. All modern economies have moved towards a cashless system. In a country such as India, where a parallel economy in the form of black money runs galore, a cashless economy would be able to arrest tax evasion. This would also check the menace of inflation as in the real estate sector, where housing prices are touching the sky.

  28. Root

    Fodder points –
    1. Even by liberal estimates, the direct cost of running a cash-based economy is close to 0.25% of India’s gross domestic product (GDP).
    2. Then there is a case for Indian IT firms who are rallying the case for Bitcoins (for currency disruptions)

    1. Rohit Pande

      Bitcoins is a different ball game altogether. Even the most advanced cashless economies have not embraced it wholly. And then – I think there are issues of bitcoin origination, black marketing etc – and there are no standards to it.

      I may be wrong. How regulated are bitcoins?

  29. Sajina Ban

    We cannot fold our hands because of the risk involvement. If we refuse to take on the challenges , there might be another big risk in future. India wants to learn how to manage risk.if we dwelling on the challenges at hand then there might not be a right time for it.

  30. Sajina Ban

    I am not saying cash less policy is not nice , but we are not ready. Rather than extending this policy government put some measures in place that would enhance its effectiveness. There are infrastructural challenges that will affect the efficiency of the policy. That is include epileptic power supply and non availability of cash IN ATM Mechine and people experience difficulties in accessing ATM. The essence of the policy is to reduce the rate of armed robbery, money laundering but this is a question mark still now.we have more strength like successful e governence ,our youth population and old people are ready to cope with technology .We know our Guinness record in jan dhan yojana. In my opinion government wants to conduct a survey on the impact of the cash less policy on the people before extending.

  31. Nishant Yadav

    Scope for moving towards cashless economy – 13% our cash to GDP ratio compared to global average of 2.5%
    Readiness – JAM trinity holds promise in Rural areas. Urban areas are gradually moving towards cashless economy already.

    1. Rohit Pande

      Fair point. Who could forget the JAM trinity. Let’s see what steady steps are taken towards it. Any new development that you know of?

  32. rhea verma

    Is india ready?not in the present state.in order to use credit/debit cards-robust financial infrastructure is a prerequisite.jan dhan yojana can come to its aid to a certain extent.long way to go (most of these accounts are empty).atm/card payments only available in urban areas and that too in selective outlets.even if the same is made available-financial literacy is very low.awareness low with respect to use of debit/credit card.
    less than 3% pay income tax-govt move essentially focuses on this group-to encourage this section to shift to cashless transaction.IT exemption is a good incentive.india is a cash heavy economy (cash to GDP ratio of 12%-RBI incurs huge expenditure in operating costs).will have a positive effect on curbing black money.Cash transactions are impossible to track.overall its a good start.

  33. seema verma

    Is india ready?not in the present state.in order to use credit/debit cards-robust financial infrastructure is a prerequisite.jan dhan yojana can come to its aid to a certain extent.long way to go (most of these accounts are empty).atm/card payments only available in urban areas and that too in selective outlets.even if the same is made available-financial literacy is very low.awareness low with respect to use of debit/credit card.
    less than 3% pay income tax-govt move essentially focuses on this group-to encourage this section to shift to cashless transaction.IT exemption is a good incentive.india is a cash heavy economy (cash to GDP ratio of 12%-RBI incurs huge expenditure in operating costs).will have a positive effect on curbing black money.Cash transactions are impossible to track.overall its a good start.

  34. Arindam Sarkar

    Actually, it ought to raise prices of cheaper goods and reduce prices of expensive goods (like real estate), by curbing black money. So the poor keep getting poorer while the purchasing power of the rich might only be marginally affected.

    However, the point here is about propriety. Tax avoidance is a crime. We’ll just have to adjust to the new equilibrium. The generated inequality would have to be dressed alternatively.

    1. Sajina Ban

      Arindam you are correct. If government removing transaction charges on the purchase of petrol , gas andrailway tickets that will be good benifit .

    2. Arindam Sarkar


  35. Arindam Sarkar

    One odd problem with this is a slight increase in prices. The tax avoiding transactions were factored into the final prices of goods. Now that tax would be levied, it would remove that advantage, thereby increasing input costs. That would have to be recovered. Thus prices would increase. This would be the new equilibrium price.

    The alternative of penalties on cash transactions would have a similar effect.

    However, if we set the cap high enough, it would not generate sufficient revenue as desired. On the other hand, keeping it low might end up harming small transactions affecting business.

    It’s going to be a difficult balancing act. One one side, you risk a dud and on the other, you risk damage to the economy.

  36. Ashwani Kumar Singh

    @ satish
    Since they are providing IT benefits to those who opt the cashless mode, what would happen to the kirana, local stores as even grocery shoping can be done online? Plus the weekly markets that are held in localities do not fancy cashless ttansactions. Going totally cashless won’t be a good idea.

    1. Satish Reddy

      who is saying total cashless society.. read my posts carefully .. now our cash/GDP ratio is 12% .. we need to get down till 3% .. Cashless economy is governments .. try supporting it and at same see what challenges are there .. thats how someones answer should be there as far as i know ..

    2. Rohit Pande

      Going totally cashless is not even realistic. As the header says – India continues to be driven by the use of cash; less than 5% of all payments happen electronically – we are far from that utopia.

  37. Satish Reddy

    Yes what you have said is exactly correct. This is just a start.
    Banking infrastructure
    1. Banking services within a 15 mins reach from every habitation in country
    2. Internet connectivity to every bank or ATM
    3. Accounts for every individual and they being linked to AADHAR cards
    4. Capacity building like human resource development, technological development( for secure transactions) , legal and organizational framework development
    5. Along with that there would be a cultural lag in society where it takes time for all public both rural and urban to establish trust in cashless transactions. It will take time but with more awareness, social modelling, more transparency etc and build trust among people

    1. Satish Reddy

      @focus … nachiketh mor

    2. Focus Ias

      Is the first point given by some Urjit Patel Committee? Or Nachiketa Mor? I remember reading about the “bank within x km radius” logic from there.

  38. Ashwani Kumar Singh

    Though the advantages of cashless economy cannot be downplayed, we need to realize that even those who have access to credit cards, debit cards and net banking are apprehensive to use that mode of payment due to fear of important details being stolen. Cashless payments are facilitated through machines which are not available everywhere. (Only in malls and other urban market places).
    Promoting cashless payment in rural areas will be a challenge given lack of infrastructure , banking system and lack of knowledge on debit and credit cards.

    To successfully go cashless, we will need to take a step by step approach and first address the issues that could cause hindrance.

  39. Satish Reddy

    1. Pradhana mantri jan Dhan yojana : This is a initiative taken by which more bank accounts are opened and each one is given debit cards. This will help in payment through debit cards
    2. Recent move to given tax rebate of sales tax for traders, business people who have 50% of there sales through cards
    3. Reduction of transaction costs through cards for petrol, railway and few other areas

    1. Its a welcome start, need to lower the cost of electronic payments by minimizing cost collected by card issuing bank, card companies and bank of which card is swiped rather than to offer tax breaks.
    2. Rationalization of interchange fee for using other banks ATM is also needed.
    3. Tax department should use Big Data analytics to all payment data, to catch evaders.
    On a concluding this move should help India to march towards building a strong and stable economy which supports inclusive growth.

  40. Satish Reddy

    India cash/GDP ratio is 12% which is four times that of brazil, south africa and other developing countries
    1. This would result in more informal economy
    2. Traders do transaction in cash so as to avoid sales tax
    3. It also helps black money market as cash cant be traced
    4. It is more expensive for RBI to print more and more notes with updated security features
    5. There is also cost which economy bears because of counterfeiting currency

    1. Increased revenue for government because of there would more informal economy and more sales tax in long term
    2. Monetary and fiscal policy can be more effectively implemented for example reduction of interest rates will benefit small firms also
    3. Easy accounting
    4. black money market can be controlled and this will also have effect on inflation especially in real estate
    5. In long run less transaction costs

    1. Focus Ias

      These are all very valid points 🙂

  41. Aditya Kalia

    Incentivising cashless transactions can be helpful in controlling the menace of black money in the system. However, i believe following are some issues indicating unpreparedness of a cashless system in India:
    1. Lack of penetration of banking system in India.
    2. Lack of knowledge of usage of debit and credit cards.
    3. Lack of infrastructure in terms of internet connections, payment terminals etc. Proper implementation of Digital India initiative can be helpful to address this issue.
    4. No rigid laws/implementation regarding information security and cyber security.
    5. The most important is changing the mindset of people, still the masses consider using cash as an easier and a convenient method.

    Please add to the above list if I have missed out on some other major issues.

[op-ed snap] Perils of going cashless


Mains Paper 3: Economy | Growth

From UPSC perspective, the following things are important:

Prelims level: Financial Resolution and Deposit Insurance Bill (FRDI), cashless society

Mains level: Government moves to reduce cash usage and its effects on depositors


Financial Resolution and Deposit Insurance Bill (FRDI)

  1. The “bail-in” clause of the Financial Resolution and Deposit Insurance Bill (FRDI) has led to worries about the safety of bank deposits
  2. The Bill enables the government to confiscate the deposits of ordinary citizens in order to save troubled public sector banks

Cashless push a bigger threat?

  1. The push by government towards a cashless society is a bigger threat than the FRDI bill

How will this affect depositors? 

  1. Presently, depositors can promptly withdraw their money from the bank by demanding cash
  2. Such an event can lead to severe bank runs and destabilise the banking system because bank deposits are only fractionally backed by actual cash
  3. Such rapid withdrawal of cash deposits, however, may slowly cease to be an option for depositors as the world increasingly turns away from cash and towards digital money
  4. When all, or even a predominant share, of money in the world is digital, there is no question of banks having to meet depositors’ demand for cash
  5. It would also strip depositors of the power to withdraw their deposits in the form of cash to escape any tax or other forms of confiscation by the government

Why more emphasis on ‘cashless’?

  1. Banks have been a major source of funding for governments and their economies across the world
  2. Most of such lending happens through loans which are not backed by savings but instead through fresh money creation
  3. This, in turn, leads to economic crises and bank runs led by depositors
  4. A cashless world makes it easier for banks to carry out their business of credit creation without the risk of having to satisfy the demand for cash from depositors
  5. It also prevents recurrent crises of liquidity that are faced by banks

Other reasons

  1. Policies like negative interest rates, which would otherwise push depositors to rush out of banks to escape the tax imposed on their deposits, become more feasible under a cashless banking system
  2. Under cashless system, depositors are essentially locked in by banks
  3. Depositors in such cases will have no other option but to spend their money to escape a penalty on it

Micro-finance institutions yet to recover from demonetisation shock


Mains Paper 3: Indian Economy and issues relating to planning, mobilization of resources, growth.

Prelims: RBI, Demonetization.

Mains level: The news card discusses RBI’s study titled ‘The impact of demonetization on financial sector’ which further highlights that MFIs, NBFCs are yet to recover from the impact of demonetization.



The RBI’s study on ‘The impact of demonetisation on financial sector’.

  1. Disbursals by micro-finance institutions (MFIs), which plunged by over 71 per cent after demonetisation of Rs 500 and Rs 1000 notes, are yet to bounce back into the positive territory, a Reserve Bank of India study has said.
  2. However, the study attributed the decline to farm loan waivers by various state governments.
  3. In the case of MFIs, however, disbursals continued to contract in comparison with the monthly average of disbursals during April-October 2016 in view of the uncertainty surrounding loan waivers by state governments.
  4. While the average monthly disbursals by MFIs declined by 71.4 per cent in December.
  5. Disbursals gradually improved but stayed down in June 2017, the study said.
  6. However, collections by MFIs fell during November 2016-February 2017 vis-a-vis April-October 2016, but witnessed an improvement in March, May and June 2017.
  7. Growth in collections (i.e., repayments of loans) of asset finance firms and loan firms during November 2016-June 2017 increased over the monthly average collections during April-October 2016.

Trend of Bank Credit to NBFCs

  1. Bank credit to NBFCs decelerated from 5.1 per cent (y-o-y) in October 2016 to 1.3 per cent in November 2016.
  2. However, it improved to 10.9 per cent in March 2017.
  3. In terms of the returns submitted by the reporting NBFCs, loans and advances by NBFCs rose broadly at the same rate in the year ending March 2017 (16.4 per cent) against FY16 (16.6 per cent), the RBI study said.
  4. During demonetisation and the subsequent period, there has been a distinct rise in saving flows into equity/debt oriented mutual funds and life insurance policies.
  5. Apart from this, NBFCs seem to have recorded improvement in collections and disbursals.
  6. Demonetisation-led increase in CASA deposits also led to significant improvement in transmission to bank lending rates during the post-demonetisation period.


  1. The challenge, going forward, would be to channel these funds into productive segments of the economy and expand the footprints of the digital economy, which has undergone a sharp increase, another important consequence of demonetisation.
  2. Fake notes detected per million pieces of notes processed at the currency chest level was 7 pieces for Rs 500 denomination and 19 pieces for Rs 1000 denomination.
  3. At the RBI’s currency verification and processing system, there were 2 fake Rs 500 notes and 6 fake Rs 1000 notes for every million pieces processed during 2015-16. These rose to 6 pieces and 12 pieces, respectively, during the post-demonetisation period.
  4. As compared to 2015- 16, 12 clusters for Rs 500 denomination and 14 clusters for Rs 1000 denomination showed a statistically significant higher rate of fake note detection during the post-demonetisation period.
  5. These findings imply a significant pick-up in the rate of fake notes detection at the Reserve Bank level in the post-demonetisation period as compared to a year ago.

Between January-August 2017: 2 million jobs lost sequentially, 6 million added on year-on-year basis

Mains Paper 3: Indian Economy: Indian Economy and issues relating to planning,mobilization of resources, growth, development and employment
From UPSC perspective, the following things are important:
Prelims level: The trends in labour participation rate and unemployment rate
Mains level: Challenges of Development and Employment

1. The article talks about the fall in labour participation rate post-demonetisation as per the Centre for Monitoring Indian Economy(CMIE)
2. The central idea of the article is follows: A comparitive approach of the labour participation rate, unemployment rate and volatility of unemployment in the 10 months preceding and post demonetization.
Key trends in labour market post demonetization-
1. About 2 million jobs were lost between January and August 2017
2. The average labour participation rate during the 10 months preceding demonetisation was 47% which decreased to 44% during the 10 months following demonetisation
3. The immediate impact of GST has been less severe compared to demonetisation.
4. Labour participation was at its lowest in July 2017 but increased in the following months.
5. Demonetisation had a wealth distribution element which cushioned the impact of demonetisation on job losses
6. Monthly overall unemployment rate has been increasing steadily since August 2017 from 4.11% to 5.68% in October 2017
7. Overall employment rate showed a decline from September 2016 to April 2017. However it picked up from May 2017
8. Urban unemployment rate was 8.2% which was the highest recorded employment rate in the past 11 months
9. The rise in labour participation and unemployment rates indicate that although labour is entering the market, they are unable to find jobs.
10. The volatility of unemployment rate measured through the coefficient of variation increased from 8.8% in Jan-Oct 2016 to 23.5% in Nov 2016-August 2017
11. The volatility of unemployment in India was 8.3 times higher than in OECD countries in the overall 20-month period
For Prelims
1. Organisation for Economic Cooperation and Development(OECD)
– It is an intergovernmental economic organisation to stimulate economic progress and world trade
– Its headquarters are located in Paris, France
– India is not a member

1. Demonetisation: It is the act of stripping a currency unit of its status as legal tender
2. Labour Participation Rate: It refers to the number of people who are either employed or actively looking for employment
3. Unemployment Rate: It is the number of unemployed people as a percentage of the labour force

[op-ed snap] For a long-term view of less cash costs


  1. To achieve the trinity of Jan Dhan, Aadhaar and a more or less cashless economy that the government promises, it is essential for the commercial banking system to fall in line Cutting down the extra charges.
  2. Commercial banking system falling in line means abolishing or reducing many of the extra charges that banks impose on customers and merchants for transactions.
  3. These charges are mostly arbitrary, opaque to even educated customers, and wholly incomprehensible to most consumers, small merchants and traders who are supposed to migrate to the new system
  4. If cashless is the goal, then what sense does it make to charge customers to issue a debit card? Facilitate cashless transactions, instead

Way ahead:

  1. Yet, there is a cost to implementing all the infrastructure and connectivity, which has to be recovered
  2. It cannot be done through taxes or high transaction fees
  3. Either would hurt the government’s monetary trinity goals
  4. The solution is to balance volume with immediate value
  5. Instead, if their managements look further ahead, it is apparent that short-term losses might lead to big midterm gains

Cashless push: State misses language angle

  1. What: Andhra Pradesh Chief Minister N. Chandrababu Naidu announced free phones and an application called ‘AP Purse’ last week.
  2. Context: This is aimed at promoting the use of digital wallets and thereby moving towards a cashless society following the cash crunch.
  3. Challenges: Unavailability of user interface in regional languages across devices that support cashless payments.
  4. International Experience: Chinese and people of many other technologically developed countries have mobile interfaces in their own languages and not English.
  5. Related developments: Introduction of Hindi Voice Search on mobile OS, and Hindi and other regional language keyboards by Google last year.
  6. Also, some Indian mobile phone brands like Micromax offer operating systems in local languages.
  7. ATMs offer Hindi and regional language user interface.
  8. The way ahead: The government should ensure that the developers of e-wallets, bankers and others involved release versions of local languages to ensure that even a layman with little education background can use them.


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.

Govt forms panel of CM’s to promote cashless economy

  1. What: The govt constituted a committee of chief ministers representing different political parties
  2. Purpose: To promote a cashless or at least a “less cash” economy to ensure that digital fingerprints of most transactions are available
  3. The main mandate of the committee is to “examine and implement measures to execute digital payment systems to promote transparency, financial inclusion and ensure a healthy financial ecosystem”
  4. It is led by the Andhra Pradesh CM and also includes CMs of Odisha, Maharashtra, Puducherry, and Sikkim
  5. There are also other members such as the Vice-chairman of NITI Aayog
  6. Terms of reference: Identifying global best practices for implementing an economy primarily based on digital payment
  7. Examine the possibility of adoption of these global standards in the Indian context
  8. It will also identify measures for rapid expansion and adoption of the system of digital payments
  9. These include cards (Debit, Credit and pre-paid), Digital-wallets/E-wallets, internet banking, Unified Payments Interface (UPI), banking apps etc.
  10. It shall broadly indicate the roadmap to be implemented in one year


How different is the Unified Payment Interface(UPI) from mobile wallets?

  1. UPI do direct bank to bank money transfer but wallets acts as an intermediary between two bank accounts i.e. you recharge your wallet from your bank account to use any services that a wallet provides.
  2. UPI allows you to transact upto Rs. 1,00,000/- and in the case of wallets you can only store upto Rs. 10,000 (For non KYC customer).
  3. UPI is interoperable but wallets are not.

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.

[op-ed snap] Reality of Cashless society

  1. Current cash flow deficit force people to make digital payments
  2. Without proper precautions and security policies, the highly reactive nature of cyber security leaves us vulnerable to cyber attacks
  3. Past records: Financial data breaches in India, exposed late October, had compromised the financial data of over three million users and victimised major banking companies
  4. Breach occurred when a network of Hitachi ATMs infected with malware enabled hackers to steal users’ login credentials and make illegal transactions
  5. Hackers breached a British mobile company, Three Mobile’s database
  6. This put at risk the private information of six million users, which was later used to purchase mobile accessories at the users’ expense
  7. Security of online transacting companies: PayTM, is certified under the Payment Card Industry Data Security Standard (PCI DSS) 2.0 certification
  8. PCI DSS is current industry security standard set by American Express, Visa International, MasterCard Worldwide – an essential certification
  9. These companies use 128-bit encryption technology to crypt any information transfer between two systems
  10. It takes more than hundred trillion years to crack a password under 128-bit encryption!
  11. Cyber threats: Other uses for stolen data include underground sales, identity theft, or targeted personal attacks such as extortion
  12. Creating fake mobile applications and spyware that steal information, or social engineering tactics that make you reveal your login credentials
  13. Forums on Internet are flush with step-by-step instructions on how to create fake websites that imitate digital payment platforms
  14. Steps to control cyber theft: Companies that offer digital platforms should increase awareness among their customers of the risks, and educate them on ways to secure themselves
  15. They must be proactive in looking out for any fake applications or websites that masquerade their service
  16. Government should check if the current policies regulating these platforms are adequate and update them regularly
  17. Customers must check the Website’s authenticity by searching for proper spelling of the Web address
  18. Check if the Website is secure by looking out for a green padlock symbol on the left side of the Web address, and keep Web browsers updated so they can recognise illegitimate sites easily


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?

[op-ed snap] Debate over cashless economy

  1. Benefits of cashless economy: Kenneth Rogoff, a Harvard economist, argues that most of the cash in advanced economies is floating around in the “world underground economy”
  2. Cash facilitates drug trafficking, human trafficking, extortion, money laundering and illegal immigration
  3. In a cashless society, people would be forced to remove savings from under their mattresses and keep them in the bank
  4. No cash means safety from burglars
  5. More electronic transactions would be good for hygiene (banknotes carry an assortment of germs)
  6. Disadvantages: Cash is empowering for millions of unbanked families
  7. It is an intuitive method of exchange and acts as a store of value
  8. It doesn’t come with the transaction fees of electronic payment methods
  9. Possibility of a Big Brother government getting hold of consumer data and using it for political agenda
  10. Hackers continuously test security systems, therefore, entrusting savings to financial institutions is not an easy decision

[op-ed snap] The perils of plastic cards and e-banking

  1. Context: The data breach at 19 Indian banks that has led to more than 32 lakh debit cards being blocked or recalled is a wake-up call for the banking industry
  2. For the government and the banking regulator, much is at stake as the two have sought to move in concert to harness the digital revolution to advance socio-economic policy objectives
  3. Initiatives at stake: Better targeting of subsidies through the direct benefit payments model, improving economic efficiency by lowering transaction costs, and moving toward a cashless economy
  4. Way forward: With banks in India having embraced technological change, the onus is on them to integrate inter-generational legacy systems across branches, ATMs and online banking networks into one seamless and secure whole

Govt panel to suggest ways to step up card transactions

  1. News: The finance ministry has set up a panel, led by former finance secretary Ratan Watal
  2. Purpose: To suggest steps to reduce cash transactions to promote card payments through incentives such as tax rebates and cash back schemes
  3. Panel has been tasked with reviewing the payment system in the country and suggest measures for encouraging digital payments

Upcoming e-payment method- UPI

  1. Unified Payment Interface (UPI): An improved version of IMPS with only requirements being a bank account and a smartphone
  2. Once a person registers for UPI with their bank, a unique ‘virtual address’ will be created, which is mapped with their mobile phone
  3. To initiate the payment, UPI invokes this virtual identity of the beneficiary and transfers money in real-time
  4. UPI will allow a customer to have multiple virtual addresses for multiple accounts in various banks
  5. In order to ensure privacy of customer’s data, there is no account number mapper anywhere other than the customer’s own bank
  6. UPI can potentially eliminate the need for maintaining a mobile wallet, as this ‘virtual address’ is not limited only to individuals
  7. This is a significant step towards moving into a cashless economy

Unified Payments Interface goes live

  1. News: Unified Payment Interface has been made operational following final approval from the RBI
  2. Banks will install the UPI app on the Google Play Store over the next two-three days
  3. UPI: A payment application by which a recipient can initiate the payment request from a smart-phone
  4. Unprecedented: Real-time sending and receiving money through a mobile application at such a scale on interoperable basis had not been attempted anywhere else in the world
  5. Most leading banks such as ICICI Bank, Axis Bank, Punjab National Bank, Union Bank of India have tied up with NPCI for the service

Digital payments to be $500-bn industry by 2020

  1. Increasing smartphone penetration and progressive regulatory policy structures have been cited as major driving force
  2. India is expected to have 520 million smartphone users by 2020
  3. What more? Next-gen technologies like voice-based payments, biometrics and iris authentication through mobiles, QR codes will play a part in extending coverage
  4. Key barriers: Lack of reach and complexity of using digital payments systems

Existing e-payment methods – RTGS and IMPS

  1. Time Gross Settlement (RTGS): Fund transfers handled on one-to-one basis
  2. They are large value transactions, typically over Rs 2 lakhs and are also done during working hours
  3. Immediate Payment Service (IMPS): More recent form of fund transfer that is gaining popularity
  4. A user is given a 7-digit Mobile Money Identifier (MMID) Code
  5. The sender initiates payment using mobile bank by giving the MMID code and registered mobile number of the beneficiary
  6. Most banks offer this service free-of-cost now and is a round-the-clock immediate payment service

Existing e-payment methods – NEFT

  1. Electronic Funds Transfer (NEFT): Money transfers are made via electronic messages
  2. The bank details of the sender and the beneficiary are linked using bank branch name and IFSC code
  3. When a payment is initiated, the payer’s bank sends a ‘message’ to its NEFT service centre
  4. All such messages are pooled every hour and the bank’s NEFT centre sends it to the RBI, which initiates the transfer
  5. The process typically takes a little more than an hour and is available only during the bank’s working hours

Unified Payment Interface to become operational soon

  1. News: A Unified Payment Interface (UPI) to address the last mile problem in the banking industry will become operational this month
  2. National Payments Corporation of India is developing the Unified Payment Interface
  3. Importance: UPI, an improved version of existing Immediate Payment Service (IMPS) is expected to help improve access to banking
  4. Money could be transferred, using the mobile app, to another account, without divulging any bank details – only virtual identity given by their banks need to be shared
  5. UPI would help save a villager the trouble of having to visit the bank to withdraw money and allow shopkeepers, not having a point of sale device, to receive payment

Start-ups find fuel in digital banking project


  1. Unified Payment Interface (UPI) is the National Payments Corporation of India’s (NPCI) most ambitious project
  2. Aim: To bring digital banking to 1.2 billion people in the country
  3. Transfer: Also to allow anyone with a bank account to quickly create a virtual payment address
  4. The money can be transferred using just the phone number or the Aadhaar number
  5. Charges: It is built on Immediate Payment Service (IMPS) which has lesser charges as compared to Credit and debit cards
  6. Security: End-to-end security and data protection on UPI is one of the key areas of concern among customers

RuPay gains market share, still long way to go

  1. Context: A recent survey on electronic & card usage in transactions
  2. Findings: India remains a potentially large market for electronic payments, but a strong push to expand acceptance infrastructure is needed
  3. Usage of digital payments is increasing all across India but that has not led to a decrease in card usage
  4. Use of electronic channels for accessing banking and payment services is on the rise
  5. India is still a cash intensive economy with cash-to-GDP ratio of over 12%

Tech-savvy Indians shop with ‘cashless’ wallets

  1. Context: Growing popularity of e-payments and mobile wallets among the youth in the country
  2. Background: Recently, govt. cleared the implementation of a few measures to promote digital and card-based payments to curb cash use in the system
  3. Measures: It includes withdrawal of surcharge, service charge or convenience fee on card and other digital transactions
  4. Impact: This makes RBI’s work easy to bring in accountability and transparency in each financial transaction
  5. Future: Country is heading for a cashless economy with a change in the way netizens make their day-to-day transactions

Learn more about Mobile Wallets

  1. Basics: It allows users to instantly send money, pay bills, recharge mobiles, book movie tickets, send physical and e-gifts both online and offline
  2. Benefits: Simple and convenient user interface, low risk, high security standards for customers
  3. Regulation: Recently, the RBI had issued certain guidelines that allow the users to increase their limit to Rs 1,00,000 based on a certain KYC verification
  4. Future: The mobile wallet market in India is projected to reach $6.6 billion by 2020
  5. Statistics: The rough estimate shows there are more than 100 million wallet users in India

Learn about 4 kinds of wallets in India

  1. Open wallets: It allows one to buy goods and services, withdraw cash at ATMs or banks and transfer funds. Ex: Vodafone m-pesa
  2. Semi-open wallets: It does not allow cash withdrawal, a customer has to spend what he loads. Ex: Airtel Money
  3. Closed wallets: In this, a certain amount of money is locked with the merchant in case of a cancellation or return of the order, or gift cards. Ex: e-Commerce wallets
  4. Semi-closed wallets: It does not allow cash withdrawals or redemption, but allows one to buy goods and services from listed merchants and perform financial services at listed locations. Ex: Paytm

Boost to cashless payments

  1. Context: Cabinet approved measures to promote payments through cards and other electronic means
  2. Aim: to check tax evasion and transition towards a cashless economy
  3. Steps: withdrawal of surcharge, service charge, convenience fee on cards and digital payments
  4. Also no extra charges on tickets booked on IRCTC website or on payment of water, telephone, electricity bills

Cabinet nod to incentivise cashless transactions

  1. Context: Govt. measures to curb the flow of black money in the domestic economy
  2. News: The Union Cabinet approved several steps to promote cashless transactions
  3. Reason: To reduce tax avoidance, migration of govt payments and collections to cashless mode, discourage transactions in cash
  4. Measures: Mandatory card-based or electronic payments beyond a prescribed threshold
  5. The withdrawal of any additional charge currently imposed on card or digital payments by various govt entities
  6. The introduction of the required infrastructure for digital payments in all govt offices
  7. The rationalisation of the merchant discount rate on card transactions

Sweden’s remarkable tilt towards a cashless future

  1. Sweden has been lured by the innovations that make digital payments easier.
  2. It is also a practical matter, as many of the country’s banks no longer accept or dispense cash.
  3. However, consumer organisations and critics warn of a rising threat to privacy and increased vulnerability to sophisticated Internet crimes.
  4. In Sweden, cash represents just 2% of the economy, compared with 7.7% in the U.S.

RBI backs move to encourage e-deals

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: 

  1. The advances-related frauds continue to be the major concern for banks, especially because of their size and far reaching implications to their financial soundness and integrity.
  2. A special variety of frauds, which are increasing in number and in terms of speed, are the cyber frauds.


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.

[Discuss] Is India Ready for a Cashless Economy?



Questions (attempt in the comments section)


Recently the government has decided to offer tax rebates to encourage transactions through credit and debit cards. Critically examine the rationale behind this move, its merits and demerits.


Economists argue that instead of allowing more free ATM transactions, RBI and government should encourage more cashless transactions. Examine why.


It is said that a drastic reduction in the use of cash in an economy has several potential benefits. What are these benefits? India is said to have one of highest cash to GDP ratio. Why is India finding it difficult to move towards a cashless economy? Examine.

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