17 Oct 2016 | GS3 | India’s cash to GDP ratio is one of the highest in world and India lags far behind when it comes to the number of cashless transactions. What are the challenges India faces in moving towards a cashless economy?

GS3 (Science and Technology)

India’s cash to GDP ratio is one of the highest in world and India lags far behind when it comes to the number of cashless transactions. What are the challenges India faces in moving towards a cashless economy?

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From Belgium (93%) ,US ( more than 80% ) to U.K. and even economies like china increasingly adopting non cash transactions in stark contrast to our nation where less than 5% transactions are cashless .
A cashless economy has following advantages –
1.curbing black money – It becomes easier to check on tax evasion / corruption and keeps a check on parallel economy
2.security to wealth of individual
3.saving expenditure in manufacturing and transporting currency notes
4.plugging leakages in govt disbursal and promoting inclusion
5. Increases direct tax collection thereby more money with the govt for spending on welfare schemes and health and education sector
But on average each Indian does about 6 non cash transactions annually due to certain challenges like –
1.Cash transactions are quick and hassle free unlike card payments
2.very few merchants have POS machines (1.2 million against 30 million merchants ) and is indeed true for small merchants in our neighbourhood
3.Pos machines are costly and a percentage of sale goes as merchant discount rate to banking firms making small transactions via card non appealing to such merchants
4.various e-wallets provide transactions only on certain services like ola wallet for rides , phone pe wallet for shopping on certain sites ,etc .
5.inspite of financial inclusion schemes like Jan Dhan, penetration of bank branches in rural areas has been low and most of functional debit cards are accounted for in urban areas .
Way forward –
1. Incentivise cashless transactions by offering small income tax rebate
2. Provide cheap PoS machines to small merchants specially in rural areas
3. Decrease the transaction fees on such payments
4. Unified payment interface integrated with Aadhar and a smartphone with risks scanner can be promoted as PoS machines
5. Increase bank branches in rural areas to further inclusion
6. Adopting an integrated universal wallet which can be used from shopping to taxi rides to recharges to pretty much anything
7. Increase familiarity and awareness with digital payment systems
India has a lot to gain if our economy becomes cashless . But, a gradual implementation of UPI with timely removal of digital bottlenecks is need of the hour .

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